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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended March 31, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission file number 1-33312





SALARY.COM, INC.

(Exact Name of Registrant as Specified in its Charter)







|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|Delaware                                 |  | 04-3465241                          
|(State of Incorporation)                 |  | (I.R.S. Employer Identification No.)
|                                         | 
|160 Gould StreetNeedham, Massachusetts   |  | 02451                               
|(Address of Principal Executive Offices) |  | (Zip Code)                          

(781) 851-8000

(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 Registered              
|Common Stock, $0.0001 par value |  | The Nasdaq Stock Market LLC (Nasdaq Global Market)
|Preferred Stock Purchase Rights |  | The Nasdaq Stock Market LLC (Nasdaq Global Market)

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





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

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

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).     ̈  Yes     ̈  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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.     ̈

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.

Large Accelerated Filer   ̈            Accelerated Filer   ̈

Non-Accelerated Filer   ̈ (Do not check if a smaller reporting company)            Smaller reporting company x

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

As of September 30, 2008 (the last business day of the registrants most recently completed second fiscal quarter), there were outstanding 16,330,515 shares of common stock, $.0001 par value per share. The
aggregate market value of shares of common stock held by non-affiliates of the registrant, based upon the last sale price for such stock on that date as reported by the Nasdaq Global Market, was approximately $41,310,409. The number of the
registrants shares of common stock, $.0001 par value per share, outstanding as of June 22, 2009 was 16,272,808.

Documents
Incorporated by Reference

Portions of the registrants definitive proxy statement for the 2009 Annual Meeting of Stockholders, to
be filed within 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference into Part III of this Form 10-K.









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TABLE OF CONTENTS



|         |  |                                                                                                              |  |     
|-------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                                                                                              |  | Page
|PART I  
|Item 1.  |  | Business                                                                                                     |  | 1   
|Item 1A. |  | Risk Factors                                                                                                 |  | 22  
|Item 2.  |  | Properties                                                                                                   |  | 42  
|Item 3.  |  | Legal Proceedings                                                                                            |  | 42  
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                          |  | 42  
|        
|PART II 
|Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 43  
|Item 6.  |  | Selected Financial Data                                                                                      |  | 48  
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 50  
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 69  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 69  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 69  
|Item 9A. |  | Controls and Procedures                                                                                      |  | 69  
|Item 9B. |  | Other Information                                                                                            |  | 70  
|        
|PART III
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 72  
|Item 11. |  | Executive Compensation                                                                                       |  | 72  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 72  
|Item 13. |  | Certain Relationships and Related Transactions and Director Independence                                     |  | 72  
|Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 72  
|        
|PART IV 
|Item 15. |  | Exhibits, Financial Statement Schedules                                                                      |  | 73  



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PART I



|ITEM 1. | BUSINESS
|------- | --------

Overview

We are a leading provider of on-demand compensation, payroll, human resource management, performance management and competency management solutions in the
human capital software-as-a-service (SaaS) market. Incorporated in 1999 as a Delaware corporation, we offer software and services that are tightly integrated with our proprietary data sets to help businesses and individuals manage pay and
performance. Companies of all sizes turn to us to effectively and efficiently compensate, promote and manage their employees. With our help, companies can put the right talent in the right roles to deliver business objectives and individuals at all
levels can determine their worth.

Our highly configurable software applications and proprietary content and our consulting services help
executives, line managers and compensation professionals automate, streamline and optimize critical talent management processes, such as market pricing, compensation planning, performance management, competency management (a competency is a set of
demonstrated behaviors, skills and proficiencies that determine performance in a given role) and succession planning. Compensation and competency content are at the core of our solutions, which deliver productive and cost-effective ways for
employers to manage and inspire their most important assettheir people.

We integrate our comprehensive SaaS applications with our
proprietary content to automate the essential elements of our customers compensation and performance management processes. Our approach links pay to performance and aligns employees with corporate goals to drive business results. As a result,
our solutions can significantly improve the effectiveness of our customers compensation spending and help them become more productive in managing their employees. We enable employers of all sizes to replace or supplement inefficient and
expensive traditional approaches to compensation management, including paper-based surveys, consultants, internally developed software applications and spreadsheets. Our customers report that after using our solutions they experience gains in
productivity, reduction in personnel hours to administer pay and performance programs, and improvements in employee retention.

Our data
sets contain base, bonus and incentive pay data for positions held by employees and top executives in thousands of public companies. Our flagship offering is CompAnalyst, a suite of on-demand compensation management applications that integrates our
data, third-party survey data and a customers own pay data with a complete analytics offering. In 2008, we expanded our CompAnalyst market data and added new geographic coverage in the Canadian market. Our Canadian content continues to attract
a diverse set of customers across multiple industries. We continue to build our IPAS global compensation technology survey with coverage of technology jobs in more than 80 countries.

Our on-demand performance management solutions offer customers effective and measurable ways to attract and inspire outstanding employee performance.
TalentManager, our employee lifecycle performance management software suite, helps businesses automate performance reviews, streamline compensation planning and link employee pay to performance. TalentManager helps employers gain visibility into
their performance cycle and drive employee engagement in the process through a configurable, easy to use interface that can be personalized by users. Using TalentManager, employers can improve their performance management systems and model the
critical jobs skills they need to achieve their business goals.

With our fiscal 2009 acquisitions of InfoBasis Limited (InfoBasis) and
Genesys Software Systems, Inc. (Genesys), we further expanded our addressable market. InfoBasis, which subsequent to year end has changed its legal name to Salary.com Limited, provides customers with competency-based learning and development
software. Genesys offers a broad range of on-demand and licensed human resources management systems



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(HRMS) and payroll solutions, including benefits and tax filing services. These acquisitions have also given us the ability to offer our customers a bundled
package that includes our human resources (HR) data and point solution tools for compensation and competency management, our strategic talent management solutions for performance management, compensation and succession planning, and learning and
development and our transactional HR solutions for payroll, tax, benefits, HRMS and employee self service. We are working to further leverage the synergies among our different products by developing a single, integrated product suite that will
contain all of these elements. We believe that an integrated product suite will offer a cost effective way to automate performance and develop a strong internal pipeline of leaders beyond what can be achieved through stand-alone, or even bundled,
products.

We believe that our acquisition of Genesys in December 2008 resulted in significant progress towards our long-term vision and a
transformation in our overall product and market strategy. We started the year as the on-demand leader in compensation management and an emerging leader in on-demand talent management. Through internal investment and acquisitions, we ended the year
as a provider of a broad range of HR solutions. Our customers can now acquire HR data and point solution tools for compensation and competency management, strategic talent management solutions for performance management, compensation and succession
planning, and learning and development and transactional HR solutions for payroll, tax, benefits, HRMS and employee self service, all in a single bundle. We believe this expansion of our offerings will increase our long-term success, especially as
we continue to integrate the applications we obtained in the Genesys acquisition and work to integrate our solutions into a single product suite.

Our 2009 acquisitions further build on our acquisitions of the assets of ITG Competency Group and Schoonover & Associates in 2008. These acquisitions have helped us offer one of the largest libraries of leadership and job-specific
competencies and a leading job-competency model to manage competencies by position and launch our full employee performance suite that integrates compensation, performance and succession functions around job-based competency content. Our on-demand
system helps line managers improve their ability to engage, develop and deploy their talent with learning references, coaching tips and progress journals.

We primarily sell our enterprise solutions through our direct sales group in annual or multi-year subscriptions. Over the past fiscal year, our enterprise subscriber base, companies that spend from $2,000 to more than
$100,000 annually, has grown from approximately 2,800 to approximately 3,500 customers. We draw our customers from a broad range of industries, including such companies as Singapore Airlines, Heineken USA, Comcast Corporation, E*Trade Financial
Products, Google, Yale New Haven Health System, Scotts Miracle-Gro, EMC Corporation, and Sony Corporation of America.

In addition to our
on-demand enterprise software offerings, we also provide a selection of applications on the Salary.com website. The web applications deliver salary management comparison and analysis tools to individuals and small businesses on a cost effective,
real-time basis. We offer a professional edition of our CompAnalyst product suite for smaller companies with less than 500 full-time employees in either report format or through subscription services. We market to individual consumers providing
career services, financial information and premium compensation reports personalized to a consumers unique background. Our network of sites generated approximately 2.6 million unique monthly visitors during the fiscal year ended March 31,
2009.

From a market perspective, we continue to believe that the on-demand human resource categories are high growth markets. We believe
that on-demand software and data is superior to legacy software and services offerings. Given the lower up-front cost and total cost of ownership, we believe that more companies will switch to on-demand human resource solutions, and that Salary.com
is leading the way with one of the broadest on-demand human resource offerings.

Our Solutions

Our software applications, which are tightly integrated with our proprietary data sets, provide extensive features and broad functionality that address
the critical functions of payroll processing, tax filing, human capital



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management (HCM), compensation analysis and planning, goal setting, performance management and succession planning. By automating and integrating essential
elements of compensation, performance management and HRMS/payroll, our solutions enable our customers to increase productivity, promote employee retention, and ensure the right talent for the right roles to meet the business strategies of the
future. In a single purchase, our customers can now acquire products covering all of these solutions.

We combine content with on-demand
software to manage the compensation management lifecycle, the employee performance management suite and HRMS/payroll functions.

Our
compensation management suite, which is tightly integrated with our proprietary data sets, addresses the various stages of the compensation management lifecycleranging from benchmarking jobs for establishing the market price of equivalent
jobs, to managing the compensation review and goal setting process between operating managers and front-line employees. We deliver our compensation management solutions to customers through our CompAnalyst suite of on-demand software applications.
Customers can subscribe to our software complete with market data as well as import their own compensation surveys with our survey management module.

In addition to our compensation management solutions, we offer our TalentManager suite to deliver employee lifecycle performance management solutions, which help organizations establish and align goals throughout the
organization, link employee pay to performance, and plan the succession for key positions. TalentManager includes multi-language and currency support for global organizations. We also offer a suite of HRMS/payroll products to automate and facilitate
key HR functions, including management of payroll, benefits and tax filings.

Our acquisition of ICR Limited, L.C. and ICR
International Ltd. (ICR) in May 2007 expanded our compensation product offering with the addition of two new services: IPAS, one of the largest single sources of international technology compensation data and software, including all relevant job
titles in over 80 countries, and ICR Specialty Consumer Goods, a leading source of U.S. compensation data for apparel, footwear, luxury goods and specialty retail jobs.

Our comprehensive software applications, which are tightly integrated with our proprietary data sets, provide the following key benefits:

Single vendor for human resource needs.With the addition of our HCM and payroll product suites, our customers can now work with us to deliver virtually all of their human resource needs.
Our vision is to have all of our products fully integrated and best of breed in each module. With our full line of product offerings, companies can now store critical HR information with us as a single solutions provider, moving toward a single
system of record, which allows them to generate their essential reporting.

Reduces costs.    We believe that
our solutions are more cost-effective than other available offerings. Our on-demand model significantly reduces or eliminates the installation and maintenance costs associated with on-premises solutions. Our intuitive user interfaces enable our
customers to find the right data, manage its application and configure overall HR plans with little or no technical assistance. Furthermore, by integrating our software with our proprietary data sets, we provide our customers with a significantly
less expensive compensation management solution than the traditional approach of separately purchasing combinations of consulting services, surveys and software applications.

Enables rapid deployment and scalability.    Our on-demand software can be deployed rapidly and provisioned easily, without
our customers having to make a large and risky upfront investment in software, hardware, implementation services or dedicated IT staff. The delivery platform for our software enables the solution to scale to suit customers needs. Additional
users with defined privileges can be granted access with minimal implementation time, and new applications, such as analytics, can be deployed quickly and transparently to existing customers.



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Facilitates more effective compensation spending.    Our compensation
management solutions enable companies to deliver more effective and consistent compensation programs by reducing the risk of high turnover caused by underpaying employees and the risk of reduced profitability caused by overpaying employees. By
making better compensation decisions, our customers are able to better attract, motivate and retain their employees, which we believe can lead to improved business execution and financial performance.

Enables Human Resource professionals to be more strategic.    Our compensation management solutions incorporate features and
best practices that automate compensation management to reduce or eliminate manual, paper-based and discrete business activities. As a result, our solutions help maximize the effectiveness of HR departments by enabling compensation professionals to
focus on more strategic, high-value corporate-wide initiatives.

Provides access to proprietary market-driven compensation
intelligence.Companies have traditionally made compensation decisions based on a limited number of surveys that are updated only once a year. By contrast, our proprietary data sets provide market-driven compensation
information derived from numerous sources which are updated monthly. We believe that the current nature, as well as the breadth and depth, of our data sets provide our customers with significant advantages as they set their compensation levels. To
build and update our data sets, our compensation professionals apply proprietary comparative algorithms and sophisticated statistical analysis to the data to provide up-to-date, comprehensive and useful information to our customers.

Provides ability to price technology jobs around the world using the same methodology and participants.    Market pricing
technology jobs across countries has traditionally been a challenging process complicated by multiple surveys, different job titles, inconsistent job matching, different participants per country and no centralized source to compare across countries.
Through our IPAS product, we offer a uniform set of job benchmarks in a single source of comprehensive data that enables consistent benchmarking capabilities across all countries in the survey. Customers participate in a single, web-based survey and
receive access to every job from clerk to chief executive officer for over 80 countries. For example, a customer can determine what an accountant makes across all countries in the survey, with the same source, same methodology, same participants,
and same currency.

Reduces turnover and improves identification and development of top performers.    Our
on-demand software can be configured to an organizations performance philosophies to uniformly identify top talent across the organization.

Aligns everyone with organizationalgoals.Our goal management module enables management to ensure that individual and group goals are aligned with organizational goals to keep employees focused
on priorities and to monitor the execution of the business strategy.

Aligns pay with performance.    The
integrated pay and performance modules enable management to ensure that top performers are rewarded for their contribution as well as to ensure that all employees are paid equitably according to the organizations pay-for-performance
philosophy. This is critical for retention of top performers while also maintaining compliance and budget control. By integrating goal setting and performance reviews, the performance suite helps employees track their accomplishments throughout the
year and compare capabilities with current or future job requirements. Employees can see which of their activities align with organizational goals and how they are adding value. This motivates employees to focus on their performance and development
as a vital part of building their career.

Streamlines annual and date-scheduled performance review
cycle.The performance management suite takes the drudgery out of the annual performance review process by automatically generating review forms with appropriate competencies for every job. Employee goal achievement is
automatically added to the review form



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so that managers can accurately rate performance. Reviews also can be performed by multiple raters or may be scheduled based on anniversaries or any other
date trigger to remind managers and employees to communicate more frequently about performance.

Improves visibility and management
ofhigh-potentialtalent.The succession planning module also improves the visibility of key talent or high-potential employees across the organization through performance reviews, detailed employee profile
tracking, and comparison of talented employees to the requirements of positions before they become vacant. By comparing all employees against job requirements and highlighting their achievements, talented employeeswho might otherwise go
unnoticed or leave the companymay be surfaced.

Buildsstrong pipelineof futureleaders.The succession planning module also enables organizations to plan their resources by positions or jobs, and to compare current employee competencies to those needed by the organization in the future.
Specific successors may be identified for any number of positions based on their criticality, so candidates may undertake development to ensure a ready pipeline of future leaders.

Increaseseffectiveness of learning and development.Our proprietary job-competency models help employees and
managers understand the competencies needed to perform their jobs, and to create learning and development goals appropriate for their gaps or career directions. This ensures learning and development activities that will directly impact employee
performance and profitability. Customers can utilize their own competency or learning content as well to facilitate development.

Enables global rollout of performance management.The TalentManager suite facilitates efficient global rollout of our talent manager solutions by enabling common standards and best practices for global
performance programs with language support for local cultures. Organizations have the ability to localize the terminology or practices to meet their business needs, and yet take advantage of a common platform that keeps implementation simple and
cost-efficient.

Staff, manage, and pay employees.    With our HRMS/payroll services we offer our customers a
comprehensive range of HR information, payroll processing, tax and benefits administration products and services to staff, manage, an pay their employees. We provide payroll services that include the preparation of client employee paychecks and
electronic direct deposits, summaries and management reports. We also supply the quarterly and annual social security, Medicare and federal, state and local income tax withholding reports required to be filed by employers. Our HRMS services provide
solutions from pre-hire to retire, including talent acquisition through employee HR recordkeeping and compliance management. Our benefit services business provides benefits administration, including management of the open enrollment of benefits,
COBRA and FSA administration.



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Content

Our proprietary content is a core differentiator of our solutions. By providing comprehensive content embedded within our applications, we are able to assist corporate customers in achieving their compensation management and performance
management objectives faster and more efficiently. The following diagram illustrates how we gather and process data and make it available to our enterprise customers through our software applications:

LOGO

To develop our data sets, we begin with raw data we obtain from numerous sources. We purchase data directly
from industry associations, compensation consulting firms, economic analysis firms and other sources. We also collect data directly from employers, partners and government agencies (for example, the U.S. Bureau of Labor Statistics, Department of
Labor and SEC). Our team of certified compensation professionals also conducts proprietary compensation surveys on emerging jobs such as Corporate Ethics Officers and Six Sigma jobs. Through our acquisition of ICR in May 2007, we expanded both our
custom survey capabilities to include consumer goods surveys across four main sectorsluxury goods, apparel, footwear and specialty retailand also our integrated data and software capabilities into global technology jobs with the addition
of the IPAS product. Our team of compensation professionals processes data from these sources to derive our own proprietary data sets of compensation and other job-related information.

Our Market Pricing Data Processes

For our proprietary market pricing data sets, we use both standard
and proprietary algorithms, which provide our customers with complete and consistent data that is representative of nearly all relevant markets and reasonable combinations of jobs, industries, locations and organization sizes. The completeness and
consistency of our data sets provides our enterprise and consumer customers with market-driven compensation intelligence that we believe they could not procure or easily derive from alternate sources. In addition, our market pricing data processes
and data sets also reduce the problems corporate compensation departments face from their lack of standardized processes for analyzing and combining multiple survey sources and maintaining the consistency of those sources year-over-year.



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Enterprise and Consumer Data Sets

We have two proprietary data sets: one for our enterprise customers and one for consumer customers. Our enterprise data set contains base, bonus and incentive pay data for more than 3,700 positions and our consumer
data set currently addresses more than 3,800 jobs.

Our enterprise solutions report data based on the most reliable sources available to
us. Our enterprise customers may also incorporate data sources that they have independently acquired, which are then available for their exclusive use. Our enterprise data set also is augmented by compensation data from our customers, which they
provide to us through surveys we conduct and which we do not include in our consumer data set. In addition, we provide a module in which an enterprise customer can store its own employee records to match to its preferred market sources and compare
actual compensation, target compensation and market compensation.

Our lower-priced and free consumer products report data designed to
provide a reasonably accurate estimate of the compensation pay levels for thousands of jobs in various types of organizations throughout the United States and Canada. The jobs reported in our consumer tools are primarily the major benchmark jobs
available from numerous publicly available data sources. The purpose of the consumer tools is to educate the individual employee regarding the compensation decision-making process and to provide a reasonable approximation of the market for that
individuals job. We believe the best way for an employee and employer to have a productive conversation regarding compensation and pay for performance is for both to be educated about the process and current market values.

SEC Data Set

In addition to our proprietary market
pricing data sets described above, we also maintain a complete data set of executive compensation and related data for more than 12,000 U.S. publicly traded companies. The compensation data included in this data set is obtained directly from filings
made by these companies with the SEC. Our SEC data set also contains data on the compensation of directors from thousands of the largest publicly traded companies. Our SEC data set is updated daily to reflect new public filings and we maintain the
historical data in our SEC data set to facilitate comparisons.

We also include basic financial data on public companies in our SEC data
set, which we purchase from Standard & Poors. This data is used to enable our customers to place compensation data in the context of a companys financial performance.

Competency Content and Job Competency Models

In
fiscal year 2008, we acquired the Schoonover competency content library with more than 1,800 leadership competencies and the ITG Competency Group with more than 1,200 job-specific competencies. The combined content library houses more than 3,000
competencies. We help customers build competency libraries as well as help them design competency models that can be deployed across the organization. Customers can also purchase our competency content to build or augment their competency content.
We offer customers six different types of competency content: business (general business knowledge and skills), individual, (knowledge, abilities and behaviors that drive personal effectiveness), functional, (technical skills and abilities
associated with specific jobs), core (general competencies defined for all employees), management (competencies specific to managers and supervisors job tasks), and leadership (competencies specific to executive and leadership roles). Our
off-the-shelf competency content and models by industry and job family including corporate enterprise, insurance enterprise, banking enterprise, retail enterprise, manufacturing enterprise, information technology, general leadership, healthcare
administration as well as assessment tools, implementation guides and customization tools to tailor competencies to a customers organization. Each model contains competencies for approximately 80 job families, 1,000 job profiles, 1,300
competencies, 4,300 learning references and 27,300 behavior indicators which include four proficiency level recommendations to measure success in a given job.



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Products

We offer a suite of enterprise compensation management applications for enterprise customers that helps companies determine how much to pay new and existing employees and manage overall compensation programs. We also offer a suite of
performance management applications to assist customers in establishing and tracking performance goals throughout their organizations, linking each employees pay to performance against these goals, and planning for talent needs and future
succession. Following our acquisition of Genesys in December 2008, we began offering a suite of subscription-based HRMS and payroll products. We offer these products both separately and as a bundled package with our compensation management products
and performance management applications.

Along with our application suites, we provide our customers with implementation and data
configuration services as well as assistance with the configuration of our compensation, performance management, HRMS/payroll solutions to their organizations unique business needs. In addition to our enterprise offerings, we also provide a
series of consumer and e-commerce solutions through our website to provide compensation information and tools designed for the consumer. We provide these solutions on a subscription, transaction or ad-sponsored basis. Our solutions consist of the
following:



|                                                       |                                   |                                                                                                                                                                                                                   |              |                                                                                                        
|------------------------------------------------------ | --------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -------------------------------------------------------------------------------------------------------
|Product Category                                       |                                   | Product Name                                                                                                                                                                                                      |              | Principal Revenue Type                                                                                 
|Enterprise SolutionsCompensation Management Solutions |                                   | CompAnalyst (CA) Suite CA | U.S.
Market Data CA | Canadian Market Data CA | Survey Center CA | Reporting & Analytics CA | Salary Structures CA | Merit
Modeling CA | Executive                                    |              | Subscription Subscription Subscription Subscription Subscription Subscription Subscription Subscription
|                                                       |                                   | Compensation Consulting Services                                                                                                                                                                                  |              | Transaction                                                                                            
|                                                       |                                   |                                                                                                                                                                                                                  
|Small BusinessCompensation Solutions                  |                                   | CompAnalyst Professional Edition                                                                                                                                                                                  |              | Subscription                                                                                           
|                                                       | Salary.com | Professional Edition |                                                                                                                                                                                                                   | Subscription
|                                                       |                                   |                                                                                                                                                                                                                  
|Compensation SurveysAll Sizes                         |                                   | Salary.com Compensation Market Studies                                                                                                                                                                            |              | Transaction                                                                                            
|                                                       |                                   |                                                                                                                                                                                                                  
|                                                       |                                   | Salary.com Industry Surveys                                                                                                                                                                                       |              | Transaction                                                                                            
|                                                       |                                   |                                                                                                                                                                                                                  
|                                                       |                                   | Salary.com Consumer Goods Surveys                                                                                                                                                                                 |              | Transaction                                                                                            
|                                                       |                                   |                                                                                                                                                                                                                  
|                                                       |                                   | Salary.com IPAS Survey                                                                                                                                                                                            |              | Transaction                                                                                            
|                                                       |                                   |                                                                                                                                                                                                                  
|Enterprise SolutionsPerformance Management Services   |                                   | TalentManager (TM) Suite TM |
Performance Management TM | Compensation Planning TM | Incentive Management TM | Succession Planning TM | Competency Manager ITG Job Competency Model Schoonover Leadership Library |              | Subscription Subscription Subscription Subscription Subscription Subscription Transaction Transaction  
|                                                       |                                   | Salary.com Competency & HCM Consulting                                                                                                                                                                            |              | Transaction                                                                                            



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|                               |  |                                                                                                                       |  |                                                                 
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------
|Product Category               |  | Product Name                                                                                                          |  | Principal Revenue Type                                          
|HRMS /Payroll Products         |  | HCM | Payroll and Tax Filing                                                                                          |  | Subscription                                                    
|                               |  | HCM | HRMS HCM | Benefits Administration HCM | Employee /Manager Portal HCM | Onboarding HCM | Garnishment Management |  | Subscription Subscription Subscription Subscription Subscription
|                               |  |                                                                                                                      
|Consumer & E-Commerce Services |  | www.salary.com                                                                                                        |  | Subscription/Ad-sponsored                                       
|                               |  |                                                                                                                      
|                               |  | Salary Wizard                                                                                                         |  | Subscription/Ad-sponsored                                       
|                               |  |                                                                                                                      
|                               |  | Salary Center                                                                                                         |  | Subscription/Ad-sponsored                                       
|                               |  |                                                                                                                      
|                               |  | Personal Salary Report                                                                                                |  | Transaction                                                     

Enterprise Solutions

Compensation Management Products

CompAnalyst (CA) is a suite of on-demand compensation management solutions
for use by compensation professionals in large and small organizations. CompAnalyst is built around a core data set of accurate, employer-reported market data that is benchmarked and mapped for jobs held by a majority of U.S. employees. Customers
get immediate access to a complete source of data to value jobs, participate in surveys and analyze pay competitiveness including the following applications:

CA | Market Data: Provides customers of all sizes easy access to a single source of accurate and trusted compensation data for over 3,700 benchmark jobs in companies of various sizes, industries,
categories and U.S. geographies. Customers can also quickly find the market price for any benchmark job or create and price a hybrid job by mixing multiple jobs together.

CA | Survey Center: Provides customers with a centralized, online repository for managing and performing market pricing with third-party
surveys that they acquire and own themselves. The solution also simplifies the customers participation in multiple surveys. Our easy-to-use tools enable customers to age, weight, adjust and combine data from multiple sources to produce market
rates for use in compensation program design and analysis activities. Customers can use this functionality when they have specific data sources and weightings they choose to employ in determining market pricing. The Survey Center module also
simplifies and speeds up the customers survey participation process by leveraging data already stored within the moduleincluding employee pay and demographic data as well as the companys job matches to survey vendor jobsand
exporting survey participation files in the specific survey vendors preferred format.

CA | Reporting &
Analysis: Enables organizations to assess external competitiveness against internal equity by comparing actual pay practices to market data developed in CA Market Data or Survey Center. Customers may analyze trends by year, compare pay
practices across groups of employees (e.g., by region, business unit, Equal Employment Opportunity Commission protected class) and create custom queries to meet their analysis needs. Customers can also store data and use it to conduct historical
comparisons.

CA | Salary Structures: Facilitates streamlined analysis of cost scenarios related to internal salary
structures and distribution of merit budgets. Provides customers visibility into internal equity and helps customers assess salary structures against market rates. Customers can analyze current pay structures and model the budget impact and cost of
new structures and proposed changes. The Salary Structures module enables customers to assess the alignment of pay practices with the external market and internal targets, and to perform what if analysis to support recommendations for
changes in compensation program design. Customers can seamlessly integrate with



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the merit modeling module and link to the performance module to verify where an employee fits within the salary structure when determining appropriate pay
for performance.

CA | Merit Modeling: Models the cost of performance-based merit increase programs. Customers can build
merit matrices to meet budgets based on parameters for performance and range placement or market index. Customers can model with historical data or expected performance distributions and compare the cost of multiple scenarios for the determination
of appropriate merit budgets. This module provides quick and easy tools to measure the impact of merit increases for financial and strategic planning purposes, and integrates with compensation planning and performance management.

CA | Executive: Allows CEOs, CFOs, executive compensation specialists, board members and consultants to instantly analyze and review
compensation information disclosed in filings with the SEC for more than 12,000 public companies. The data available with this product, which is updated daily, includes pay, incentive compensation, Black-Scholes values, benefits, director
compensation, financial and stock performance data and more. CompAnalyst Executives functionality includes the ability to build and analyze peer groups by industry, size and location, as well as company financial performance measures and
executive and director pay measures.

CompAnalyst | Professional Edition: Targeted to businesses with under 350 full-time
equivalents, or FTEs; provides market content and software, similar to CompAnalyst market content, except with less data and functionality. Our sales force sells this application to smaller businesses.

Salary.com Professional Edition: Targeted to businesses with less than 100 FTEs and offered via the web in a self-service subscription
model. This data product is similar to CompAnalyst Professional Edition, but contains data only on small companies.

Salary.com Job
Valuation Reports: This report is designed for use by HR departments to price a single job. It allows users to view a report on the appropriate market compensation data for that job and, if they desire, recommend adjustments to reflect the
particular experience, education and other factors specific to an employee currently in the job. The job valuation report also includes basic explanations of how to use the data and how to explain market pricing practices to an employee. We sell
this application to employers through our website and our partners websites.

Salary.com Compensation Market Studies:
These survey-like reports aggregate the data, generally for 50 to 200 related job titles within an industry group, typically within the same job family (for example, finance and accounting) or the same level (for example, executives).

Salary.com Industry Surveys: We run compensation and benefits surveys, some of which are sponsored directly by us and others of which are
sponsored in partnership with industry associations or other external sponsors. To conduct a survey, we solicit companies to submit actual pay data for their employees to us. We analyze, aggregate and anonymize their data and report the results back
to participating companies. Typically, we charge participants a fee and we also may sell final reports to non-participants for a higher fee.

Salary.com | IPAS Global Survey: Provides global compensation software, which is tightly integrated with our proprietary data sets, to value jobs and total compensation factors for companies in the high technology industry
through our IPAS survey software. Customers must participate in compensation surveys and subscribe to the on-demand software to access compensation information. Customers can access a single source of compensation content in over 80 countries.

Salary.com | Consumer Surveys: Provides industry-specific compensation content and reports to value jobs in the consumer
retail industry. Customers must participate in the compensation surveys and purchase the reports to access the compensation data for the four consumer goods markets including: Specialty Retail, Luxury Goods, Footwear and Apparel.



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Performance Management Products

TalentManager is a suite of on-demand performance management solutions that provides the essential workflow to link pay to performance, improve performance management interactions, and develop a strong pipeline of
future leaders across the enterprise. TalentManager enables an organization to manage goal setting, performance reviews and incentive plans, and to link these critical activities to the relevant compensation programs to administer the
organizations pay-for-performance programall within a single integrated application. Our TalentManager suite includes the following modules:

Performance Management:Enables the communication and setting of goals and targets by employees and managers as well as the tracking of performance against those goals. The system enables organizations
to establish corporate level goals and to cascade those goals throughout the organization to ensure alignment and results. The system automatically brings employee goals to the employees performance review along with their accomplishments to
date to streamline the review process and facilitate better employee-manager interactions. Performance Management is fully integrated with compensation planning, succession planning and incentives. We can link any goal or other component of
performance to a variety of pay programs to reflect the organizations pay-for-performance philosophy.

Compensation
Planning: Enables organizations to automate and control the process of allocating salary increases, budget pools, lump sum adjustments and basic bonus plans. Within TalentManager, HR and finance departments can set rules or guidelines that
dictate the limits and the approval process for any component of the compensation decision-making process. By setting all of the rules in one system, which programmatically enforces the process, the entire organization can easily and efficiently
adhere to policies and control procedures while ensuring equitable pay-for-performance.

Incentive Management: A configurable
and customizable application capable of managing complex formulaic incentive plans. Incentive plans vary significantly among and within organizations and can have complex rules and payout structures. This module is used when organizations have
multiple incentive plans with similar structures typically based on corporate key performance indicators (KPIs), as well as individual goals and targets that tailor the incentive compensation for the individual. Although the standard Compensation
Planning module includes features to address basic variable compensation, many organizations need the additional sophisticated algorithm and payout administration available in the Incentive Management module.

Succession Planning:Enables companies to plan resources, create succession plans and easily identify backup candidates with
the necessary skills, competency ratings and performance history. The system also allows resource planners to determine and manage gaps in skills or competencies needed for jobs or position that will be required to execute the business strategy.
Customers can assess candidates, recognize skill gaps and create appropriate development plans to build sufficient bench strength and ensure a consistent pool of high potential employees for critical roles across the organization. Managers and
executives can streamline planning for vacancies to minimize risk and quickly fill key leadership roles to manage transitions to minimize impact on the business. Identifying succession candidates early enables organizations to implement employee
development plans, close skills gaps, and ensure that effective leaders are fully ready to assume critical roles when the time comes.

Competency Manager: An innovative and unique application that provides robust tools for managing and developing competencies and competency models for organizations of all sizes. This product is built around our
proprietary set of accurate job and competency data that is benchmarked and mapped for over 1,000 industry specific jobs. We believe it is the first stand-alone product designed to specifically address the complex challenges of developing,
aligning, and deploying a consistent set of competency definitions and job models for use across the organization. Standard models and definitions can be modified for use by different entities. Collaboration tools including working groups,
discussion boards, voting questions, and validation and approval workflows helps organizations to author and align competencies and job models with buy-in from all stakeholders.



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HRMS / Payroll Products

Our suite of on-demand HRMS and payroll products contains solutions that automate and facilitate key HR functions, including management of payroll, benefits and tax filings. Our HRMS/Payroll suite of products includes
the following modules:

HCM | Payroll and Tax Filing. Our integrated payroll offering delivers unmatched flexibility,
accuracy, adaptability and control. It provides robust capabilities for defining and processing earnings, deductions, accruals, labor distributions and other event-triggered calculations including date-driven and multi-divisional processing. As
on-demand payroll application, a companys disparate payroll, remote or divisional offices can process payroll with control, security and integration based on their specific needs.

HCM | HRMS. Our HRMS products track HR-related information including employment history, performance, job information, position and
salary information, career development, and leave programs. In addition, it facilitates the reporting and tracking of key information for Consolidated Omnibus Budget Reconciliation Act (COBRA), Health Insurance Portability & Accountability
Act (HIPAA), Occupational Safety & Health Administration (OSHA), workers compensation, Family Medical Leave Act (FMLA), and Equal Employment Opportunity (EEO).

HCM | Benefits Administration. Our Benefits Administration module allows companies to set up and administer the health, welfare, dental,
vision, and other benefits offered to their employees, including related employee and employer contributions. Coupled with our Manager/Employee Self Service it enables employees or managers to view or enroll in benefit options and coverage from our
web based portal. Since our Benefits Administration module is integrated with our payroll and HR applications, it eliminates duplicate data entry and reconciliation reporting because related employee, deductions and benefit plan data are managed out
of a common database.

HCM | Employee/Manager Portal.Our Manager & Employee Self-Service portal allows a
customers employees and managers instant access to view their employee paycheck and benefits details, forms and company information. Additionally, at time of hire or open enrollment, employees can enroll in benefits plans, and update personal,
demographic and dependent information and in a secure online environment.

HCM | Onboarding.Our Application Tracking
System (ATS) & Position Control modules allow employers the ability to capture candidate and interview related data and streamline the process of bringing a new hire into the organization via one-click new hire. In addition, these modules
offer functionality to support HR strategy, budgeting, position modeling, and compensation strategies.

HCM | Garnishment
Management. Our Garnishment Management services offer a fully integrated solution for a companys payroll garnishment processing needs that is compliant with U.S. and Canadian federal, state, and provincial regulations.
Garnishment Management reduces the burden that garnishment processing places on an organizations staff, providing the ability to streamline processes and improve operational effectiveness.

Professional Services

Our CompAnalyst professional
services teams handle new customer implementations, training and general help desk services for the CompAnalyst product line and all data products. The TalentManager and HRMS/Payroll professional services team handles new customer implementations,
configurations, training, and general help desk services for the TalentManager and HRMS/Payroll suite of applications. For implementations that are not strictly plug and play, our product-specific implementation teams provide
initialization, configuration, training and general help-desk services. We also train our customers so that they can be more self- sufficient for future implementations. TalentManager and HRMS/Payroll customers generally require more professional
services than CompAnalyst customers. Professional services in most cases are included as part of our subscription agreements and, to a lesser extent, are offered on an as-needed basis.



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Compensation Consulting

Our team of certified compensation professionals helps customers analyze and deliver compensation best practices including assessment, design and implementation of new processes. Our compensation assessment service
provides system diagnostic report to benchmark a companys compensation system vs. industry best practices. In the design phase, our compensation consultants provide services to define, communicate and implement the organizations
compensation philosophy including the development of compensation policies and procedures, the design of market-based compensation, internal equity-based compensation programs and short- term incentive programs. In the implementation phase, our team
aligns the scoped programs and handles all the necessary rollout and communication such as pay delivery policies regarding grade movement, promotions and out-of-range employees.

Competency-Driven HCM Management Consulting

Our human capital consulting practice helps
organizations deploy competency-driven talent management systems to drive performance management and leadership development. We help organization design their talent systems around job-based competency content that they can deploy rapidly, manage
internally and deliver consistently across the entire organization. Our team of industry experts helps senior executives identify the key competencies that reinforce a companies goals and culture; author and map competencies to jobs and job
profiles, build competency models to drive identification and development of key internal leaders and build a curriculum to develop future leaders to drive business growth and results.

Consumer and E-Commerce Solutions

Our consumer and e-commerce family of products consists of
free-to-user applications that are ad-sponsored, as well as certain premium products that are sold directly to individuals visiting our website. We also generate indirect revenue from these products through advertisers that pay for space on our
website and our partners websites.

Our consumer and e-commerce products include:

www.salary.com:    Our destination website and marketing face of the company is an advertising and online subscription sales
channel. Our internet media traffic averaged approximately three million unique monthly visitors during the fiscal year ended March 31, 2009. More than approximately 40,000 external sites directly link consumers to our website for career
information, salary negotiation and ways to determine their worth. The site includes calculators, memberships, newsletters and content around the topic of career and pay management for individuals, as well as related business content for small
business and enterprise audiences.

Salary Wizard:    Salary Wizard is an ad-sponsored salary calculator
designed to provide non-scoped, national average base pay and total annual cash compensation ranges for the positions we track. Users may adjust the national average information to their desired location by selecting a metropolitan area or zip code,
and the results will be adjusted using a geographic adjustment factor to estimate the pay level for that location. In 2008, we introduced new features to help users personalize their answers and see how they compare not only to what employers pay in
their area but how their background compares to their peers in their local area. Salary Wizard also attracts visitors to our website and our syndicated partner network of sites and serves as an entry point for consumers and employers to purchase a
report or subscription product from us. The product is used more than approximately 2.6 million times per month by both individuals and businesses.

Salary Center:    Our syndicated product is a fully functional set of applications that we deploy onto our partners websites to power the compensation section of their websites in a
co-branded manner. For example, Monsters Salary & Benefits area is populated with Salary.com tools and the content is hosted and managed by Salary.com. The syndicated Salary Center product typically includes advertising inventory and
e-commerce reports for which partners share revenue with us. Our partners include Monster.com, CNN Money, Dice, The New York Times, Automatic Data Processing Inc. and over 500 other companies.



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Personal Salary Report Subscription:    This application is a premium report
providing individuals with an HR-quality assessment of their worth in the job market. The report also educates the subscriber about how employers determine compensation and advises the subscriber on how to negotiate salary for a win-win outcome.

Advertising Offering:    We also sell space for third-party advertisers to deliver their messages to users of
our website. Advertisers will pay for targeted inventory space adjacent to content that will be viewed by certain types of consumers. We believe our advertising inventory is attractive to advertisers because we provide a large volume of exposure
opportunities and we can link those opportunities to a variety of consumer demographic factors, such as job title, location and income. Advertisers that purchase this inventory include job boards, recruiters, colleges and universities, financial
services firms and retailers.

Compensation Team

We believe that one of the most significant differentiators between us and our software competitors is our compensation team. In addition to hiring experienced compensation professionals from industry, many of whom
are certified compensation professionals, we train our technology personnel about compensation and our compensation personnel about technology, so that each group possesses both the HR and the technological expertise essential to our products. We
believe that this combined expertise enables us to design our software and data sets in a sophisticated and useful manner for our customers. We also try to ensure that employees with compensation experience are deployed throughout our organization.
Historically, we have moved compensation professionals into roles within sales, product management, and professional services. In this way we are able to embed compensation knowledge, skills and abilities in all aspects of what we do, and we believe
this enables us to position our domain expertise as a true competitive advantage.

Research & Development

Our research and development efforts are focused on improving and enhancing our existing on-demand service offerings as well as developing new products,
features and functionality. Expansion of our solutions into new areas often involves a multiple-year commitment to enter a new business, and we seek new product opportunities related to compensation, performance and talent management. When we extend
an existing application or data set, our development costs are relatively low. When we innovate in an area requiring the development of a new data set, our development costs increase due to the high initial fixed costs of entering the new area and
also building original software functionality. Once the initial investment in a new area has been made, however, the ongoing costs to maintain a data set and extend a product are often significantly less than the costs of maintaining the typical
installed software product. Research and development expense for the fiscal years ended March 31, 2009, 2008 and 2007 was $8.8 million, $4.9 million and $4.1 million, respectively.

Technology

We pioneered hosted, multi-tenant, on-demand software when we launched our first product
in 2000. Our on-demand software is a highly scalable, multi-tenant application platform written in CSS, XML, DHTML, COBOL, Visual Basic, C, C++, Java, ASP and C# for the .NET framework and COM+ and MSMQ for the Windows operating systems. We use
commercially available hardware and a combination of proprietary and commercially available software, including Microsoft SQL Server, Microsoft IIS Server and Microsoft Windows.

Our on-demand software treats our customers as separate tenants in central applications and data sets. As a result, we are able to spread the cost of
delivering our service across our user base. In addition, because we do not have to manage thousands of distinct applications with their own business logic and database schemas, we believe that we can scale our business faster than traditional
software vendors, even those that have modified their products to be accessible over the Internet.



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Our compensation management and talent management products are built on our proprietary, highly scalable
Salary.com FlexTenant platform, which enables us to customize the business logic, data flow, workflow and user interfaces of our enterprise applications for clients and yet continue to operate in the same multi-tenant application shared by our other
customers.

Operations

We serve all of
our customers from third-party networks operations facilities located in Methuen, Massachusetts (HRMS/payroll) and Watertown, Massachusetts (all other products). These facilities, operated by Data Distributors, Inc. (DDI) and AT&T  provide
around-the-clock security personnel, photo ID/access cards, and sophisticated fire systems. The overall security of each data center (inside and outside) and network operations center are monitored by digital video surveillance cameras 24 hours a
day, seven days a week. In addition, redundant bandwidth, on-site electrical generators and environmental control devices are used to keep servers up and running. We continuously monitor the performance of our services. We have a comprehensive
security infrastructure, including firewalls, intrusion detection systems and encryption for transmissions over the Internet. We monitor and test this security infrastructure on a regular basis. Our site operations team provides system management,
maintenance, monitoring and back-up. We run tests regularly to ensure adequate response from our sites and conduct production environment reviews for hosting capacity, expansion and upgrade planning. We also monitor site availability and latency. We
own or lease and operate all of the hardware on which our applications run in the network operations facility.

At our AT&T run
facility, to facilitate high availability of our solutions and loss recovery, we operate a multi-tiered system configuration with redundant bandwidth, load balanced web server pools, replicated and clustered database servers and fault tolerant
storage devices. Data sets are restored to hot standby database servers using transaction logs shipped from primary production database servers. This solution is designed to provide near real-time failover service in the event of a malfunction with
a primary clustered database or server. Full backups of all data sets take place nightly and are archived to tapes. These tapes are rotated offsite to a separate facility managed by Iron Mountain. We also maintain a fully redundant site, located
within our headquarters, which would serve as our primary site in the event that a disaster was to render the network operations facility inoperable. Our real-time backups are stored on servers in our corporate headquarters. Although we have not
experienced a failure of our third-party network operations facility, we believe that if such facility became inoperable, most of our products would be available to our customers with minimal interruption in service.

In addition, at our DDI run facility, backups of data sets take place nightly and are archived to tapes. These tapes are rotated offsite to a separate
facility managed by DDI. We also maintain a fully redundant site, located within DDI headquarters, which would serve as our primary site in the event that a disaster was to render the network operations facility inoperable.

The Company maintains two separate Statement on Auditing Standards No. 70 (SAS 70) Type II Certifications, one for our HRMS/payroll operations and
one for our compensation and talent management operations. The SAS 70 is an internationally recognized auditing standard developed by the American Institute of Certified Public Accountants (AICPA). It defines the professional standards used by
auditors to assess the internal controls of a service organization. The SAS 70 audit reports on the internal controls and safeguards service organizations have in place to process data belonging to its customers. The audit, conducted by an
independent service auditor, focused on six key areas: information technology organization and access security, applications system development, implementation and maintenance and computer operations.

Sales and Marketing

We sell our enterprise solutions
primarily through our direct sales organization and to a lesser extent through indirect channels. We employ business development representatives to call potential enterprise



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customers to book initial demonstrations and to qualify customer leads. Once a lead is qualified, our account executives assess customer needs, complete
demonstrations and close sales, primarily by telephone and via web-based product demonstrations. We also employ account managers who maintain on-going or post-sale relationships with subscribers, manage renewals and generate interest from existing
customers to purchase additional products. In addition, our sales engineers and compensation professionals assist with sales to customers with particularly complex needs and provide post-sales customer support. Most of our sales personnel are
located in our headquarters in Needham, Massachusetts, however a significant and growing number of sales personnel are located remotely outside of our headquarters. We also have an advertising and syndication sales team, which works in much the same
way as our enterprise product sales team, but focuses its efforts on selling and marketing advertising on our website and syndication of our consumer offerings to other websites. Although we have relationships with many partners, including websites
and consulting firms, these partners accounted for less than 10% in the aggregate of our total revenue in the fiscal years ended March 31, 2009, 2008 and 2007.

Our marketing program is anchored by an integrated communications strategy that supports the core of our brand and value proposition. Our marketing programs include direct mail and email campaigns, using our website
to provide product and company information, advertising in both print and online media, search engine marketing, issuing press releases on a regular basis and launching events to publicize our service to existing customers and prospects. We build
our brand through our website, syndication and public relations, all of which are intended to increase market awareness of us as a top-tier provider of on-demand compensation management solutions, as well as a leading website for free information
about compensation. Furthermore, our thought leaders are frequently sought as expert commentators by major media, including television, radio, newspapers and mainstream and trade magazines. We believe that this is a critical component of our
branding program and positions us as an expert in the compensation field. We also conduct seminars, participate in trade shows and industry conferences, publish white papers on HR issues and develop customer reference programs.

Customers

As of March 31, 2009, we had
approximately 3,500 enterprise subscribers, in various industries, who spend from $2,000 to more than $100,000 annually. No single customer accounted for more than 3% of our revenue in the fiscal years ended March 31, 2009, 2008 or 2007. Refer
to Note 14. Segment and Related Information in our consolidated financial statements for a summary of our revenues by geographic location for the fiscal years ended March 31, 2009, 2008, and 2007. Below is a representative list of
companies who were customers as of March 31, 2009, grouped by industry category and number of employees in the business unit we serve.



|               |  |                                 |  |                                              |  |                                               
|-------------- |  | ------------------------------- |  | -------------------------------------------- |  | ----------------------------------------------
|Industry       |  | 10,000+Full-Time Employees      |  | 1,000 to 9,999 Full-Time Employees           |  | Less than 1,000 Full-Time Employees           
|Transportation |  | Southwest Airlines              |  | CHEP                                         |  | Hornbeck Offshore Services, Inc.              
|               |  | Greyhound Lines, Inc.           |  | Covenant Transportation                      |  | Mexicana Airlines                             
|               |  | Old Dominion Freight Line, Inc. |  | Saia Motor Freight Line                      |  | Singapore Airlines                            
|               |  | Amtrak Passenger Railroad       |  | Expedia, Inc.                                |  | Virgin Atlantic                               
|               |  | Swift Transportation Co., Inc.  |  | Norwegian Cruise Lines                       |  | Alaska Railroad                               
|               |  |                                 | 
|Retail         |  | Liz Claiborne, Inc.             |  | Lifetime Fitness                             |  | Guess?, Inc.                                  
|               |  | Wal-Mart Stores, Inc.           |  | Trader Joes Company                         |  | Harry Winston                                 
|               |  | Hallmark Cards, Inc.            |  | eBay, Inc.                                   |  | Zappos                                       
|               |  | Goodys Family Clothing         |  | Tiffany & Co.                                |  | Eastern Mountain Sports                       
|               |  | Target Corporation              |  | Chanel USA, Inc.                             |  | Quiksilver, Inc.                              
|               |  | Williams-Sonoma, Inc.           |  | Express                                      |  | Ikea North America, Inc.                      
|               |  |                                 | 
|Publishing     |  | WPP Group USA Inc               |  | BBC Worldwide Americas                       |  | The Motley Fool, Inc.                         
|               |  | Google                          |  | ESPN, Inc.                                   |  | Oxford University Press                       
|               |  | Thomson Reuters                 |  | VistaPrint USA, Inc.                         |  | Hit Entertainment                             
|               |  |                                 |  | John Wiley & Sons The New York Times Company |  | Harvard Business School Publishing Corporation



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|                                |  |                                        |  |                                    |  |                                       
|------------------------------- |  | -------------------------------------- |  | ---------------------------------- |  | --------------------------------------
|Industry                        |  | 10,000+Full-Time Employees             |  | 1,000 to 9,999 Full-Time Employees |  | Less than 1,000 Full-Time Employees   
|Consumer Products               |  | Yahoo! Inc.                            |  | Ticketmaster                       |  | Comcast Corporation                   
|                                |  | Sony Corporation of America            |  | Nu Skin Enterprises                |  | FUJIFILM Dimatix, Inc.                
|                                |  | AMF Bowling                            |  | Deluxe Corporation                 |  | Heineken USA                          
|                                |  | Stanley Works                          |  | Dreyers Grand Ice Cream           |  | Zipcar, Inc.                          
|                                |  | La-Z-Boy Incorporate                   |  | Electronic Arts                    |  | Adams Golf                            
|                                |  |                                        |  | National Football League           |  | Birkenstock, USA LP                   
|                                |  |                                        | 
|Financial Products and Services |  | Alfa Corporation                       |  | First Capital Corporation          |  |                                       
|                                |  | Commerce Bank                          |  | Imperial Capital Bank              |  | Chicago Board Options Exchange, Inc.  
|                                |  | Dollar Bank                            |  | Mastercard International           |  | Eastern Financial Federal Credit Union
|                                |  | E*Trade Financial Products             |  | New York Stock Exchange, Inc.      |  | Five Star Bank                        
|                                |  | Digital Federal Credit Union           |  | Robert W. Baird & Co. Inc.         |  | Freedom Mortgage Corporation          
|                                |  |                                        |  | Trans Union, LLC                   |  | Midland Credit Management, Inc.       
|                                |  |                                        |  | Trustmark National Bank            |  | OceanFirst Bank                       
|                                |  |                                        |  | Commerce Bancshares, Inc.          |  | Federal Home Loan Bank of Boston      
|                                |  |                                        | 
|Manufacturing                   |  | Apple, Inc.                            |  | NetApp, Inc.                       |  | iRobot Corporation                    
|                                |  | Dell, Inc.                             |  | Dresser, Inc.                      |  | Extreme Networks                      
|                                |  | EMC Corporation                        |  | Oshkosh Truck Corporation          |  | Hitachi Computer Products             
|                                |  | Black & Decker                         |  | Scotts Miracle-gro Company         |  | Gates Rubber Co.                      
|                                |  | First Quality Industries Jostens       |  | Roche Diagnostics Corporation      |  | Hewlett Packard Financial Services    
|                                |  |                                        |  | Abb, Inc.                          |  | Nikon, Inc.                           
|                                |  |                                        | 
|Healthcare                      |  | New York Presbyterian Hospital         |  | Adventist Healthcare               |  | Spectra Laboratories                  
|                                |  | Sanofi-Aventis                         |  | Cincinnati Childrens Hospital     |  | Calvary Hospital, Inc.                
|                                |  | Hospital For Special Surgery           |  | North Shore University Hospital    |  | Christian healthcare Center           
|                                |  | University of North Carolina Hospitals |  | Franciscan Hospital for Children   |  | Huntington Memorial Hospital          
|                                |  | Lutheran Medical Center                |  | Nevada Cancer Institute            |  | Mercy Hospital Miami                  
|                                |  | Yale New Haven Health System           |  | Palmetto Health                    |  | Oakwood Healthcare                    

Competition

The markets for on-demand compensation management, performance management and HRMS/payroll solutions are fragmented, competitive and rapidly evolving, and there are low barriers to entry to some segments of these
markets. Within our markets, particularly with our compensation and performance management solutions, the most common applications in use today are generic desktop software tools and solutions that are not specifically designed for compensation
management or performance management. We also compete with software vendors that offer solutions through either traditional on-premise delivery methods or to a lesser extent, on-demand solutions, and established consulting firms that continue to
offer a diversity of services and software products. We also expect to encounter new and evolving competition as the market for on-demand compensation management software and services consolidates and matures and as organizations become increasingly
aware of the advantages and efficiencies that can be attained from the use of compensation management software and data solutions.

Any of
our competitors may also seek to expand into other areas in which we offer solutions  so that our competitors in the compensation and performance management market may seek to expand into the HRMS/payroll markets or vice versa. In addition,
our existing competitors or new competitors may seek to offer a bundled package of services that competes with our bundled solutions or to develop a single integrated product suite that incorporates compensation management, performance management
and HRMS/payroll solutions.



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We believe the principal factors that generally determine a companys competitive advantage in the
compensation management, performance management and HRMS/payroll markets include the following:



| |  |  | a large installed customer base;
| | - |  | --------------------------------



| |  |  | a well-known and respected brand;
| | - |  | ---------------------------------



| |  |  | breadth and depth of proprietary content;
| | - |  | -----------------------------------------



| |  |  | the ability to offer both powerful software and technology and accurate compensation data in a single offering;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | experienced sales and distribution capabilities;
| | - |  | ------------------------------------------------



| |  |  | ease of deployment;
| | - |  | -------------------



| |  |  | low cost of ownership;
| | - |  | ----------------------



| |  |  | a suite of products (rather than individual point solutions); and
| | - |  | -----------------------------------------------------------------



| |  |  | an integrated platform (e.g., in which pay, performance and payroll software and data are linked).
| | - |  | --------------------------------------------------------------------------------------------------

We face competition in our compensation management and performance management markets primarily from five sources:



| |  |  | generic desktop software and in-house or custom-developed solutions;
| | - |  | --------------------------------------------------------------------



| |  |  | established software vendors offering products specifically designed for compensation management, performance management, talent management and/or HRMS/payroll;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | established compensation and HR consulting firms;
| | - |  | -------------------------------------------------



| |  |  | other websites and advertising venues; and
| | - |  | ------------------------------------------



| |  |  | existing and future start-up companies offering software, data, and e-commerce compensation solutions.
| | - |  | ------------------------------------------------------------------------------------------------------

In addition, we face competition in our HRMS/payroll markets primarily from three sources:



| |  |  | large service bureaus;
| | - |  | ----------------------



| |  |  | established software vendors offering products specifically designed for HRMS/payroll management or related solutions; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | existing and future start-up companies offering HRMS/payroll software solutions.
| | - |  | --------------------------------------------------------------------------------

Compensation and Performance Management

Generic desktop software and in-house or custom-developed
solutions:    Perhaps the most common applications in use today are generic desktop software tools such as Microsoft Excel and Microsoft Access, as well as other commercially available software solutions not specifically
designed for compensation or performance management. Compensation professionals at organizations of all sizes routinely use these generic software tools to develop in-house or home-grown solutions. Although we believe our CompAnalyst and
TalentManager offerings are superior to these home-grown, partially automated solutions, some potential customers may be reluctant to switch both because of the cost of our solution and because of the perceived risk they face in giving up direct
control over their sources of data.

Established software vendors:    Established HR software vendors compete
with both our CompAnalyst and TalentManager solutions. In addition, the market for our TalentManager solution is extremely competitive and includes several companies that are more established and have greater financial, technological and marketing
resources than we do. As a result, we expect to face intense ongoing competition in this segment of our business,



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which could affect our ability to increase or maintain market share in the performance management arena. These software vendors include, without limitation,
Authoria, Inc., Economic Research Institute, Inc., Equilar, Inc., Halogen Software Inc., MarketPay Associates LLC, Payscale, Inc., SuccessFactors, Inc., Workscape, Inc. and Workstream Inc.

We also expect that new competitors, such as enterprise software vendors that have traditionally focused on enterprise resource planning, or ERP, or back
office applications, will enter, or greatly expand their offerings in, the on-demand compensation and performance management software market as it develops and matures. In addition, there are a number of companies that have products in the broader
talent management market, which includes not only compensation and performance management, but also learning and recruitment management. We expect over time that certain of these companies may also seek to offer compensation and performance
management products in competition with us. These large, traditional players in the HR space could focus their considerable financial, technical, marketing and sales resources on various segments of our business, either by developing their own
products in-house or purchasing another company. To the extent such efforts are successful, it is possible that these new competitors could rapidly acquire significant market share.

Established compensation and HR consulting firms:    The market for compensation management data and services has
traditionally been dominated by large consulting firms, such as Mercer LLC and Watson Wyatt Worldwide, Inc., many of which have greater financial, sales and marketing, management, service, support and other resources than we have. Such firms have
traditionally offered an expensive but fully customized compensation management solution to the nations largest enterprises. In addition, several of these firms have invested in software-based compensation management tools. Therefore, we face
two types of competition from established consulting firms:



| |  |  | First, their customized consulting services represent an alternative to our CompAnalyst suite, particularly in larger organizations, which frequently have
long-standing and well-entrenched relationships with compensation and HR consulting firms.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Second, some established HR consulting firms offer software that competes directly with certain modules of both our CompAnalyst and TalentManager product lines.
Although we believe that our software products compete favorably with those offered by consulting firms, some of these firms have far greater resources than we do and as a result may compete successfully with our CompAnalyst and TalentManager
solutions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other websites and advertising venues:    Our advertising-sponsored offerings
(Salary Wizard, www.salary.com, and Salary Center) compete with a wide variety of other websites and online media for advertising dollars. To the extent these competitors are able to offer advertisers more effective or cost-efficient means of
marketing their product and services, we may be unable to grow, or face reduced revenues from some or all of our advertising-based products.

Existing and future start-up software, data, and e-commerce companies:    A number of smaller, early-stage companies offer products that compete directly with one or more of our product lines. Although many of
these young companies may have fewer resources than we do, to the extent they are successful in their efforts, we may face more effective competition from them in the future, and our financial performance may suffer as a result. In addition, because
the market for compensation and performance management software and services, as well as e-commerce compensation products, is nascent and rapidly evolving, we expect additional, as yet unformed, companies to enter our markets in the future. To the
extent this occurs, some or all of our product lines will face greater competition in the future, which may materially adversely affect our financial performance.

HRMS/Payroll

Our payroll and HRMS products compete primarily on the basis of technology, delivered functionality and
price/performance. Our main competitors in this market are large service bureaus, primarily Automatic Data Processing Inc. and, to a lesser extent, Ceridian; and companies, such as PeopleSoft/Oracle, Lawson, Kronos, and



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Workday that offer HRMS and payroll software products for use on mainframes, client/server environments and/or Web servers. Many of our payroll and HRMS
competitors or potential competitors have significantly greater financial, technical and marketing resources than Salary.com. As a result, they may be able to respond more quickly to new or emerging technologies and to changes in customer
requirements, or to devote greater resources to the development, promotion and sale of their products than us. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address the needs of our prospective customers. We may also find competition from start-up companies who enter the on-demand HRMS or payroll markets as a result of low barriers to entry and the
early-stage nature of the SaaS and on-demand markets.

Intellectual Property and Proprietary Content

We rely on a combination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality
procedures and contractual provisions to protect our proprietary technology and our brand. We have two U.S. issued patents (one for our proprietary methods for calculating market pricing across our data sets and one for our Salary Wizard product),
each of which expires in 2022, and three pending U.S. patent applications, as well as related patents and patent applications in other jurisdictions. We also enter into confidentiality and proprietary rights agreements with our employees,
consultants and other third parties and control access to software, documentation, data and other proprietary information.

We pursue the
registration of our trademarks. Currently, our CompPlanner, Salary Wizard, CompAnalyst, CompAnalyst Executive, eComp, IPAS, TalentManager, Payscore, Survey Center, Genesys Customer Driven HCM, and Peoplecomefirst marks are federally registered in
the U.S, while our Infobasis Capability Manager, Infobasis Total Capability Management, Empowered by Infobasis, Infobasis Employee Lifecycle, Infobasis Enterprise Skills Manager, Infobasis Readiness Manager, Infobasis Your People, Your Business,
Infobasis, and Infobasis Enterprise Skills Infrastructure are registered in Britian and Northern Ireland. In addition, we have applied for registration of the following trademarks: Salary.com and FlexTenant.

We currently license some of the content used to build our compensation data sets from numerous providers pursuant to data reseller, data distribution,
and license agreements with these providers. Our data sets are generally derived from market data as collected in salary surveys. This information is used as one of several inputs to our data set calculation methodology. Most of the licenses for
this content are non-exclusive. We cannot ensure that the data we require for our data sets will be available from such sources in the future or that the cost of such data will not increase. Because we have content from numerous providers, we
believe that the loss of any one license would not substantially affect the quality of our data sets. In addition, if a third party successfully asserted a claim that our use of data has violated our agreement with them or infringed upon their
copyright, we may be required to remove the applicable data from our data sets and regenerate our data sets without such data.

Although
the protection afforded by patent, trademark, copyright and trade secret laws may provide some advantages, we believe that our ability to maintain our competitive position is largely determined by such factors as the technical skills of our
personnel, the breadth and depth of our proprietary data sets, new product developments and product enhancements.

Substantial litigation
regarding intellectual property rights exists in the software industry. From time to time, in the ordinary course of business, we may be subject to claims relating to our intellectual property rights or those of others, and we expect that third
parties may commence legal proceedings or otherwise assert intellectual property claims against us in the future, particularly as we expand the complexity and scope of our business, the number of similar products increases and the functionality of
these products further overlap. If a claim is asserted that we have infringed the intellectual property of a third party, we may be required to seek licenses to that technology. In addition, we license third-party technologies, primarily from
Microsoft, that are incorporated into some elements of our services. Although we do not believe that any one license is material to our operations, licenses from third parties may not continue to be available to us at a reasonable cost, or at all.
In addition, the



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steps we have taken to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary rights.
Competitors may also independently develop technologies that are substantially equivalent or superior to the technologies we employ in our services.

Seasonality

We experience some seasonality in our business cycle, resulting in cash flows from operating activities
typically being lower in our fiscal first and second quarters and higher in our fiscal third and fourth quarters.

Employees

At March 31, 2009, we had 493 full-time and part-time employees. Our employees are not represented by any collective bargaining agreement, and
we have never experienced a work stoppage. We believe we have good relations with our employees.

Facilities

The Companys five principal facilities incorporate development, sales and marketing, and administration functions. Our facilities consist of:



| |  |  | a leased 36,288 square foot facility in Needham, Massachusetts, which is our corporate headquarters,
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | a leased 31,240 square foot facility in Shanghai, China,
| | - |  | --------------------------------------------------------



| |  |  | a leased 30,698 square foot facility in Methuen, Massachusetts,
| | - |  | ---------------------------------------------------------------



| |  |  | a leased 6,409 square foot facility in Oxford, United Kingdom, and
| | - |  | ------------------------------------------------------------------



| |  |  | a leased 5,502 square foot facility in Montego Bay, Jamaica.
| | - |  | ------------------------------------------------------------

We believe that our existing facilities are adequate for our current needs. As additional space is needed in the future, we believe that suitable space will be available in the required locations at commercially
reasonable terms. See Note 7 to the notes to our consolidated financial statements and Managements Discussion and Analysis of Financial Condition and Results of OperationsContractual Obligations for information regarding
our lease obligations.

Internet Address

Our internet address is www.salary.com. We make available, free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to such reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended as soon as reasonably practical after such reports are electronically filed with the SEC. Our website is not incorporated by reference into this
Annual Report on Form 10-K.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains or incorporates a number of forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking
statements by terminology such as may, will, should, expects, plans, anticipates, could, intends, target, projects,
contemplates, believes, estimates, predicts, potential or continue or the negative of these terms or other similar words. These statements are only predictions. We have based
these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. The outcome of the events described
in these forward-looking statements is subject to risks, uncertainties and other factors described in Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in
this report. Accordingly, you should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual
results could differ materially from those projected in the forward-looking statements. We have identified below some important factors that could cause our forward-looking statements to differ materially from actual results, performance or
financial condition:



| |  |  | our ability to become profitable;
| | - |  | ---------------------------------



| |  |  | our ability to sell our products in a challenging economic environment;
| | - |  | -----------------------------------------------------------------------



| |  |  | the ability of our solutions to achieve market acceptance;
| | - |  | ----------------------------------------------------------



| |  |  | a highly competitive market for compensation management;
| | - |  | --------------------------------------------------------



| |  |  | failure of our customers to renew their subscriptions for our products;
| | - |  | -----------------------------------------------------------------------



| |  |  | our inability to adequately grow our operations and attain sufficient operating scale;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | our inability to effectively protect our intellectual property and not infringe on the intellectual property of others;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | our inability to raise sufficient capital when necessary or at satisfactory valuations;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the loss of key personnel; and
| | - |  | ------------------------------



| |  |  | other factors discussed elsewhere in this report.
| | - |  | -------------------------------------------------

The risks and uncertainties described in this Annual Report on Form 10-K are not the only ones we face. Additional risks and uncertainties, including those not presently known to us or that we currently deem
immaterial, may also impair our business. The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking
statements after the date of this report.

This Annual Report on Form 10-K also contains market data related to our business and industry.
This market data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the
rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, financial condition and results of operations and the market price of our common stock.



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We operate in an emerging and rapidly evolving market which makes it difficult to evaluate our business and future
prospects and may increase the risk of your investment.

We derive, and expect to continue to derive for the foreseeable future, the
vast majority of our revenues from on-demand compensation, talent management and HRMS/payroll solutions, which are relatively new and emerging markets, making our business and future prospects difficult to evaluate. Many companies have invested
substantial personnel and financial resources in their human resource, or HR, departments or have engaged outside consulting firms or HR Business Process Outsourcers, or HR BPOs, and payroll providers to obtain corporate compensation, talent
management and HRMS/payroll data and solutions, and may be reluctant or unwilling to migrate to on-demand software designed to address their compensation, talent management and HRMS/payroll needs. The market for on-demand software solutions is at an
early stage of development, and it is uncertain whether an on-demand model such as ours will achieve and sustain the high level of market acceptance that is critical to the success of our business. Our success will depend to a substantial extent on
the willingness of companies to increase their use of on-demand software in general and on-demand compensation, talent management and HRMS/payroll software in particular. If businesses do not perceive the benefits of on-demand software, then the
market may not develop further, or it may develop more slowly than we expect, either of which would adversely affect our business, financial condition and results of operations. You must consider our business and future prospects in light of the
challenges, risks and difficulties we encounter in the new and rapidly evolving market for on-demand compensation management. These challenges, risks and difficulties include the following:



| |  |  | generating sufficient revenue to achieve and maintain profitability;
| | - |  | --------------------------------------------------------------------



| |  |  | developing new products and enhancing the functionality and features of existing applications;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | attracting and retaining new customers and expanding the revenue generated from existing customers;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | managing growth in our operations; and
| | - |  | --------------------------------------



| |  |  | attracting and retaining key personnel.
| | - |  | ---------------------------------------

We may not be able to successfully address any of these challenges, risks and difficulties, including the other risks related to our business and industry described below. Failure to adequately do so could adversely affect our business,
results of operations or financial condition.

Our solutions are primarily sold pursuant to subscription agreements, and if our existing customers elect
either not to renew these agreements or renew these agreements for fewer applications or at a lower price, our business, financial condition and results of operations will be adversely affected.

Our solutions are primarily sold pursuant to annual or multi-year subscription agreements and our customers have no obligation to renew these agreements.
As a result, we are not able to consistently and accurately predict future renewal rates. Our customers renewal rates may decline or fluctuate or our customers may renew for fewer applications or at a lower price as a result of a number of
factors, including their level of satisfaction with our solutions, budgetary concerns or the availability and pricing of competing products. Additionally, we may lose customers due to the high turnover rate in their HR departments. If large numbers
of existing customers do not renew these agreements, or renew these agreements on terms less favorable to us, and if we cannot replace or supplement those non-renewals with new subscription agreements generating the same or greater level of revenue,
our business, financial condition and results of operations will be adversely affected.

We have incurred operating losses in the past and expect to
incur operating losses in the future.

We have incurred operating losses in the past and we expect to incur operating losses in the
future. As of March 31, 2009, our accumulated deficit is approximately $66.5 million. Our recent operating losses were $26.5 million for the fiscal year ended March 31, 2009, $12.3 million for the fiscal year ended March 31, 2008, and
$8.3 million for the fiscal year ended March 31, 2007. We have not been profitable since our inception, and we



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may not become profitable. In addition, although we have recently reduced our operating expenses, we still expect our operating expenses to increase in the
future as we expand our operations. If our operating expenses exceed our expectations, our financial performance could be adversely affected. If our revenue does not grow to offset these increased expenses, we may not become profitable. You should
not consider recent revenue growth as indicative of our future performance. In fact, in future periods, we may not have any revenue growth, or our revenue could decline.

Our credit facility contains certain financial and negative covenants, the breach of which may adversely affect our financial condition.

We have a credit facility with Silicon Valley Bank under which we had drawn down $8.1 million as of March 31, 2009. On April 27, 2009, we paid
all of the outstanding amounts due under our credit facility and on June 29, 2009 we amended our credit facility with Silicon Valley Bank. The modification agreement contains financial covenants that require us to maintain an unrestricted cash
balance at Silicon Valley Bank of at least $20 million. If our unrestricted cash falls below $20 million, then the amount we could borrow under the line of credit would be limited to a borrowing base consisting of a specified percentage of
accounts receivable and a specified percentage of future billings. In addition, we are required to maintain unrestricted cash plus borrowing availability of at least $15 million and meet adjusted EBITDA targets for trailing three-month periods on a
monthly basis. If we are not in compliance with certain of these covenants the amounts drawn on the facility may become immediately due and payable. Any requirement to immediately pay outstanding amounts under a credit facility may negatively impact
our financial condition and we may be forced by our creditor into actions, which may not be in our best interests.

Our quarterly results of operations
may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of investors or securities analysts which could cause our stock price to decline.

Our quarterly revenue and results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our
quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Fluctuations in our results of operations may be due to a number of factors,
including, but not limited to, those listed below and identified throughout this Risk Factors section in this Annual Report on Form 10-K:



| |  |  | our ability to retain and increase sales to existing customers and attract new customers;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the amount and timing of revenue recognized in a particular quarter as a result of changes in the volume and mix of products and services sold in that quarter and
prior quarters;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | seasonality of our business cycle, given that our cash flows from operating activities are typically lower in our fiscal first and second quarters and higher in our
fiscal third and fourth quarters;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our policy of expensing sales commissions in each year of our customer subscriptions;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the timing and success of new product introductions or upgrades by us or our competitors;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the performance of our acquisitions;
| | - |  | ------------------------------------



| |  |  | changes in our pricing policies or those of our competitors;
| | - |  | ------------------------------------------------------------



| |  |  | competition, including entry into the market by new competitors and new product offerings by existing competitors;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the amount and timing of expenditures related to expanding our operations, research and development, or introducing new products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the payment terms for our products and services; and
| | - |  | ---------------------------------------------------------------



| |  |  | the purchasing and budgeting cycles of our customers.
| | - |  | -----------------------------------------------------



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Because our on-demand software is sold pursuant to annual or multi-year subscription agreements and
generally we recognize revenue from these subscriptions over the term of the agreement, downturns or upturns in sales may not be immediately reflected in our operating results. Most of our expenses, such as salaries and third party hosting
co-location costs, are relatively fixed in the short-term, and our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may not be able
to proportionally reduce operating expenses for that quarter, causing a disproportionate effect on our expected results of operations for that quarter.

Due to the foregoing factors, and the other risks discussed in this Annual Report on Form 10-K, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future
performance.

If the economy worsens or labor market conditions deteriorate materially, our business may be harmed.

To the extent that the economy or labor market conditions materially deteriorate, our existing and potential clients may no longer consider investment in
their compensation, talent management and HRMS/payroll systems a necessity, or may elect to defer purchases or reduce budgets in these areas. Either of these developments could have an adverse effect on our business, financial condition and results
of operations.

Reductions in information technology spending could limit our ability to grow our business.

Our operating results may vary based on changes in the information technology, or IT, spending of our clients. The revenue growth and profitability of our
business depend on the overall demand for enterprise application software and services. We sell our solutions primarily to large organizations whose businesses fluctuate with general economic and business conditions. As a result, decreased demand
for enterprise application software and services, and in particular on-demand compensation management and talent management solutions, caused by a weakening global economy or otherwise may cause a decline in our revenue. Historically, economic
downturns have resulted in overall reductions in corporate IT spending. In particular, compensation management software may be viewed by some of our existing and potential clients as a lower priority and may be among the first expenditures reduced
as a result of unfavorable economic conditions. In the future, potential clients may decide to reduce their IT budgets by deferring or reconsidering product purchases, which would negatively affect our operating results.

We will likely experience longer sales cycles and increased pricing pressure as a result of unfavorable economic conditions.

If general economic conditions worsen or fail to improve, we will likely experience an increase in delays in our sales cycles and an increase in pressure
from prospective customers to offer discounts on products higher than our historical practices. We may also experience increased pressure from existing customers to renew expiring software subscriptions agreements at lower rates. In addition,
certain of our customers may attempt to negotiate lower software subscription fees for existing arrangements because of downturns in their businesses. If we choose to accept certain request for higher discounts or lower fees, our business may be
adversely affected and our revenues may decline. We also believe certain of our competitors may offer lower fees for their products and services as a result of the current economic environment, which may put further downward pressure on our fees.
Additionally, certain of our customers may become bankrupt or insolvent as a result of the current economic downturn, and we may lose all revenue from such customers.

Because we recognize revenue over the term of the applicable subscription agreement, the lack of subscription renewals or new subscription agreements may not be immediately reflected in our operating results.

We recognize revenue from our customers over the term of their subscription agreements with us or, if applicable, over the remaining term
once configuration and acceptance of application services has occurred. The



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substantial majority of our quarterly revenue usually represents deferred revenue from subscriptions sold during previous quarters. As a result, a decline in
new or renewed subscription agreements in any one quarter will not necessarily be fully reflected in the revenue for the corresponding quarter but will negatively affect our revenue in future quarters. Additionally, the effect of significant
downturns in sales and market acceptance of our solutions may not be fully reflected in our results of operations until future periods. Our business model also makes it difficult for us to reflect any rapid increase in our customer base and the
resulting effect of this increase in our revenue in any one period because revenue from new customers will be recognized over the applicable subscription agreement term.

If our efforts to attract new customers or to sell additional solutions to our existing customers are not successful, our revenue growth will be adversely affected.

To grow our revenue, we must continually add new customers and sell additional solutions to existing customers. If our existing and prospective customers
do not perceive our solutions to be of sufficiently high value and quality, we may not be able to attract new customers or to increase sales to existing customers. Our ability to attract new customers and to sell new solutions to existing customers
will depend in large part on the success of our sales and marketing efforts. However, our existing and prospective customers may not be familiar with some of our solutions or may have traditionally used other products and services for some of their
compensation management, talent management and HRMS/payroll requirements. In addition, prospective customers may have invested substantial personnel and financial resources in their HR departments or have engaged outside consulting firms or HR BPOs
to obtain corporate compensation data and solutions, and may be reluctant or unwilling to migrate to our on-demand compensation management, talent management and HRMS/payroll solutions to address their compensation management needs. Existing
customers and prospective customers may also decline to purchase our compensation management, talent management and HRMS/payroll solutions due to budgetary concerns or the availability and pricing of competing products. If we fail to generate
additional business from our existing customers and new customers, our revenue could grow at a slower rate or decrease, which could adversely affect our business, financial condition and results of operations.

If we fail to successfully develop new applications, the growth of our business, our revenues and our results of operations will be materially adversely affected.

We have developed new applications over time that have contributed to the growth of our business to date. For example, we initially
launched CompAnalyst Market Data (formerly known as Job Analyzer) in 2000 and have since added CompAnalyst Survey Management, CompAnalyst Pay Analytics, which includes Reporting & Analysis, Merit Modeling and Salary Structures, and
CompAnalyst Executive modules to create our CompAnalyst suite. Products in the on-demand compensation management market typically take years to develop widespread market acceptance. We expect to rely on newly introduced applications for a
substantial portion of our growth for the foreseeable future. For example, in fiscal 2009, we introduced a bundled solution which includes our compensation management solutions, our TalentManager suite of enterprise pay-for-performance applications
and the HRMS and payroll products, which we obtained through our acquisition of Genesys. We anticipate that, as with any on-demand compensation management application, it may be an extended period of time before this new package of products achieves
market acceptance. If we are unable to continue to develop and launch new applications or if our new applications are not able to achieve market acceptance, our business, financial condition and results of operations will be materially adversely
affected.

If we do not continue to innovate and provide HR solutions that are useful to users, we may not remain competitive, and our revenues and
operating results could suffer.

Our success depends on providing HR solutions that HR decision makers may use to make compensation and
performance management decisions and to manage other HR functions such as HRMS/payroll and solutions that individuals may use to assess their worth in the job market. Our competitors are constantly developing



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innovations in HR solutions. Additionally, the market for our on-demand software is characterized by changes in customer requirements, changes in protocols
and evolving industry standards. As a result, we must continue to invest significant resources in research and development in order to improve and enhance the responsiveness, functionality and features of our existing applications and develop new
applications so that we may offer a complete product suite of solutions that are easy to use and effective. In particular, we will need to expand our offering to more comprehensively address our customers compensation management needs and
develop a single product suite that encompasses our compensation management, TalentManager and HRMS/payroll solutions. If our innovations are not responsive to the needs of our users, or if our competitors develop a comprehensive single product
suite more quickly than we do, our current and potential clients may elect to purchase our competitors products and services, which would significantly impair our revenue growth, operating results and reputation. In addition, if we are unable
to predict user preferences or industry changes, or if we are unable to modify our offerings on a timely basis, we may lose customers. Our operating results would also suffer if our innovations are not appropriately timed with market opportunities
or are not effectively brought to market.

We may incur additional restructure charges or not realize the expected benefits of new initiatives to reduce
costs across our operations.

On January 7, 2009, in response to the current and anticipated macro-economic uncertainties, we
implemented and completed a workforce reduction of approximately 100 employees, representing approximately 16% of our workforce. We have also undertaken additional cost savings measures to increase our competitiveness, including relocating our
headquarters to a new, lower-cost facility and the reduction of other discretionary costs such as marketing programs and outside services. As a result of the reduction in workforce, we recorded a charge of approximately $3.1 million in the fourth
quarter of fiscal 2009 under FASB Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This charge included cash payments related to the severance and continuation of
benefits for terminated employees of approximately $1.3 million and non-cash stock based compensation charges related to the acceleration of vesting on stock options and restricted stock of approximately $1.8 million. If economic conditions further
deteriorate, we may incur additional restructuring costs which may cause disruptions in our operations, loss of key personnel and difficulties in delivering products timely. In addition, we may not be able to realize fully the expected benefits of
this workforce reduction.

Our growth could strain our personnel and infrastructure resources, and if we are unable to implement appropriate controls
and procedures to manage our growth, we may not be able to successfully implement our business plan.

Rapid growth in our headcount and
operations may place a significant strain on our management, administrative, operational and financial infrastructure. Between March 31, 2004 and March 31, 2009, the number of our full time equivalent employees increased from 68 to 493.

Our success will depend in part upon the ability of our senior management to manage the growth we have experienced effectively. However,
the growth we have experienced may place greater strains on our resources. For instance, as discussed above, in response to current and anticipated macro-economic uncertainties, we reduced our work force by approximately 16% in January 2009. As a
result, we have fewer personnel to manage our growth and if we are not successful in retaining our existing employees, we may not be able to handle any increase in the volume of our business and our business may be harmed. In addition, if we
continue to grow, we may need to hire, train, manage and integrate additional employees, which will require us to expend additional financial resources. We may also outgrow our current space in Needham, Massachusetts, Methuen, Massachusetts,
Shanghai, China, Abingdon, United Kingdom and Montego Bay, Jamaica or desire to open additional offices domestically and internationally, which could make it more difficult to manage employees not located at our principal headquarters and maintain
uniform standards, controls, procedures and policies across locations. If we determine that it is necessary or desirable to open additional offices, whether domestically or internationally, management resources will be allocated to integrating new
offices, handling cultural and



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language issues arising from international operations and managing costs associated with a multi-office organization. Such focus could divert
managements attention from managing ongoing business operations.

Failure to effectively develop our sales and marketing capabilities could harm
our ability to increase our customer base and achieve broader market acceptance of our solutions.

During fiscal 2007 and 2008, we
significantly expanded our direct sales force in our Needham, Massachusetts office and expanded our regional sales force, including sales people dedicated to building out our competency, international, small business and strategic sales teams to
penetrate new buying groups and new geographic markets. We also invested significant financial resources in marketing to extend our compensation brand globally and build awareness among a new set of buyers in organizational and leadership
development.

These initiatives may not yield the desired results to grow and expand our business or brand awareness, and/or we may be
unable to manage the resulting growth in headcount or marketing spend in an efficient and cost effective manner. New sales personnel are often not profitable during their first year with us. Our business will be seriously harmed if the expansion of
the direct sales force does not generate a corresponding significant increase in revenue. We may not achieve anticipated revenue growth from expanding our direct sales force if our new direct sales personnel are unable to achieve desired
productivity levels in a reasonable period of time. In addition, the workforce reduction we implemented in January 2009 may adversely affect the investments we have made in building our sales and marketing infrastructure. As a result, our ability to
increase our customer base and achieve broader market acceptance of our solutions could be jeopardized.

Our sales force currently consists
primarily of direct sales personnel who sell our products over the telephone. As we expand our offerings and our customer base, it may be necessary for our sales personnel to increase the frequency of in-person meetings with our customers in order
to sell our products, which will increase the costs incurred in the sales process, and may require us to hire additional sales personnel and extend the length of our typical sales cycle.

If we fail to develop or maintain our brand cost-effectively, our business may suffer.

We believe
that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our existing and future applications and is an important element in attracting new customers and increasing business
with existing customers. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful solutions. Brand promotion activities may not yield increased revenue, and
even if they do, any increased revenue may not offset the expenses we incur in building our brand. To date, we have developed our brand at a low cost primarily by partnering with large Internet companies who drive traffic to our web site. Our
strategy of partnering with large Internet companies may not continue to build awareness of our brand at the rate we expect. If we are unable to rely on the low cost distribution strategy of partnering with these Internet companies, we would incur
costs to replace this distribution which would adversely affect our results of operations. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may
fail to attract new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business could suffer.

We are dependent on our executive officers, and the loss of any of them may prevent us from implementing our business plan in a timely manner if at all.

Our success depends largely upon the continued services of our executive officers and other key personnel, particularly Kent Plunkett, our Chairman,
President and Chief Executive Officer, and Yong Zhang, our Executive Vice President, Chief Operating Officer and Chief Technology Officer. We are also substantially dependent on the continued service of our existing development personnel
because of the complexity of our products and technologies, as well as on our existing personnel with both compensation management and technical experience



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because of the difficulty we have had hiring individuals who have experience in both of these fields. Although we currently maintain a key man life insurance
policy on Kent Plunkett, this insurance would not adequately compensate us for the loss of his services. The loss of one or more of our key employees could seriously harm our business.

We may not be able to attract and retain the highly skilled employees we need to support our planned growth.

To execute our business strategy, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for senior direct sales personnel with compensation management experience and engineers with
high levels of experience in designing and developing on-demand software. 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. Many of the companies with which we compete for experienced personnel have greater resources than we do. In addition, in making employment decisions, particularly in the Internet and high-technology industries, job
candidates often consider the value of the stock options or restricted stock they are to receive in connection with their employment. Significant volatility in the price of our stock may, therefore, adversely affect our ability to attract or retain
key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be severely harmed.

Our data is obtained from a variety of sources, some of which may not be available to us in the future.

Our proprietary compensation data sets are comprised of extensive data. We obtain our data from a variety of sources, including major consulting firms and our partners, the SEC and other U.S. government agencies and other third party
providers, and through our own research efforts. We generally obtain data on a non-exclusive basis and in a summary form. While we do not generally have an ability to resell such data in its entirety, we use such data internally in generating our
proprietary data sets. We cannot assure you that the data we require for our proprietary data sets will be available from these sources in the future or that the cost of such data will not increase. From time to time in the past, third parties have
sent us letters asserting that our use of data may have violated our agreement with them or infringed upon their copyright. Although we believe that our purchase and use of all third party surveys complies with copyright law and any applicable
license agreements, we cannot assure you that we will prevail in any such claims asserted against us and any litigation, regardless of its validity, may involve significant costs and could divert our managements time and attention from
developing our business.

If any third party successfully asserts a claim that we have violated their copyrights or our license agreements
with them, we may be required to remove the applicable data from our data sets and regenerate our data sets without such data. Additionally, we may no longer be able to obtain data from the provider or other providers on reasonable terms, if at all.
Any inability to obtain data may have a material adverse effect on our business, financial condition and results of operations.

Further,
as we expand our customer base to include customers outside of the United States, we may not be able to obtain sufficient international data on reasonable terms to support our data sets. We plan to obtain data which we believe is sufficient to build
proprietary data sets in order to support the development of an international business. We expect to incur substantial expense to build proprietary data sets for international markets. We cannot assure you that we will be able to successfully obtain
sufficient data to develop proprietary data sets for international markets.



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We may expand through acquisitions of, investments in or through business relationships with other organizations, all
of which may divert our managements attention, result in additional dilution to our stockholders, consume resources that are necessary to sustain our business and may not result in the realization of the goals underlying the acquisition,
investment or business relationship.

One of our business strategies is to selectively pursue the acquisition of companies that would
either expand the functionality of our compensation management and talent management solutions or provide access to new customers or markets, or both. In fiscal 2009, we acquired Genesys Software Systems, Inc, a leading provider of on demand and
licensed human resource management systems and payroll solutions, and InfoBasis, a provider of competency-based learning and development software. In addition, in fiscal 2008, we acquired the assets of Schoonover Associates, Inc. (Schoonover), a
leading provider of competency management data and consulting services, ITG Competency Group, LLC (ITG), a leader in the competency model content business, and ICR Limited, L.C. and ICR International Ltd. (ICR), a premier provider of specialty
consumer goods and global technology compensation data and software. We also acquired the assets of the eComp division of Aon Consulting, Inc. in August 2006. See Managements Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources. We also may enter into business relationships with other organizations in the future in order to expand our offerings, which could involve preferred or exclusive licenses, additional channels of
distribution or discount pricing or investments in other organizations. An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating
or integrating the acquired organizations, technologies, products, personnel or operations of the acquired organizations, particularly if the key personnel of the acquired company choose not to work for us, and we may have difficulty retaining the
customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing
development of our business. We also may experience lower rates of renewal from customers obtained through acquisitions than we do from existing customers. Additionally, to the extent we expand into new facilities, we may have difficulty maintaining
uniform standards, controls, procedures and policies across locations. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized or that we would not be exposed to unknown
liabilities. In connection with one or more of these transactions, we may:



| |  |  | issue additional equity securities that would dilute our existing stockholders ownership;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | use cash that we may need in the future to operate our business;
| | - |  | ----------------------------------------------------------------



| |  |  | incur debt on terms unfavorable to us or that we are unable to repay;
| | - |  | ---------------------------------------------------------------------



| |  |  | incur large charges or substantial liabilities;
| | - |  | -----------------------------------------------



| |  |  | encounter difficulties retaining key employees of an acquired company or integrating diverse business cultures; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | become subject to adverse tax and accounting consequences.
| | - |  | ----------------------------------------------------------

Although we periodically engage in preliminary discussions with respect to acquisitions, we are not currently a party to any agreement or commitment, and we have no understandings with respect to any acquisition.

If we determine that any of our goodwill or intangible assets, including technology purchased in acquisitions, are impaired, we would be required to
take a charge to earnings, which could have a material adverse effect on our results of operations.

We have a significant amount of
goodwill and other intangible assets, such as product and core technology, related to our acquisitions. We recorded significant additional goodwill and other intangible asset amounts in connection with the acquisition of Genesys and InfoBasis in
fiscal 2009 and Schoonover and ICR in fiscal 2008.



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We do not amortize goodwill and intangible assets that are deemed to have indefinite lives. However, we do amortize certain product related technologies,
trademarks, patents and other intangibles and we periodically evaluate them for impairment. We review goodwill for impairment annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value, at the
reporting unit level (operating segment). As of March 31, 2009, we had $14.7 million of goodwill. Fair values are based on discounted cash flows using a discount rate determined by our management to be consistent with industry discount rates
and the risks inherent in our current business model. Due to uncertain market conditions and potential changes in our strategy and product portfolio, it is possible that the forecasts we use to support our goodwill and other intangible assets could
change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition.

Furthermore, impairment testing requires significant judgment, including the identification of reporting units based on our internal reporting structure that reflects the way we manage our business and operations and to which our goodwill
and intangible assets would be assigned. Significant judgments are required to estimate the fair value of our goodwill and intangible assets, including estimating future cash flows, determining appropriate discount rates, estimating the applicable
tax rates, foreign exchange rates and interest rates, projecting the future industry trends and market conditions, and making other assumptions. Changes in these estimates and assumptions, including changes in our reporting structure, could
materially affect our determinations of fair value.

We have recorded approximately $38.0 million of goodwill and intangible assets in
connection with our acquisitions. If the actual revenues and operating profit attributable to acquired intangible assets are less than the projections we used to initially value these intangible assets when we acquired them, then these intangible
assets may be deemed to be impaired. If we determine that any of the goodwill or other intangible assets associated with our recent acquisitions are impaired, then we would be required to reduce the value of those assets or to write them off
completely by taking a related charge to earnings. If we are required to write down or write off all or a portion of those assets, or if financial analysts or investors believe we may need to take such action in the future, our stock price and
operating results could be materially adversely affected.

At March 31, 2009, we had $1.5 million, net, of unamortized intangibles,
which include trade names we purchased in acquisitions. These intangibles are primarily associated with on-demand compensation management products. Our customers or prospective customers may not purchase or widely accept our new products. If we fail
to complete the development of our anticipated future product and service offerings, including product offerings acquired through our acquisitions, if we fail to complete them in a timely manner, or if we are unsuccessful in selling any new lines of
products and services, we could determine that the value of the purchased technology is impaired in whole or in part and take a charge to earnings. We could also incur additional charges in later periods to reflect costs associated with completing
those projects that could not be completed in a timely manner. An impairment charge could have a material adverse effect on our results of operations. If the actual revenues and operating profit attributable to acquired product and core technologies
are less than the projections we used to initially value product and core technologies when we acquired it, such intangible assets may be deemed to be impaired. If we determine that any of our intangible assets are impaired, we would be required to
take a related charge to earnings that could have a material adverse effect on our results of operations.

We face competition from a variety of
sources, and our failure to compete successfully could make it difficult for us to add new customers and retain existing customers and could reduce or impede the growth of our business.

The markets for on-demand compensation management, talent management and HRMS and payroll solutions are fragmented, competitive and rapidly evolving, and
there are low barriers to entry to some segments of these markets. We expect the intensity of competition to increase in the future as existing competitors develop their capabilities and as new companies enter our markets. Additionally, as we expand
our suite of compensation



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management, talent management and HRMS and payroll solutions and create new types of applications, including a single comprehensive product suite containing
all of our solutions, we may face additional competition. Increased competition could result in pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance. If we are unable to
compete effectively, it will be difficult for us to maintain our pricing rates and add and retain customers, and our business, financial condition and results of operations will be seriously harmed. We face competition primarily from:



| |  |  | generic desktop software and in-house or custom-developed solutions;
| | - |  | --------------------------------------------------------------------



| |  |  | established software vendors offering products specifically designed for compensation management or talent management;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | established compensation and HR consulting firms;
| | - |  | -------------------------------------------------



| |  |  | established HRMS/payroll providers;
| | - |  | -----------------------------------



| |  |  | other websites and advertising venues; and
| | - |  | ------------------------------------------



| |  |  | existing and future start-up companies offering software, data and interactive HR solutions.
| | - |  | --------------------------------------------------------------------------------------------

Many of our current and potential competitors have longer operating histories, a larger presence in the general corporate compensation and talent
management market, access to larger customer bases and substantially greater financial, technical, sales and marketing, management, service, support and other resources than we have. As a result, our competitors may be able to respond more quickly
than we can to new or changing opportunities, technologies, standards or customer requirements or devote greater resources to the promotion and sale of their products and services than we can. To the extent our competitors have an existing
relationship with a potential customer, that customer may be unwilling to switch vendors due to existing commitments with such competitors.

We also expect that new competitors, including companies currently operating in the HR market, enterprise software vendors and online service providers that have traditionally focused on enterprise resource planning or back office
applications will enter the on-demand compensation management market with competing products as this market develops and matures. Many of these potential competitors have established or may establish business, financial or strategic relationships
among themselves or with existing or potential customers, alliance partners or other third parties or may combine and consolidate to become more formidable competitors with better resources. It is possible that these new competitors could rapidly
acquire significant market share.

Mergers or other strategic transactions involving our competitors could weaken our competitive position or reduce our
revenue.

We believe that our industry is highly fragmented and that there is likely to be consolidation, which could lead to increased
price competition and other forms of competition. Increased competition may cause pricing pressure and loss of market share, either of which could have a material adverse effect on our business, financial condition and results of operations. Our
competitors may establish or strengthen cooperative relationships with HR BPO vendors, systems integrators, third party consulting firms or HRMS/payroll providers or other parties. Established companies may not only develop their own products but
may also merge with or acquire our current competitors. In addition, we may face competition in the future from large established companies, as well as from emerging companies that have not previously entered the markets for compensation management,
talent management or HRMS/payroll solutions or that currently do not have products that directly compete with our solutions. It is also possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market
share. In addition, our competitors may announce new products, services or enhancements that better meet the price or performance needs of clients or changing industry standards.



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If there are interruptions or delays in our on-demand services due to third-party error, our own error or the
occurrence of unforeseeable events, delivery of our solutions and the use of our service could become impaired, which could harm our relationships with customers and subject us to liability.

All of our solutions reside on hardware that we own or lease and operate and which is currently located at third party operations facilities maintained
and operated by either DDI or AT&T. We do not maintain long-term supply contracts with DDI or AT&T, and they do not guarantee that our customers access to our solutions will be uninterrupted, error-free or secure. Our operations depend
on DDIs and AT&Ts ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, computer viruses or other attempts to harm our systems,
criminal acts and similar events. In the event that our operations facility arrangements with DDI or AT&T are terminated, or there is a lapse of service or damage to either facility, we could experience interruptions in our service as well as
delays and additional expense in arranging new facilities and services.

Our disaster recovery computer hardware and systems located at our
headquarters in Needham, Massachusetts have not been tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage occurring at our operations facility. In the event of a
disaster in which our operations facility was irreparably damaged or destroyed, we could experience lengthy interruptions in our service. Moreover, our disaster recovery computer hardware and systems are located approximately fifteen miles from our
operations facility and may be equally or more affected by any disaster affecting our operations facility. Any or all of these events could cause our customers to lose access to our on-demand software.

Our on-demand compensation management, talent management and our HRMS/payroll solutions are accessed by a large number of customers at the same time. As
we continue to expand the number of our customers and applications available to our existing clients, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in
services. In addition, the failure by the DDI or AT&T facility to meet our capacity requirements could result in interruptions or delays in our service or impede our ability to scale our operations.

We design the system infrastructure and procure and own or lease the computer hardware used for our on-demand services. Design and mechanical errors,
spikes in usage volume and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions in our service. While we have not experienced extended system failures in the past, any interruptions or delays
in our service, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and our reputation. Also, in the event of damage or
interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could damage our brand and reputation, divert our employees attention, reduce our revenue, subject us to liability,
cause us to issue credits or cause customers to fail to renew their subscriptions, any of which could adversely affect our business, financial condition and results of operations.

Material defects or errors in our on-demand software could affect our reputation, result in significant costs to us and impair our ability to sell our solutions, which would harm our business.

The software applications forming part of our solutions may contain material defects or errors, which could materially and adversely affect our
reputation, result in significant costs to us and impair our ability to sell our solutions in the future. After the release of our products, defects or errors may also be identified from time to time by our internal team and by our clients. The
costs incurred in correcting any material product defects or errors may be substantial and would adversely affect our operating results. Such defects or errors may occur in the future.

Because our customers use our solutions for important aspects of their business, any errors or defects in, or other performance problems with, our
solutions could hurt our reputation and may damage our customers



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businesses. If that occurs, we could lose future sales or our existing customers could elect not to renew their agreements with us. Software performance
problems could result in loss of market share, failure to achieve, or a delay in achieving, market acceptance of our solutions and the diversion of development resources. If one or more of our solutions fail to perform or contain a technical defect,
a customer may assert a claim against us for substantial damages, whether or not we are responsible for our solutions failure or defect. We do not currently maintain any warranty reserves.

Product liability claims could require us to spend significant time and money in litigation or arbitration/dispute resolution or to pay significant
settlements or damages. Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may be inadequate, or may not be available in the future on reasonable terms, or at all. Defending a lawsuit,
regardless of its merit, could be costly and divert managements attention and could cause our business to suffer.

We may be liable to our
customers and may lose customers if we provide poor service, if our solutions do not comply with our agreements or if there is a loss of data.

The information used in our proprietary data sets may not be complete or may contain inaccuracies that our customers regard as significant. Our ability to collect and report data may be interrupted by a number of factors, including the
termination of agreements with third-party data providers, our inability to access the Internet, the failure of our network or software systems or failure by our operations facility to meet our capacity requirements. In addition, computer viruses
and intentional or unintentional acts of our employees may harm our systems, causing us to lose data we maintain and supply to our customers or data that our customers input and maintain on our systems, and the transmission of computer viruses could
expose us to litigation. Our subscription agreements generally give our customers the right to terminate their agreements for cause if we materially breach our obligations. Any failures in the services that we supply or the loss of any of our
customers data that we cannot rectify in a reasonable time period may give our customers the right to terminate their agreements with us and could subject us to liability. As a result, we may also be required to spend substantial amounts to
defend lawsuits and pay any resulting damage awards. In addition to potential liability, if we supply inaccurate data or experience interruptions in our ability to supply data, our reputation could be harmed and we could lose customers. Although we
maintain general liability insurance, including coverage for errors and omissions, this coverage may be inadequate, or may not be available in the future on reasonable terms, or at all. In addition, we cannot assure you that this policy will cover
any claim against us for loss of data or other indirect or consequential damages and defending a lawsuit, regardless of its merit, could be costly and divert managements attention.

With our recent acquisition of Genesys, if we are unable to release annual or periodic updates on a timely basis to reflect changes in tax laws and regulations or other regulatory provisions applicable to our
products, the market acceptance of our products may be adversely affected and our revenues could decline.

In the third quarter of
fiscal 2009, we acquired Genesys. The Genesys suite of products includes payroll management systems, which are affected by changes in tax laws and regulations and generally must be updated annually or periodically to maintain their accuracy and
competitiveness. We cannot be certain that we will be able to release these annual or periodic updates on a timely basis in the future. Failure to do so could have a material adverse effect on market acceptance of the products we acquired from
Genesys. In addition, significant changes in tax laws and regulations or other regulatory provisions applicable to our products could require us to make a significant investment in product modifications, which could result in significant unexpected
costs to us.



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Because our products collect and analyze applicants and employees stored personal information, concerns
that our products do not adequately protect the privacy of applicants and employees could result in liability to us and inhibit sales of our products.

Some of the features of our compensation management, talent management and HRMS/payroll applications depend on the ability to develop and maintain profiles of applicants and employees for use by our clients. Our
software applications augment these profiles over time by capturing additional data and collecting usage data. Although our applications are designed to protect user privacy, privacy concerns nevertheless may cause individuals and businesses to
resist providing the personal data necessary to support our products. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy laws and regulations, could result in liability to us, damage our
reputation, inhibit sales of our products and seriously harm our business, financial condition and operating results.

As we continue to
extend our operations outside of the United States, we may become subject to various data protection regulations such as those adopted by the European Union related to the confidentiality of personal data.

If our security measures are breached and unauthorized access is obtained to client data, clients may curtail or stop their use of our solutions, which would harm our
business, financial condition and results of operations.

Our solutions involve the storage and transmission of confidential information
of clients and their existing and potential employees, and security breaches could expose us to a risk of loss of, or unauthorized access to, this information, resulting in possible litigation and possible liability. If our security measures were
ever breached as a result of third-party action, employee error, malfeasance or otherwise, and, as a result, an unauthorized party obtained access to this confidential data, our reputation could be damaged, our business could suffer and we could
incur significant liability. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not discovered until launched against a target. As a result, we may be unable to anticipate these techniques or to
implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of our security measures could be harmed and we could lose sales and clients.

We may increase our sales and marketing efforts to clients outside the United States and open additional offices outside the United States, which would expose us to
additional risks associated with international operations.

As a part of our business strategy we have increased our operations outside
the United States. In December 2006, we established a wholly foreign owned enterprise in Shanghai, China primarily for software development. In March 2008, we released our first international dataset within the existing CompAnalyst market pricing
suite in Canada and completed our first sales to customers. In August 2008, we acquired InfoBasis, a wholly owned subsidiary in the United Kingdom. In September 2008, we established a wholly foreign owned enterprise in Montego Bay, Jamaica primarily
to support our pre-sales marketing efforts. While we have no additional specific plans or commitments with respect to any further international expansion, we may open additional offices outside of the United States in the future. We may not be
successful in our efforts to establish our Chinese operations or to expand our sales into Canada and other international markets and open additional international offices. International operations and sales subject us to risks and challenges that we
would otherwise not face if we conducted our business only in the United States including:



| |  |  | legal and regulatory restrictions;
| | - |  | ----------------------------------



| |  |  | challenges caused by distance, language and cultural differences and in doing business with foreign agencies and governments;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



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| |  |  | difficulties obtaining additional data sources that cover international job markets at a reasonable cost;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | difficulties obtaining the data necessary to support international customers on reasonable terms, if at all;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | difficulties developing algorithms that can be used to generate and analyze data on international job markets;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in developing products and services in different languages and for different cultures;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | difficulties in managing and staffing international operations;
| | - |  | ---------------------------------------------------------------



| |  |  | challenges in protecting data and intellectual property;
| | - |  | --------------------------------------------------------



| |  |  | longer payment cycles in some countries;
| | - |  | ----------------------------------------



| |  |  | credit risk and higher levels of payment fraud;
| | - |  | -----------------------------------------------



| |  |  | currency exchange rate fluctuations;
| | - |  | ------------------------------------



| |  |  | political and economic instability and export restrictions;
| | - |  | -----------------------------------------------------------



| |  |  | potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | higher costs associated with doing business internationally.
| | - |  | ------------------------------------------------------------

Our limited experience with conducting business internationally increases our risk of operating internationally and requires management to focus additional attention and resources on our international operations.
These risks could harm our international expansion efforts or other aspects of our business, which would in turn harm our business, financial condition and results of operations.

Evolving regulation of the Internet may increase our expenditures related to compliance efforts, which may adversely affect our financial condition.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. We are particularly sensitive
to these risks because the Internet is a critical component of our on-demand business model. For example, we believe that increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection,
processing or use of personal or consumer information could affect our clients ability to use and share data, potentially reducing demand for solutions accessed via the Internet and restricting our ability to store, process and share data with
our clients via the Internet. In addition, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations for accessing the Internet may also be imposed. Any regulation imposing greater
fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the Internet and the viability of Internet-based services, which could harm our business.

The success of our business depends on the continued growth and acceptance of the Internet as a business and communications tool, and the related expansion of the
Internet infrastructure.

The future success of our business depends upon the continued and widespread use of the Internet as a primary
medium for commerce, communication and business applications. Our business growth would be impeded if the performance or perception of the Internet was harmed by security problems such as viruses, worms and other malicious
programs, reliability issues arising from outages and damage to Internet infrastructure, delays in development or adoption of new standards and protocols to handle increased demands of Internet activity, increased costs, decreased accessibility and
quality of service or increased government taxation of Internet activity.



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The Internet has experienced, and is expected to continue to experience, significant user and traffic
growth, which has, at times, caused user frustration with slow access and download times. If Internet activity grows faster than Internet infrastructure or if the Internet infrastructure is otherwise unable to support the demands placed on it, or if
hosting capacity becomes scarce, our business growth may be adversely affected.

If we are unable to protect our proprietary technology and other
intellectual property rights, it will reduce our ability to compete for business and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.

Our intellectual property rights are important to our business, and our success is dependent, in part, on protecting our proprietary technology and our
brand, marks and domain names. In particular, the processes we use when working with the data we obtain, including the use of algorithms and other analytical tools, are critical to the accuracy of our data sets and the success of our business. We
rely on a combination of patent, copyright, trademark and trade secret laws, as well as licensing agreements, third-party nondisclosure agreements and other contractual provisions and technical measures, to protect our intellectual property rights.
These protections may not be adequate to prevent our competitors from copying our solutions or otherwise infringing on our intellectual property rights. Existing copyright laws afford only limited protection for our intellectual property rights and
may not protect such rights in the event competitors independently develop solutions similar or superior to ours. In addition, the laws of some countries in which our solutions are or may be licensed may not protect our solutions and intellectual
property rights to the same extent as do the laws of the United States.

To protect our proprietary methods, we have two U.S. issued
patents and corresponding foreign equivalents, and currently have three U.S. patent applications pending and corresponding foreign equivalents. We cannot assure you that the U.S. Patent and Trademark Office (or its foreign equivalents) will grant
these patents, or that the patents granted will give us the protection that we seek.

To protect our trade secrets and other proprietary
information, we require employees, consultants, advisors and collaborators to enter into non-disclosure agreements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event
of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information.

We will not be
able to protect our intellectual property if we do not detect unauthorized use of our intellectual property. If we discover that a third party is infringing upon our intellectual property rights, we may need to undertake costly and time-consuming
litigation to enforce our intellectual property rights. We cannot be sure we will prevail in any litigation filed to protect our intellectual property, and even if we are successful in protecting our intellectual property rights, we may incur
significant legal costs and managements attention may be diverted from the ongoing development of our business, which could adversely affect our business. If we are unable to protect our intellectual property, our competitors could use our
intellectual property to market products similar to ours, which could decrease demand for our solutions.

If a third party asserts that we are
infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, and our business may be harmed.

The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation
based on allegations of infringement or other violations of intellectual property rights. Third parties may assert patent and other intellectual property infringement claims against us in the form of lawsuits, letters, or other forms of
communication. If a third party successfully asserts a claim that we are infringing their proprietary rights, royalty or licensing agreements might not be available on terms we find acceptable or at all. As currently pending patent applications are
not publicly available, we cannot anticipate all such claims or know with certainty whether our technology infringes the intellectual property rights of third parties.



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Any litigation, with or without merit, could be time consuming and expensive to litigate or settle and
could divert managements attention from our business. Any license agreement we enter into with the patent holder could have unfavorable terms, including royalty payments, which could adversely affect our business.

In order to obtain certain of the necessary data that serves as the backbone of our compensation management solutions, we enter into agreements with
major consulting firms and other third-party providers. We generally receive data in a summary form. We do not generally have an ability to resell such data in its entirety, but we can use such data internally to generate our proprietary data sets.
If a third party successfully asserts a claim that our use of its data has violated our agreement with such provider or infringed upon their copyright, we may be required to remove the applicable data from our data sets and regenerate our data sets
without such data. Additionally, we may no longer be able to obtain data from the provider or other providers on reasonable terms, if at all.

We expect that the number of infringement and breach of contract claims in our market will increase as the number of solutions and competitors in our industry grows. These claims, whether or not successful, could:



| |  |  | require significant management time and attention;
| | - |  | --------------------------------------------------



| |  |  | result in costly and time-consuming litigation, and the payment of substantial damages;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | require us to enter into royalty or licensing agreements, which may not be available on terms acceptable to us, if at all;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | require us to remove data from our compensation management data sets and regenerate our data sets without such data;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | require us to expend additional development resources to redesign our solutions to avoid infringement or discontinue the sale of our solutions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | create negative publicity that adversely affects our reputation and brand and the demand for our solutions; or
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | require us to indemnify our clients.
| | - |  | ------------------------------------

As a result, any third-party intellectual property infringement claims or breach of contract claims against us could increase our expenses and adversely affect our business. In addition, many of our customer agreements require us to
indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling in any such claim. Even if we have not infringed any third parties intellectual property
rights, we cannot be sure our legal defenses will be successful, and even if we are successful in defending against such claims, our legal defense could require significant financial resources and managements time, which could adversely affect
our business.

We might require additional capital to support business growth, and this capital might not be available.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the
need to develop new software or enhance our existing solutions, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to complete additional equity or debt financings to secure
additional funds. We cannot assure you that further equity or debt financing will be available on acceptable terms. If we raise additional funds through further issuances 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.



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Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the
United States.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting
Standards Board, or FASB, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles
or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

Our ability to use net operating loss carryforwards in the United States may be limited.

As of
March 31, 2009, we had net operating loss carryforwards of approximately $32.2 million for federal tax purposes. These loss carryforwards expire at various dates through 2028. To the extent available, we intend to use these net operating loss
carryforwards to reduce the U.S. corporate income tax liability associated with our operations. Section 382 of the U.S. Internal Revenue Code of 1986 generally imposes an annual limitation on the amount of net operating loss carryforwards that
may be used to offset taxable income when a corporation has undergone significant changes in stock ownership. Our ability to utilize net operating loss carryforwards may be limited by the issuance of common stock in our initial public offering. To
the extent our use of net operating loss carryforwards is significantly limited, our income could be subject to U.S. corporate income tax earlier than it would if we were able to use net operating loss carryforwards, which could result in lower
profits.

Being a public company has increased and will continue to increase our administrative costs.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company. Sarbanes-Oxley, as well as new rules subsequently implemented by the SEC and the Nasdaq Global Market, have required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal and
financial compliance costs, and have made some activities more time consuming and/or costly. For example, we have migrated our core financial systems to our new accounting system, adopted additional internal controls and disclosure controls and
procedures and adopted corporate governance policies. We also are subject to Section 404 of Sarbanes-Oxley which requires us to complete a formal evaluation, documentation and analysis of our internal controls, and remedy any deficiencies,
significant deficiencies or material weaknesses that we may identify. In addition, as a public company we have all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the
securities laws. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

An active trading market for our common stock may not be available on a consistent basis to provide stockholders with adequate liquidity. Our stock price may be
extremely volatile, and our stockholders could lose a significant part of their investment.

An active trading market for shares of our
common stock may not be sustained on a consistent basis. The public trading price for our common stock will be affected by a number of factors, including:



| |  |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------



| |  |  | seasonality of our business cycle;
| | - |  | ----------------------------------



| |  |  | interest rate changes;
| | - |  | ----------------------



| |  |  | changes in the markets expectations about our operating results;
| | - |  | -----------------------------------------------------------------



| |  |  | our operating results failing to meet the expectation of securities analysts or investors in a particular period or failure of securities analysts to publish
reports about us or our business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | changes in financial estimates and recommendations by securities analysts concerning our company or the on-demand software industry in general;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | operating and stock price performance of other companies that investors deem comparable to us;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | news reports relating to trends in our markets;
| | - |  | -----------------------------------------------



| |  |  | announcements by us or our competitors of acquisitions, changes in strategy, new offerings or improvements, significant contracts, commercial relationships or
capital commitments;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to market new and enhanced offerings on a timely basis;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in laws and regulations affecting our business;
| | - |  | -------------------------------------------------------



| |  |  | commencement of, or involvement in, litigation;
| | - |  | -----------------------------------------------



| |  |  | the volume of shares of our common stock available for public sale;
| | - |  | -------------------------------------------------------------------



| |  |  | any major change in our board or management;
| | - |  | --------------------------------------------



| |  |  | sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic and political conditions such as recessions and acts of war or terrorism; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the other factors described elsewhere in these Risk Factors.
| | - |  | --------------------------------------------------------------

As a result of these factors, our stockholders may not be able to resell their shares at, or above, their purchase price.

In addition, prior to our public offering, we received very limited analyst coverage. The trading market for our common stock relies in part on the
research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. There are many large, well-established publicly-traded companies active in our industry and market, which may mean it will
be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we
could lose visibility in the market, which in turn could cause our stock price to decline and may also impair our ability to expand our business with existing customers and attract new customers.

Given the volatility of our stock and trends in the stock market in general, at any given time we might not meet the continued listing requirements of The NASDAQ
Global Market. If we are not able to maintain the requirements for continued listing on The NASDAQ Global Market, we could be de-listed, which could have a materially adverse effect on the price and liquidity of our common stock.

Our common stock trades on the NASDAQ Global Market, which has certain compliance requirements for continued listing of common stock. Among other
requirements, NASDAQ requires the minimum bid price of a companys registered shares to be $1.00. In the fiscal year ended March 31, 2009, the closing bid price of our stock was as low as $1.36. If our minimum closing bid price per share
falls below $1.00 for a period of 30 consecutive trading days in the future, we be subject to delisting procedures. We also must meet additional continued listing requirements contained in NASDAQ Marketplace Rule 5450(b), which requires that we have
a minimum of $10,000,000 in stockholders equity or $50,000,000 market value of listed securities held by non-affiliates or $50,000,000 of total assets and total revenue for the most recently completed fiscal year (or two of the three most
recently completed fiscal years).

As of the close of business on June 22, 2009, we were in compliance with NASDAQ Marketplace Rule
5450(b)(1)(A). There can be no assurances that we will continue to meet NASDAQs continued listing requirements. Delisting could reduce the ability of our stockholders to purchase or sell shares as quickly and as



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inexpensively as they have done historically. For instance, failure to obtain listing on another market or exchange may make it more difficult for traders to
sell our securities. Broker-dealers may be less willing or able to sell or make a market in our common stock. Not maintaining our NASDAQ Global Market listing may result in a decrease in the trading price of our common stock, lessen interest by
institutions and individuals in investing in our common stock, make it more difficult to obtain analyst coverage, and make it more difficult for us to raise capital in the future.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

Our executive officers, directors and affiliated entities together beneficially own approximately 23% of our common stock. As a result, these stockholders, acting together, will have control over most matters that
require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the
effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial. In addition, Kent Plunkett, our Chairman, President and Chief Executive Officer, directly and indirectly owns approximately 19% of
our common stock. Mr. Plunketts significant ownership interest could adversely affect investors perception of our corporate governance or delay, prevent or cause a change in control of our company, any of which could adversely
affect the market price of our common stock.

Future sales, or the availability for sale, of our common stock may cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely
affect the market price of our common stock and could materially impair our future ability to raise capital through offerings of our common stock.

Our
Shareholder Rights Plan or provisions in our amended and restated certificate of incorporation and bylaws or Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the
trading price of our stock.

We have adopted a Shareholder Rights Plan, under which the rights become exercisable if a person becomes an
acquiring person by acquiring 20% or more of the outstanding shares of common stock or if a person commences a tender offer that would result in that person owning 20% or more of the common stock. If a person becomes an acquiring
person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current exercise price, such number of shares of our preferred stock which are equivalent to shares of common stock having twice the
exercise price of the right. If we are acquired in a merger or other business combination transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring
companys common stock having a value of twice the exercise price of the right. The Shareholder Rights Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our
common stock.

In addition to our Shareholder Rights Plan, our amended and restated certificate of incorporation and bylaws contain
provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These
provisions include:



| |  |  | our board of directors is divided into three classes serving staggered three-year terms;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | only our board of directors may call special meetings of our stockholders;
| | - |  | --------------------------------------------------------------------------



| |  |  | our stockholders may take action only at a meeting of our stockholders and not by written consent;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | we have authorized undesignated blank check preferred stock, the terms of which may be established and shares of which may be issued without stockholder
approval;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | stockholder approval of amendments of our certificate of incorporation requires a vote of a majority of our outstanding shares and, in some cases, a vote of 75% of
our outstanding shares;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | stockholder approval of amendments of our by-laws requires a vote of a majority of our outstanding shares or, if the amendment is not recommended by our board of
directors, a vote of 75% of our outstanding shares;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | vacancies on the board of directors may be filled only by the directors;
| | - |  | ------------------------------------------------------------------------



| |  |  | stockholders may remove our directors only for cause and with the affirmative vote of the holders of 75% of the votes that all stockholders would be entitled to
cast in the election of directors; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we require advance notice for stockholder proposals.
| | - |  | ----------------------------------------------------

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company.

We
do not intend to pay dividends on our common stock in the foreseeable future.

We have not declared or paid any cash dividends on our
common stock. We currently intend to retain any future earnings and do not expect to pay any dividend in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common
stock increases.



|ITEM 2. | PROPERTIES
|------- | ----------

Information regarding our principal
properties at March 31, 2009 is set forth below:



|                       |  |                                               |  |             |  |          
|---------------------- |  | --------------------------------------------- |  | ----------- |  | ---------
|Location               |  | Principal Use                                 |  | Sq. Footage |  | Ownership
|Needham, Massachusetts |  | Corporate Headquarters                        |  | 36,288      |  | Leased   
|Shanghai, China        |  | Research and development                      |  | 31,240      |  | Leased   
|Methuen, Massachusetts |  | Professional services anddevelopment          |  | 30,698      |  | Leased   
|Oxford, United Kingdom |  | Sales administration andprofessional services |  | 6,409       |  | Leased   
|Montego Bay, Jamaica   |  | Sales administration andcustomer support      |  | 5,502       |  | Leased   

We believe that our existing facilities are adequate for our current needs. As additional space is
needed in the future, we believe that suitable space will be available in the required locations at commercially reasonable terms.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

We are not currently subject to
any material legal proceedings. From time to time, however, we may be named as a defendant in legal actions arising from our normal business activities. These claims, even those that lack merit, could result in the expenditure of significant
financial and managerial resources.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

No matters were submitted to a vote of security holders in the fourth quarter of fiscal year 2009.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED COMMON STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | -------------------------------------------------------------------------------------------------------------------

Market Price of Common Stock

Our common stock has
been traded on the Nasdaq Global Market under the symbol SLRY since February 15, 2007. The following table presents the high and low sale prices of our common stock as reported by the Nasdaq Global Market, for the period indicated.



|                                 |  |      |       |     |   |      
|-------------------------------- |  | ---- | ----- | --- | - | -----
|Fiscal year ended March 31, 2008 |  | High |       | Low
|First quarter                    |  | $    | 12.79 |     | $ | 9.67 
|Second quarter                   |  | $    | 14.41 |     | $ | 10.80
|Third quarter                    |  | $    | 16.32 |     | $ | 11.70
|Fourth quarter                   |  | $    | 13.94 |     | $ | 6.15 
|                                 |  |     
|Fiscal year ended March 31, 2009 |  | High |       | Low
|First quarter                    |  | $    | 6.45  |     | $ | 3.98 
|Second quarter                   |  | $    | 5.13  |     | $ | 3.73 
|Third quarter                    |  | $    | 3.98  |     | $ | 1.50 
|Fourth quarter                   |  | $    | 3.05  |     | $ | 1.36 

The last sale price of the common stock on June 22, 2009, as reported by Nasdaq Global Market, was
$3.18 per share. As of June 22, 2009, there were 106 holders of record of the common stock.

We have never declared or paid any cash
dividends on our common stock and currently expect to retain future earnings for use in our business for the foreseeable future.



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Performance Graph

The following line graph compares cumulative total stockholder returns for the period from February 15, 2007, the date of our initial public offering, through March 31, 2009 for: (1) our common stock;
(2) the Nasdaq Composite Index; and (3) the Nasdaq Computers Index. The graph assumes an investment of $100 on February 15, 2007, which was the first day on which our stock was listed on the Nasdaq Composite Index. The calculations of
cumulative stockholder return on the Nasdaq National Index and the Nasdaq Computers Index include reinvestment of dividends, but the calculation of cumulative stockholder return on our common stock does not include reinvestment of dividends because
we did not pay dividends during the measurement period. The performance shown is not necessarily indicative of future performance.

LOGO



|                       |  |           |     |         |   |         |  |   |      
|---------------------- |  | --------- | --- | ------- | - | ------- |  | - | -----
|                       |  | 2/15/2007 |     | 3/31/08 |   | 3/31/09
|Salary.com, Inc.       |  | $         | 100 |         | $ | 52.72   |  | $ | 11.20
|Nasdaq Composite       |  |           | 100 |         |   | 91.59   |  |   | 61.21
|Nasdaq Computers Index |  |           | 100 |         |   | 95.63   |  |   | 66.59



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Equity Compensation Plan Information

The following table sets forth certain information as of March 31, 2009 with respect to compensation plans under which our equity securities are authorized for issuance:



|                                                               |  |                                                                                            |  |                                                                             |      |                                                                                                                                          |           |    
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------- | ---- | ---------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|                                                               |  | Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights(a) |  | Weighted-averageexercise price ofoutstanding options,warrants and rights(b) |      | Number of securitiesremaining available forfuture issuance underequity compensationplans
(excludingsecurities reflected incolumn (a))(c) |          
|Equity compensation plans approved by security holders (1):    |  | 1,441,938                                                                                  |  | $                                                                           | 6.88 |                                                                                                                                          | 6,129,693 | (2)
|Equity compensation plans not approved by security holders(3): |  | 497,716                                                                                    |  |                                                                             | 0.73 |                                                                                                                                          | 0         |    
|                                                               |  |                                                                                            |  |                                                                             |      |                                                                                                                                          |           |    
|Total                                                          |  | 1,939,654                                                                                  |  | $                                                                           | 5.30 |                                                                                                                                          | 6,129,693 |    



|(1) | Please see Note 9 of our Notes to Consolidated Financial Statements for description of our equity compensation plans.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(2) | Includes 446,350 shares that remain available for purchase under the Salary.com Employee Stock Purchase Plan, 683,341 shares for stock options that have been exercised but have not
vested as of March 31, 2009 and 2,508,915 shares for restricted stock unit awards that have not vested as of March 31, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consists of the following plans assumed in our acquisition of Genesys Software Systems, Inc. (Genesys): the Genesys Software Systems, Inc. Incentive Stock Option Plan Dated
November 16, 1990, amended and restated through December 10, 2008; the Genesys Software Systems, Inc. Directors and Consultants Stock Option Plan Dated March 10, 1998, amended and restated through December 10, 2008; and the
Genesys Software Systems, Inc. Stock Option Plan of November 17, 2000, amended and restated through December 10, 2008.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Plans
Assumed In the Genesys Acquisition

In connection with our acquisition of Genesys in December 2008, we assumed the Genesys Incentive
Stock Option Plan, the Genesys Directors and Consultants Stock Option Plan and the Genesys Stock Option Plan, each which was previously adopted and approved by the board of directors and stockholders of Genesys. Under the terms of these plans,
Genesys was authorized to grant incentive and non-qualified stock options and restricted stock to its employees, directors and advisors. Following our acquisition of Genesys, we assumed all of the outstanding options under these plans, and all of
the options issued under these plans were converted into the right to receive 519,492 shares of our Common Stock. Incentive and non-qualified stock options issued under these plans generally vested immediately upon the closing of the acquisition and
expire ten years from the date of the acquisition. All options are exercisable upon vesting.

Unregistered Sales of Securities

During the fiscal year ended March 31, 2009, we issued 73,154 shares of common stock to the principal of ITG in connection with contingent consideration
related to our acquisition of ITG in August 2007.

During the fiscal year ended March 31, 2009, we issued 3,373 shares of our common
stock upon the exercise of outstanding warrants to purchase common stock at a weighted average exercise price of $2.19 per share.

No
underwriters were involved in these transactions, and there were no underwriting discounts or commissions. The issuance of securities described above were deemed to be exempt from registration under the Securities Act of 1933 in reliance on
Section 4(2) of the Securities Act of 1933. The recipients of securities in



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each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. The sales of these securities were made without general solicitation or advertising.

Use of Proceeds from Registered Securities

On
February 21, 2007, we issued and sold 4,898,443 shares of our common stock that we registered under a Registration Statement on Form S-1 (File No. 333-138646), which was declared effective by the SEC on February 14, 2007, in an
initial public offering at an offering price of $10.50 per share, less underwriting discounts and commissions. On February 27, 2007, the underwriters exercised the option to purchase an additional 349,757 shares of common stock from us at the
offering price of $10.50 per share less underwriting discounts and commissions. The offering of the common stock (including the exercise by the underwriters of their over-allotment option) resulted in gross proceeds of $55.1 million and net proceeds
of approximately $48.0 million to us after deducting underwriting discounts and commissions of approximately $3.9 million and related offering costs of an estimated $3.2 million. The foregoing proceeds do not include proceeds to selling stockholders
from their sale of an aggregate of 1,306,800 shares of our common stock. The book-running manager for the offering was Thomas Weisel Partners LLC, the co-lead manager was William Blair & Company, L.L.C. and Needham & Company, LLC,
Wachovia Capital Markets, LLC and Pacific Crest Securities Inc. acted as representatives of the underwriters. No payments were made to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our
affiliates, other than proceeds from the offering to those selling stockholders who are officers of the company in respect of their shares sold in the offering, and payments in the ordinary course of business to officers for salaries and to
non-employee directors as compensation for board or board committee service.

As of June 1, 2009, $9.5 million of the net proceeds
remained available and were primarily invested in money market accounts or marketable securities. Pending any use, as described below, we have invested the net proceeds in investment-grade, short-term, interest-bearing securities.

Since the initial public offering through June 1, 2009, we have used approximately $10.3 million for our acquisition of ICR, approximately $2.1
million for our acquisition of ITG (including payments of contingent consideration), approximately $2.2 million for our acquisition of Schoonover, approximately $5.4 million for our acquisition of Infobasis Limited (Infobasis), approximately $10.0
million to pay down our line of credit in May 2009 which was used to fund the acquisition of Genesys and repurchase our common stock, approximately $0.5 million for the purchase of domain names, approximately $2.4 million for data purchases, and
approximately $5.6 million to fund our worldwide operations. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b).



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Issuer Purchases of Equity Securities

Pursuant to the terms of our 2000 Stock Option Plan and our 2004 Stock Option Plan (collectively referred to as our Stock Plans), options may typically be
exercised prior to vesting. We have the right to repurchase unvested shares from employees upon their termination, and it is generally our policy to do so. In addition, in December 2008, our Board of Directors authorized an ongoing stock repurchase
program with a total repurchase authority granted to us of $2.5 million. The objective of the stock repurchase program is to improve stockholders returns. At March 31, 2009, approximately $2.1 million was available to repurchase common
stock pursuant to the stock repurchase program. In the first quarter of fiscal 2010, our Board of Directors increased the size of our share repurchase program to $7.5 million. All shares repurchased by us were retired as of March 31, 2009. The
following table provides information with respect to purchases made by us of shares of our common stock during the three month period ended March 31, 2009:



|                |  |                                       |  |                            |  |                                                                                  |  |                                                                                                         |          
|--------------- |  | ------------------------------------- |  | -------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- | ---------
|Period          |  | Total Number of SharesPurchased(1)(3) |  | Average PricePaid perShare |  | Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs(2) |  | Maximum Number (orApproximate DollarValue) of Shares
thatMay Yet Be PurchasedUnder the Plans orPrograms
|January 1  31  |  | 81,276                                |  | 1.54                       |  | 53,099                                                                           |  | $                                                                                                       | 2,325,547
|February 1  28 |  | 152,696                               |  | 1.48                       |  | 56,675                                                                           |  | $                                                                                                       | 2,224,333
|March 1  31    |  | 91,219                                |  | 1.43                       |  | 58,837                                                                           |  | $                                                                                                       | 2,131,133
|                |  |                                       |  |                            |  |                                                                                  |  |                                                                                                         |          
|Total           |  | 325,191                               |  | 1.48                       |  | 168,611                                                                          |  | $                                                                                                       | 2,131,133



|(1) | Includes shares originally purchased from us by employees pursuant to exercises of unvested stock options. During the months listed above, we routinely repurchased the shares from
our employees upon their termination of employment pursuant to our right to repurchase unvested shares at the original exercise price under the terms of our Stock Plans and the related stock option agreements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents shares received under our prepaid stock repurchase programs. We expended approximately $375 thousand during the quarter ended March 31, 2009 for repurchases of our
common stock. For more information see Note 9 to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended March 31, 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes shares reacquired in connection with the surrender of shares to cover the minimum taxes on vesting of restricted stock.
|--- | --------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following table
summarizes the financial data for our business and is derived from the Companys historical consolidated financial statements. You should read the selected financial data in conjunction with our historical consolidated financial statements and
related notes and the section of this Annual Report on Form 10-K entitled Managements Discussion and Analysis of Financial Condition and Results of Operations.

The selected statement of operations data for the three years ended March 31, 2009, and balance sheet data as of March 31, 2009 and 2008 have
been derived from our audited financial statements appearing in this annual report on Form 10-K. The selected statement of operations data for the years ended March 31, 2006 and 2005, and balance sheet data as of March 31, 2006 and 2005
have been derived from our audited financial statements not appearing in this annual report on Form 10-K. The selected financial data set forth below should be read in conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations set forth below and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The historical results are not necessarily indicative of the results to be expected in any future
period.



|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                         |  | Years ended March 31,                 |        
|                                                                         |  | (in thousands, except per share data) |        
|                                                                         |  | 2009                                  |         |   | 2008 |   |         | 2007 |  |   | 2006   |   |  | 2005 |       
|Statement of Operations:                                                 |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Revenue:                                                                 |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Subscription revenues                                                    |  | $                                     | 39,630  |   |      | $ | 31,552  |      |  | $ | 20,503 |   |  | $    | 13,037 |   |  | $ | 8,565  |  
|Advertising revenues                                                     |  |                                       | 2,825   |   |      |   | 2,955   |      |  |   | 2,531  |   |  |      | 2,262  |   |  |   | 1,411  |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total revenues                                                           |  |                                       | 42,455  |   |      |   | 34,507  |      |  |   | 23,034 |   |  |      | 15,299 |   |  |   | 9,976  |  
|Cost of revenues (1)                                                     |  |                                       | 13,157  |   |      |   | 8,229   |      |  |   | 5,334  |   |  |      | 3,108  |   |  |   | 1,831  |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Gross profit                                                             |  |                                       | 29,298  |   |      |   | 26,278  |      |  |   | 17,700 |   |  |      | 12,191 |   |  |   | 8,145  |  
|Operating expenses:                                                      |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Research and development (1)                                             |  |                                       | 8,846   |   |      |   | 4,941   |      |  |   | 4,116  |   |  |      | 2,238  |   |  |   | 1,410  |  
|Sales and marketing (1)                                                  |  |                                       | 26,139  |   |      |   | 18,963  |      |  |   | 12,792 |   |  |      | 8,573  |   |  |   | 5,855  |  
|General and administrative (1)                                           |  |                                       | 15,723  |   |      |   | 13,499  |      |  |   | 8,922  |   |  |      | 4,337  |   |  |   | 2,798  |  
|Amortization of intangible assets                                        |  |                                       | 1,988   |   |      |   | 1,126   |      |  |   | 126    |   |  |      |       |   |  |   |       |  
|Restructuring charges                                                    |  |                                       | 3,081   |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total operating expenses                                                 |  |                                       | 55,777  |   |      |   | 38,529  |      |  |   | 25,956 |   |  |      | 15,148 |   |  |   | 10,063 |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Loss from operations                                                     |  |                                       | (26,479 | ) |      |   | (12,251 | )    |  |   | (8,256 | ) |  |      | (2,957 | ) |  |   | (1,918 | )
|Other income (expense)                                                   |  |                                       | 229     |   |      |   | 1,858   |      |  |   | 174    |   |  |      | (173   | ) |  |   | (372   | )
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Loss before provision for income taxes                                   |  |                                       | (26,250 | ) |      |   | (10,393 | )    |  |   | (8,082 | ) |  |      | (3,130 | ) |  |   | (2,290 | )
|Provision for income taxes                                               |  |                                       | 208     |   |      |   | 205     |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net loss                                                                 |  |                                       | (26,458 | ) |      |   | (10,598 | )    |  |   | (8,082 | ) |  |      | (3,130 | ) |  |   | (2,290 | )
|Accretion of preferred stock                                             |  |                                       |        |   |      |   |        |      |  |   | (471   | ) |  |      | (515   | ) |  |   | (513   | )
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net loss attributable to common stockholders                             |  | $                                     | (26,458 | ) |      | $ | (10,598 | )    |  | $ | (8,553 | ) |  | $    | (3,645 | ) |  | $ | (2,803 | )
|                                                                         |  |                                       |         |   |      |   |         |      |  |   |        |   |  |      |        |   |  |   |        |  
|Net loss attributable to common stockholders per sharebasic and diluted |  | $                                     | (1.73   | ) |      | $ | (0.77   | )    |  | $ | (1.42  | ) |  | $    | (0.89  | ) |  | $ | (0.81  | )



|(1) | Net loss includes stock-based compensation expense, as follows:
|--- | ---------------------------------------------------------------



|                           |  |                       |       |      |   |       |  |      |       |      |   |       |  |   |    
|-------------------------- |  | --------------------- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ----- |  | - | ---
|                           |  | Years ended March 31,
|                           |  | (in thousands)       
|                           |  | 2009                  |       | 2008 |   | 2007  |  | 2006 |       | 2005
|Stock-based compensation:  |  |                       |       |      |   |       |  |      |       |      |   |       |  |   |    
|Cost of revenues           |  | $                     | 1,255 |      | $ | 800   |  | $    | 437   |      | $ | 186   |  | $ | 41 
|Research and development   |  |                       | 1,376 |      |   | 459   |  |      | 505   |      |   | 180   |  |   | 57 
|Sales and marketing        |  |                       | 2,702 |      |   | 1,778 |  |      | 986   |      |   | 401   |  |   | 162
|General and administrative |  |                       | 2,616 |      |   | 2,092 |  |      | 2,437 |      |   | 311   |  |   | 252
|Restructuring charges      |  |                       | 1,813 |      |   |      |  |      |      |      |   |      |  |   |   
|                           |  |                       |       |      |   |       |  |      |       |      |   |       |  |   |    
|                           |  | $                     | 9,762 |      | $ | 5,129 |  | $    | 4,365 |      | $ | 1,078 |  | $ | 512
|                           |  |                       |       |      |   |       |  |      |       |      |   |       |  |   |    



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|                                       |  |                 |        |      |   |        |  |      |        |  |      |         |   |  |   |         |  
|-------------------------------------- |  | --------------- | ------ | ---- | - | ------ |  | ---- | ------ |  | ---- | ------- | - |  | - | ------- | -
|                                       |  | As of March 31, |       
|                                       |  | (in thousands)  |       
|                                       |  | 2009            |        | 2008 |   | 2007   |  | 2006 |        |  | 2005 |        
|Balance Sheet Data:                    |  |                 |        |      |   |        |  |      |        |  |      |         |   |  |   |         |  
|Cash                                   |  | $               | 21,085 |      | $ | 37,727 |  | $    | 49,016 |  | $    | 1,814   |   |  | $ | 392     |  
|Total assets                           |  |                 | 78,701 |      |   | 66,209 |  |      | 58,675 |  |      | 7,028   |   |  |   | 3,428   |  
|Total debt                             |  |                 | 8,125  |      |   |       |  |      |       |  |      | 800     |   |  |   | 1,100   |  
|Total deferred revenue                 |  |                 | 28,285 |      |   | 22,033 |  |      | 16,388 |  |      | 10,548  |   |  |   | 6,384   |  
|Redeemable convertible preferred stock |  |                 |       |      |   |       |  |      |       |  |      | 10,538  |   |  |   | 9,973   |  
|Total stockholders equity (deficit)   |  |                 | 21,943 |      |   | 36,168 |  |      | 37,983 |  |      | (17,914 | ) |  |   | (15,240 | )



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated
financial statements and related notes that appear elsewhere in this report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs.
Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in Risk
Factors in Item 1A.

Overview

We are a leading provider of on-demand compensation, payroll, human resource management, performance management and competency management solutions in the human capital software-as-a-service (SaaS) market. We offer software and
services that are tightly integrated with our proprietary data sets to help businesses and individuals manage pay and performance. Companies of all sizes turn to us to effectively and efficiently compensate, promote and manage their employees. With
our help, companies can put the right talent in the right roles to deliver business objectives and individuals at all levels can determine their worth.

Our highly configurable software applications, proprietary content and our consulting services help executives, line managers and compensation professionals automate, streamline and optimize critical talent management
processes, such as market pricing, compensation planning, performance management, competency management (a competency is a set of demonstrated behaviors, skills and proficiencies that determine performance in a given role) and succession planning.
Compensation and competency content are at the core of our solutions, which deliver productive and cost-effective ways for employers to manage and inspire their most important assettheir people.

We integrate our comprehensive SaaS applications with our proprietary content to automate the essential elements of our customers compensation and
performance management processes. Our approach links pay to performance and aligns employees with corporate goals to drive business results. As a result, our solutions can significantly improve the effectiveness of our customers compensation
spending and help them become more productive in managing their employees. We enable employers of all sizes to replace or supplement inefficient and expensive traditional approaches to compensation management, including paper-based surveys,
consultants, internally developed software applications and spreadsheets. Our customers report gains in productivity, reduction in personnel hours to administer pay and performance programs, and improvements in employee retention.

Our data sets contain base, bonus and incentive pay data for positions held by employees and top executives in thousands of public companies. Our
flagship offering is CompAnalyst, a suite of on-demand compensation management applications that integrates our data, third-party survey data and a customers own pay data with a complete analytics offering. In 2008, we expanded our CompAnalyst
market data and added new geographic coverage in the Canadian market. Our Canadian content continues to attract a diverse set of customers across multiple industries. We continue to build our IPAS global compensation technology survey with coverage
of technology jobs in more than 80 countries.

Our on-demand performance management solutions offer our customers
effective and measurable ways to attract and inspire employee performance. TalentManager®, our employee lifecycle performance
management software suite, helps businesses automate performance reviews, streamline compensation planning, perform succession planning, and link employee pay to performance. TalentManager helps employers gain visibility into their performance cycle
and drive employee engagement in the process through a configurable, easy to use interface that can be personalized by users. Using TalentManager, we believe that employers can improve their performance management systems and model the critical jobs
skills they need to achieve their business goals. Our TalentManager succession planning application was named 2008 product of the year by a leading human resources industry publication.



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With our fiscal 2009 acquisitions of InfoBasis Limited (InfoBasis) and Genesys Software Systems, Inc.
(Genesys), we further expanded our addressable market. InfoBasis provides customers with competency-based learning and development software and Genesys offers a broad range of on-demand and licensed human resources management systems and payroll
solutions, including benefits and tax filing services. These acquisitions have also given us the ability to offer our customers a bundled package that includes our HR data and point solution tools for compensation and competency management, our
strategic talent management solutions for performance management, compensation and succession planning, and learning and development and our transactional HR solutions for payroll, tax, benefits, HRMS and employee self service. We are working to
further leverage the synergies among our different products by developing a single, integrated product suite that will contain all of these elements. We believe that an integrated product suite will offer a cost effective way to automate performance
and develop a strong internal pipeline of leaders beyond what can be achieved through bundling our products.

We were organized as a
Delaware corporation in 1999. As of March 31, 2009, our enterprise subscriber base has grown to more than 3,500 companies who spend from $2,000 to more than $100,000 annually. We have achieved 32 consecutive quarters of revenue growth since
April 2001. During the year ended March 31, 2009 we had operating cash outflows of $8.2. During the fiscal years ended March 31, 2008 and 2007, we achieved positive operating cash flows of $8.4 million and $3.1 million, respectively.
During these periods, we have incurred operating losses, including $26.5 million for 2009, $12.3 million for 2008 and $8.3 million for 2007. As of March 31, 2009, we had an accumulated deficit of $66.5 million.

Strategic Initiatives

Fiscal 2009 was a
transformation year for us and during the year we made significant progress towards our long-term vision. We started the year as the on-demand leader in compensation management and an emerging leader in on-demand talent management. Through internal
investment and acquisitions, we ended the year as a provider of a full range of HR solutions. In a single purchase, our customers can now acquire HR data and point solution tools for compensation and competency management, strategic talent
management solutions for performance management, compensation and succession planning, and learning and development and transactional HR solutions for Payroll, Tax, benefits, HRMS and employee self service. We believe this expansion of our offerings
will increase our long-term success, especially as we continue to integrate the applications we obtained in the Genesys acquisition and work to integrate our solutions into a single product suite.

From a market perspective, we continue to believe that the on-demand HR categories are high growth markets. We believe that on-demand software and data
are superior to legacy software and services offerings. Given the lower up-front cost and total cost of ownership, we believe that more companies will switch to on-demand HR solutions, and that we are leading the way with the broadest on-demand HR
offering. We are committed to an operating philosophy that is focused on generating cash flow from operations without sacrificing future growth. In line with this philosophy:



| |  |  | Our sales and marketing team is focused on acquiring new customers profitably and cross-selling to existing customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | We are continuing to invest in the core content and technology development initiatives that drive market leadership positions across our existing businesses; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our services teams remain staffed at levels that allow us to continue delivering best-in-class service to our customers.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

Our pipeline of sales opportunities, both into new customers and existing customers, continues to expand with more products, more bundled sales, and
larger transactions and our product line strategy focuses on product excellence to take and command category leadership positions. We are continuing to invest in extending our own



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products, and re-coding products we acquire, to ensure we remain a provider of integrated best of breed solutions. We believe that in todays
challenging economic environment, these strategic initiatives will help us continue to grow our business, gain market acceptance for our bundled products and achieve positive cash flow. Prior to September 2008, we pursued a strategy of significantly
increasing our investment in sales and marketing and expanding our sales and marketing teams. As a result of the recent financial crisis in the credit markets and difficulties in the financial services sector and continuing geopolitical
uncertainties, the direction and relative strength of the U.S. and global economy have become increasingly uncertain. This uncertainty has caused our current and potential customers to reduce spending on new IT and HR solutions such as ours, which
in turn slowed our historical growth levels. This slowdown resulted in less of a return on our increased investment in sales and marketing than we expect would have entered in a more robust economy. In order to meet this changing economic
environment, we have refocused our strategy away from expanding marketing and sales and towards reducing our expenses, leveraging our current infrastructure and providing solutions that integrate compensation management, talent management and
HRMS/payroll into a single purchase of products that are more efficient for our customers. During fiscal 2009, we reduced our workforce by 16% which is expected to reduce our future annual operating expenses by approximately $10 million. We expect
to continue to seek alternatives to reduce expenses and achieve positive cash flow, while still supporting our customers and products, although we expect that any reductions in expenses in fiscal 2010 will be more moderate as compared to fiscal
2009. We also believe that our investments over the past year in these sales and marketing initiatives created critical infrastructure, which we believe will serve as a basis for future growth and allow us to continue to attract new customers and
provide high level products and support, without significant additional short-term investments.

We have made five acquisitions of
businesses since our initial public offering in February 2007. Through these acquisitions we have been able to expand our product offerings and make significant progress towards our long term vision we describe above. The expansion of our product
offerings has expanded our addressable market and significantly contributed to our growth in revenue and our business volumes. Although, we expect to slow the number business acquisitions, future and historical acquisitions remain a significant
component to our growth strategy for fiscal 2010 as we continue to integrate these acquisitions and execute of our strategy of integrating our solutions into a single product suite.

By pursuing these strategic initiatives, we believe that we can continue to take and extend product and market leadership in the niche categories in
which we compete while building a strong competitive position for our on-demand Total HR Suite.

Sources of Revenues

We derive our revenues primarily from subscription fees and, to a lesser extent, through advertising on our website. For the years ended March 31,
2009, 2008 and 2007, subscription revenues accounted for 93%, 91% and 89%, respectively, of our total revenues and for the years ended March 31, 2009, 2008 and 2007, advertising revenues accounted for 7%, 9% and 11%, respectively, of our total
revenues. We expect our subscription revenues will continue to account for an increasing percentage of our revenues as we continue to focus on subscription-based compensation management, performance management and HRMS/payroll products.

Subscription revenues are comprised primarily of subscription fees from enterprise and small business customers who pay a bundled fee for our
on-demand software applications and data products and implementation services related to our subscription products, sales of payroll perpetual licenses, maintenance and hosting services including related implementation and consulting services, as
well as syndication fees from our website partners and premium membership subscriptions sold primarily to individuals. Subscription revenues are primarily recognized ratably over the contract period as they are earned. Our subscription agreements
for our enterprise subscription customer base are typically one to five years in length, and as of March 31, 2009, approximately 50% of our contracts were more than one year in length. We generally invoice our customers annually in advance of
their subscription (for both new sales and renewals), with the majority of the payments typically due upon receipt of invoice. Deferred revenue consists primarily of billings or payments received in



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advance of revenue recognition from our subscription agreements and is recognized over time as the revenue recognition criteria are met. Deferred revenue
does not include the unbilled portion of multi-year customer contracts, which is held off the balance sheet. Changes in deferred revenue generally indicate the trend for subscription revenues over the following year as the current portion of
deferred revenue is expected to be recognized as revenue within 12 months. To a lesser extent, subscription revenues also include fees for professional services which are not bundled with our subscription products, revenues from sales of job
competency models and related implementation services and revenue from the sale of our Compensation Market Study and Salary.com Survey products, which are not sold on a subscription basis.

Advertising revenues are comprised of revenues that we generate through agreements to display third party advertising on our website for a fixed
period of time or fixed number of impressions. Advertising revenues are recognized as the advertising is displayed on the website.

Cost of Revenues and
Operating Expenses

Cost of Revenues.    Cost of revenues consists primarily of costs for data acquisition
and data development, fees paid to our network provider for the hosting and managing of our servers, related bandwidth costs, compensation costs for the support and implementation of our products, compensation costs related to our consulting and
professional services business and amortization of capitalized software costs. Although we took significant expense-reducing measures in fiscal 2009, we continue to implement and support our new and existing products and expand our data sets and we
expect that over the next few years cost of revenues will continue to increase as a percentage of revenue and on an absolute dollar basis. Over the longer term, we expect our cost of revenues to decrease as a percentage of revenue as our business
grows and our new data products gain market acceptance.

Research and Development.    Research and development
expenses consist primarily of compensation for our software and data application development personnel. We have historically focused our research and development efforts on improving and enhancing our existing on-demand software and data offerings
as well as developing new features, functionality and products. We expect that our addition of HRMS/payroll solutions to our line of products will require us to focus additional research and development efforts on creating a single integrated
product suite that encompasses all of our solutions. We expect that in the future, research and development expenses will increase on an absolute dollar basis as we upgrade and extend our service offerings and develop new technologies.

Sales and Marketing.    Sales and marketing expenses consist primarily of compensation for our sales and marketing
personnel, including sales commissions, as well as the costs of our marketing programs. The direct sales commissions for our subscription sales are capitalized at the time a subscription agreement is executed by a customer and we recognize the
initial year sales commission expense ratably over one year. In the case of multi-year agreements, upon billing the customer for each additional year, we incur a subsequent sales commission and recognize the expense for such commission over the
applicable year. Typically, a majority of the sales commission is recognized in the initial year of the subscription term. In fiscal 2009, we invested substantially in sales and marketing, which resulted in increased sales and marketing expenses. We
do not expect to make similar expenditures in the near-term and, as a result, we expect that our sales and marketing expenses will decrease in the upcoming fiscal year.

General and Administrative.    General and administrative expenses consist of compensation expenses for executive, finance, accounting, human resources, administrative and management
information systems personnel, professional fees and other corporate expenses, including rent and depreciation expense.



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Results of Operations

The following table sets forth our total deferred revenue and net cash provided by operating activities for each of the periods indicated.



|                                                    |  |                      |        |   |      |   |        |  |   |       
|--------------------------------------------------- |  | -------------------- | ------ | - | ---- | - | ------ |  | - | ------
|                                                    |  | Year Ended March 31,
|(in thousands)                                      |  | 2009                 |        |   | 2008 |   | 2007  
|Total deferred revenue                              |  | $                    | 28,285 |   |      | $ | 22,033 |  | $ | 16,388
|Net cash (used in) provided by operating activities |  | $                    | (8,222 | ) |      | $ | 8,428  |  | $ | 3,067 

Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31, 2008

Revenues.    Revenues for fiscal 2009 were $42.5 million, an increase of $8.0 million, or 23%, compared to revenues of $34.5
million for fiscal 2008. Subscription revenues were $39.6 million for fiscal 2009, an increase of $8.0 million, or 25%, compared to subscription revenues of $31.6 million for fiscal 2008. The growth in subscription revenues was due
principally to an increase of $2.7 million in renewal revenues to existing subscription customers, an increase of $0.7 million in revenues to new subscription customers and an increase of $2.6 million in revenues from additional products sold to
existing customers in fiscal 2009 compared to fiscal 2008. Our fiscal 2008 acquisitions of ITG, Schoonover, and ICR contributed $2.6 million to our revenue growth. Included in the growth of subscription revenues was the incremental revenue
contribution of $2.9 million from acquisitions during fiscal year 2009. Also contributing to the increase in total revenues was the result of our hiring of additional sales personnel throughout the first half of the fiscal year who focused on
retaining existing customers, adding new customers and selling additional products to existing customers. We expect our subscription revenues to continue to increase in fiscal 2010, although at a slower rate, as we continue to leverage off of the
investments that we made in sales and marketing in the first half of fiscal 2009 and integrate and market the products that we obtained in our acquisition of Genesys. Advertising revenues were $2.8 million for fiscal 2009 compared to advertising
revenues of $3.0 million for fiscal 2008. Total deferred revenue as of March 31, 2009 was $28.3 million, representing an increase of $6.3 million, or 29%, compared to total deferred revenue of $22.0 million as of March 31, 2008.

Cost of Revenues.    Cost of revenues for fiscal 2009 was $13.2 million, an increase of $5.0 million, or 61%,
compared to cost of revenues of $8.2 million for fiscal 2008. The increase in cost of revenues was primarily due to a $1.2 million increase in payroll and benefit-related costs due to the addition of personnel to our compensation and professional
service teams in fiscal 2009 compared to fiscal 2008, a $0.8 million increase in amortization of intangible assets primarily from acquired data acquisition costs, a $0.5 million increase in stock-based compensation expense, a $2.1 million increase
of costs attributable to the recent acquisitions of Infobasis and Genesys, an increase of $0.2 million in outside technology costs, and an increase of $0.2 million in travel costs. As a percent of total revenues, cost of revenues increased to 31% in
fiscal 2009 compared to 24% in fiscal 2008. The percentage increase was primarily the result of an increase in professional services personnel needed to support our changing business mix which now includes a more substantial consulting component and
implementation services attributable to talent management and HRMS products.

Research and Development
Expenses.    Research and development expenses for fiscal 2009 were $8.8 million, an increase of $3.9 million, or 80%, compared to research and development expenses of $4.9 million for fiscal 2008. The increase in research
and development expenses was primarily due to a $0.9 million increase in payroll and related expenses due to the addition of research and development personnel during fiscal year 2009, $0.9 million increase in stock-based compensation expense, a
$0.7 million increase in equipment expenses to support the increased headcount, an increase of $0.2 million in travel costs, an increase of $0.2 million rent and facility related costs, and an increase of $0.7 million of costs attributable to the
recent acquisitions of Infobasis and Genesys. Research and development expenses increased to 21% of total revenues in fiscal 2009 compared to 14% of total revenues in fiscal 2008, primarily as a result of our hiring additional personnel throughout
the first half of fiscal 2009 to support planned product introductions.



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Sales and Marketing Expenses.    Sales and marketing expenses for fiscal 2009
were $26.1 million, an increase of $7.1 million, or 37%, compared to sales and marketing expenses of $19.0 million for fiscal 2008. The increase was primarily due to a $3.0 million increase in payroll and benefit related costs due to the
addition of sales and marketing personnel through the first half of fiscal 2009, a $1.1 million increase in outside service costs primarily related to marketing consultants, a $0.9 million increase in marketing, advertising and trade show expenses,
a $0.9 million increase in stock-based compensation expense, an increase of $0.8 million of costs attributable to the recent acquisitions of Infobasis and Genesys, and a $0.5 million increase in travel expenses. Sales and marketing expenses
increased to 62% of total revenues in fiscal 2009 compared to 55% of total revenues in fiscal 2008. Because the increase in sales and marketing expenses was largely attributable to our significant investments in sales and marketing during the first
half of fiscal 2009, we expect that these expenses will decrease as we realize the full benefits of the restructuring initiatives and expense reduction measures implemented as part of our strategic initiatives.

General and Administrative Expenses.    General and administrative expenses for fiscal 2009 were $15.7 million, an
increase of $2.2 million, or 16%, compared to general and administrative expenses of $13.5 million for fiscal 2008. The increase in general and administrative expenses was primarily due to a $0.5 million increase in stock-based compensation
expense, an increase of $0.5 million in directors fees, an increase of $0.5 million in general office expenses, an incremental $0.8 million of administrative expenses related to the current fiscal year acquisitions, an increase of $0.3 million in
travel and seminar expenses, an increase of $0.3 million in outside service fees, an increase of $0.1 million of payroll and benefit related costs, and bad debt expense of $0.1 million. The increase in general and administrative expenses was
somewhat offset by decreases in legal expenses of $0.6 million and accounting fees of $0.5 million. General and administrative expenses decreased to 37% of total revenues in fiscal 2009 compared to 39% of total revenue in fiscal 2008.

Restructuring Charges.    Restructuring charges for fiscal 2009 were $3.1 million as a result of the workforce reduction
implemented and completed on January 7, 2009. These charges were comprised of $1.8 million in stock compensation charges associated with the accelerated vesting of unvested awards, $1.2 million in severance payments, and $0.1 million in various
other costs.

Amortization of Intangible Assets.    Amortization of intangible assets for fiscal 2009 was $2.0
million, an increase of $0.9 million, compared to amortization of intangible assets of $1.1 million in fiscal 2008. The increase in amortization was primarily due to the amortization of intangible assets acquired as part of the acquisition of ITG in
August 2007, Schoonover Associates, Inc. in December 2007, InfoBasis in August 2008 and Genesys in December 2008.

Interest
Income.    Interest income for fiscal 2009 was $0.5 million compared to $1.9 million in fiscal 2008. The decrease in interest income was due to a decrease in invested cash balances as well as a decrease in interest rates in
fiscal 2009 compared to fiscal 2008.

Other Expense.    Other expense was $0.3 million in fiscal 2009 consisting
primarily of franchise and other taxes of $0.1 million and interest expenses of $0.1 million due to borrowings against the our line of credit used to fund the acquisition of Genesys in December 2008.

Fiscal Year Ended March 31, 2008 Compared to Fiscal Year Ended March 31, 2007

Revenues.    Revenues for fiscal 2008 were $34.5 million, an increase of $11.5 million, or 50%, compared to revenues of $23.0
million for fiscal 2007. Subscription revenues were $31.5 million for fiscal 2008, an increase of $11.0 million, or 54%, compared to subscription revenues of $20.5 million for fiscal 2007. The growth in subscription revenues was due
principally to an increase of $4.4 million in renewal revenues to existing subscription customers, an increase of $3.5 million in revenues to new subscription customers and an increase of $2.5 million in revenues from additional products sold to
existing customers in fiscal 2008 compared to fiscal 2007. Included in the growth of subscription revenues was the incremental revenue contribution of $3.4 million



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from acquisitions during fiscal year 2008. Also contributing to the increase in total revenues was the result of our hiring of additional sales personnel
focused on retaining existing customers, adding new customers and selling additional products to existing customers. Advertising revenues were $3.0 million for fiscal 2008, an increase of $0.5 million, or 17%, compared to advertising
revenues of $2.5 million for fiscal 2007. The growth in advertising revenues was primarily due to increased advertising volume resulting from enhancements to our website. Total deferred revenue as of March 31, 2008 was $22.0 million,
representing an increase of $5.6 million, or 34%, compared to total deferred revenue of $16.4 million as of March 31, 2007.

Cost
of Revenues.    Cost of revenues for fiscal 2008 was $8.2 million, an increase of $2.9 million, or 54%, compared to cost of revenues of $5.3 million for fiscal 2007. The increase in cost of revenues was primarily due to a
$1.3 million increase in payroll and benefit-related costs due to the addition of 11 personnel during fiscal 2008 for our compensation and professional service teams, a $0.4 million increase in stock-based compensation expense, a $0.6 million
increase of amortization of data acquisition costs and a $0.4 million increase in consulting and other product related costs. As a percent of total revenues, cost of revenues increased from 23% in fiscal 2007 to 24% in fiscal 2008. The increase was
primarily the result of an increase in the number of professional service personnel in order to provide implementation services to our increasing number of customers.

Research and Development Expenses.    Research and development expenses for fiscal 2008 were $4.9 million, an increase of $0.8 million, or 20%, compared to research and development expenses
of $4.1 million for fiscal 2007. The increase in research and development expenses was primarily due to a $0.6 million increase in payroll and benefit related costs due to the net addition of 61 personnel during fiscal year 2008, all of which were
added at our China subsidiary, an increase of $0.2 million in rent and office expenses needed to support the growth in headcount in China and a $0.2 million increase in equipment expense related to our data management infrastructure, offset by a
$0.2 million decrease in other research and development expenses. Research and development expenses decreased to 14% of net total revenues in fiscal 2008 compared to 18% of total revenues in fiscal 2007. The decrease of research and development
expense as a percentage of revenue was due primarily to cost savings realized from operating much of our development activities in China.

Sales and Marketing Expenses.    Sales and marketing expenses for fiscal 2008 were $19.0 million, an increase of $6.2 million, or 48%, compared to sales and marketing expenses of $12.8 million for fiscal 2007. The
increase was primarily due to a $3.9 million increase in payroll and benefit related costs due to the addition of 32 sales and marketing personnel during fiscal 2008, a $1.1 million increase in sales commissions as a result of increased sales,
and a $0.8 million increase in stock-based compensation expense. Sales and marketing expenses decreased to 55% of net total revenues in fiscal 2008 compared to 56% of net total revenues in fiscal 2007. Our sales and marketing headcount increased as
we hired additional personnel to focus on adding new customers and increasing revenues from existing customers.

General and
Administrative Expenses.    General and administrative expenses for fiscal 2008 were $13.5 million, an increase of $4.6 million, or 51%, compared to general and administrative expenses of $8.9 million for fiscal
2007. The increase in general and administrative expenses was primarily due to a $1.5 million increase in payroll and benefit related costs due to the addition of 7 general and administrative personnel during fiscal year 2008, a $1.1 million
increase in accounting expenses related primarily to our Sarbanes-Oxley compliance program, a $0.8 million increase in legal expenses related to the litigation and settlement of the related cases during fiscal year 2008, a $0.7 million increase in
recruiting expenses and a $0.2 million increase in insurance expenses. General and administrative expenses were 39% of net total revenues in both fiscal 2008 and fiscal 2007.

Amortization of Intangible Assets.    Amortization of intangible assets for fiscal 2008 was $1.1 million, an increase of $1.0
million, compared to amortization of intangible assets of $0.1 million in fiscal 2007. The increase in amortization was primarily due to the amortization of intangible assets acquired as part of the acquisition of ICR in May 2007, ITG in August 2007
and Schoonover in December 2007 as well as certain data sets purchased during fiscal 2008.



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Interest Income.    Interest income for fiscal 2008 was $1.9 million compared
to $0.3 million in fiscal 2007. The increase in interest income was due to interest earned on higher invested cash resulting from the proceeds from the Companys initial public offering in February 2007.

Interest Expense.    Interest expense was $0 in fiscal 2008 compared to $116,000 in fiscal 2007. The decrease in interest
expense was due to the repayment of all outstanding borrowings in February 2007.

Acquisition of Businesses

Genesys Software Systems, Inc.

On December 17,
2008, we acquired all issued and outstanding shares of Genesys, a leading provider of on-demand and licensed human resources management systems and payroll solutions. Under the terms of the agreement, we paid the former owners of Genesys $6.0
million, net of cash acquired and converted approximately $1.1 million of options to purchase Genesys common stock into options to purchase approximately 519,492 shares of our common stock. In addition, the Genesys shareholders and optionholders are
eligible to earn additional consideration of up to $2,000,000 which would be paid in cash or shares of our common stock, at our option, based on Genesys meeting certain performance targets during the eighteen months after the closing of the
acquisition. The purchase price to be allocated for financial accounting purposes was approximately $7.4 million, which includes $1.1 million of options to purchase our common stock and approximately $1.9 million of net liabilities
assumed. Accordingly, the preliminary purchase price was allocated based upon the fair value of assets acquired and liabilities assumed in accordance with SFAS 141. We preliminarily allocated $2.1 million of the purchase price to goodwill based upon
the estimated fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from our belief that the products and services offered by Genesys will be complementary to our on-demand software suites. The allocation of
the purchase price is preliminary and subject to change. The results of operations include the impact of this acquisition since December 17, 2008.

We have allocated the purchase price on a preliminary basis based upon the estimated fair value of the net assets acquired, as follows:



|                                                                                        |  |        |        |  
|--------------------------------------------------------------------------------------- |  | ------ | ------ | -
|                                                                                        |  | Amount |       
|Assets acquired, primarily accounts receivable, excluding $1.5 million of cash acquired |  | $      | 5,299  |  
|Assumed liabilities                                                                     |  |        | (7,154 | )
|                                                                                        |  |        |        |  
|Net liabilities acquired                                                                |  |        | (1,855 | )
|                                                                                        |  |        |        |  
|Non-compete agreement (amortization period 5 years)                                     |  |        | 60     |  
|Customer relationships (amortization period 7 years)                                    |  |        | 2,400  |  
|Developed technology (amortization period 7 years)                                      |  |        | 4,000  |  
|Trade name (amortization period 5 years)                                                |  |        | 750    |  
|Goodwill (not deductible for tax purposes)                                              |  |        | 2,077  |  
|                                                                                        |  |        |        |  
|Total purchase price                                                                    |  | $      | 7,432  |  
|                                                                                        |  |        |        |  

InfoBasis Ltd.

On August 21, 2008, we acquired the share capital of InfoBasis. InfoBasis, located in the United Kingdom, is a provider of competency-based learning and development software. Under the terms of the agreement, we
paid the former owners of InfoBasis $5.2 million in cash of which $0.5 million of the cash paid to be held in escrow and will be released on or before August 21, 2009. The escrow fund will be available to compensate us for any losses that we
may incur as a result of any breach of the representations or warranties by the former owners of InfoBasis contained in the purchase agreement, and certain liabilities arising out of the ownership or



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operation of InfoBasis prior to the acquisition. The former employee owners of InfoBasis will also be eligible to earn additional consideration based on
meeting certain performance targets during each of the five twelve-month periods ending August 31, 2009, 2010, 2011, 2012 and 2013. The additional consideration, if earned, consists of cash payments of a maximum of $200,000 per year for five
years, allocated proportionately amongst the employee owners. The total cash paid for the acquisition was approximately $5.4 million, which includes approximately $0.2 million of direct acquisition costs plus approximately $1.3 million of net
liabilities assumed. Accordingly, the preliminary purchase price was allocated based upon the fair value of assets acquired and liabilities assumed in accordance with SFAS 141. We preliminarily allocated $3.3 million of the purchase price to
goodwill based upon the estimated fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from our belief that the products and services offered by InfoBasis will be complementary to our existing competency
business and on-demand software suites. The allocation of the purchase price is preliminary and subject to change. The results of operations include the impact of this acquisition since August 22, 2008.

We have allocated the purchase price on a preliminary basis based upon the estimated fair value of the net assets acquired, as follows:



|                                                     |  |        |        |  
|---------------------------------------------------- |  | ------ | ------ | -
|                                                     |  | Amount |       
|Assets acquired, primarily accounts receivable       |  | $      | 304    |  
|Assumed liabilities                                  |  |        | (1,572 | )
|                                                     |  |        |        |  
|Net liabilities acquired                             |  |        | (1,268 | )
|                                                     |  |        |        |  
|Non-compete agreement (amortization period 5 years)  |  |        | 261    |  
|Customer relationships (amortization period 7 years) |  |        | 2,090  |  
|Developed technology (amortization period 5 years)   |  |        | 1,399  |  
|Trade name                                           |  |        | 727    |  
|Direct acquisition costs                             |  |        | 167    |  
|Goodwill (not deductible for tax purposes)           |  |        | 3,272  |  
|Deferred tax liability                               |  |        | (1,263 | )
|                                                     |  |        |        |  
|Total purchase price                                 |  | $      | 5,385  |  
|                                                     |  |        |        |  

Schoonover Associates

On December 21, 2007, we acquired the assets of Schoonover Associates, Inc. (Schoonover). Schoonover was a provider of competency management data and consulting services with over 20 years of experience helping
clients maximize their human capital. Under the terms of the agreement, we paid the owner of Schoonover $4.4 million in cash of which $0.4 million reflects payments made by us in connection with a pre-existing license agreement by and between the
parties. Schoonover will also be eligible to earn additional consideration based on meeting certain performance targets during the first five fiscal years beginning on April 1, 2008. The additional consideration, if earned, consists of cash
payments of a maximum of $100,000 per year for 5 years and 112,646 shares of common stock valued at $1.5 million, which are eligible to vest ratably over such five-year period. Under the terms of the agreement, the number of shares issued was
calculated as the $1.5 million of additional consideration divided by the average of the closing bid prices of our common stock as reported on the NASDAQ Global Market over the last ten trading days prior to the closing of the agreement. The total
cost of the acquisition was approximately $4.4 million and as of March 31, 2009, $100,000 of additional consideration has been earned and recorded as compensation expense. Accordingly, the purchase price was allocated based upon the fair value
of assets acquired and liabilities assumed. We allocated $2.6 million of the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from our belief that the
products and services offered by Schoonover will be complementary to our existing competency business and on-demand software suites. The results of operations include the impact of this acquisition since December 21, 2007.



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ITG Competency Group

On August 3, 2007, we acquired the assets of ITG Competency Group, LLC (ITG). ITG was a provider of off-the-shelf competency models and related implementation services used in a wide range of industries. Under
the terms of the agreement, we paid the owner of ITG $1.8 million in cash and shares of our common stock valued at $500,000. ITG received an additional $0.25 million in April 2008 and was also eligible to earn up to $1.0 million in additional
consideration based on meeting certain performance targets during the first two years after the closing of the acquisition, and can earn additional consideration if these targets are exceeded. The additional consideration, if earned, will be paid
50% in cash and 50% in common stock. As of March 31, 2009, approximately $1.0 million of the additional consideration had been earned and recorded as goodwill. The total cost of the acquisition was approximately $3.0 million. Accordingly, the
purchase price was allocated based upon the fair value of assets acquired and liabilities assumed. We allocated $1.4 million of the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition and the
value of the contingent consideration earned as of March 31, 2009. Goodwill from the acquisition resulted from our belief that the products developed by ITG will be complementary to our on-demand software suites. The results of operations
include the impact of this acquisition since August 3, 2007.

ICR

On May 15, 2007, we acquired all of the membership interests of ICR Limited, L.C. and all of the outstanding share capital of ICR International Ltd. (collectively, ICR), a leading provider of industry-specific
market intelligence for employee pay and benefits for the global technology and specialty consumer goods markets. Pursuant to the terms of the purchase agreements, we paid $10.3 million to the owners of ICR The total cost of the acquisition,
including legal fees of $20,000, was approximately $10.3 million. Accordingly, the purchase price was allocated based upon the fair value of assets acquired and liabilities assumed. We allocated $5.8 million of the purchase price to goodwill based
upon the estimated fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from our belief that the products developed by ICR will be complementary to our on-demand software suites. Our results of operations
include the impact of this acquisition since May 15, 2007.

eComp Data Services

On April 3, 2006, we acquired certain assets of the eComp Data Services Division (eComp) from Aon Consulting, Inc., a global human capital consulting
firm located in New York City. eComp Data Services is a leading provider of executive compensation data. The assets acquired included the eComp database and certain software and proprietary assets, including all intellectual property rights.
Pursuant to the terms of the agreement, we paid $585,000. Included in the acquisition was an additional $75,000 paid by us to a former principal of eComp for a non-compete agreement. Accordingly, the purchase price was allocated based upon the fair
value of assets acquired and liabilities assumed. We allocated $266,000 of the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition. The results of operations include the impact of this acquisition
since April 3, 2006.

Liquidity and Capital Resources

At March 31, 2009, our principal sources of liquidity were cash and cash equivalents totaling $21.1 million and accounts receivable, net of allowance for doubtful accounts of $6.0 million compared to
cash and cash equivalents of $37.7 million and accounts receivable, net of allowance for doubtful accounts of $4.7 million at March 31, 2008. Our working capital as of March 31, 2009 was a negative $11.6 million compared to working capital
of $16.0 million as of March 31, 2008. The reduction in our working capital was primarily due to cash outflows related to our acquisition of InfoBasis which was funded by $5.4 million of our working capital, our acquisition of Genesys which was
funded by $7.1 million borrowed against our revolving credit facility and current year capital expenditures of $2.6 million including data and other intangible assets. During fiscal 2009, we borrowed against our revolving credit facility and, as of
March 31, 2009, we had an outstanding balance of $8.1 million against our line.



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Cash used in operating activities for the fiscal year ended March 31, 2009 was $8.2 million. This
amount resulted from a net loss of $26.5 million, adjusted for net non-cash charges of $15.2 million and a $2.7 million net increase in working capital accounts. Non-cash items primarily consisted of $9.8 million of stock-based compensation,
$3.6 million of amortization of intangible assets and $1.4 million of depreciation and amortization of property, equipment and software. The net increase in working capital of $2.7 million was primarily comprised of increases in deferred
revenue of $3.9 million, partially offset by a decrease in accounts payable of $1.0 million and accrued expenses and other current liabilities of $0.4 million. The increase in deferred revenue is primarily the result of our fiscal 2009 acquisitions
in addition to increased invoicing less revenue recognition from our subscription customers for fiscal year ended March 31, 2009. The growth in the invoicing was primarily due to increased subscription renewals and increased sales to existing
customers. Currently, payment for the majority of our subscription agreements is due upon invoicing. Because revenue is generally recognized ratably over the subscription period, payments received at the beginning of the subscription period result
in an increase to deferred revenue. Changes in deferred revenue generally indicate the trend for subscription revenues over the following year as the current portion of deferred revenue is expected to be recognized within 12 months. The decreases in
accounts payable, accrued expenses and other current liabilities are due primarily to the timing of payments to vendors.

Cash used in
investing activities was $23.7 million and consisted primarily of $12.7 million paid for our acquisitions of Genesys and InfoBasis in fiscal 2009, $7.9 million of funds obtained from payroll customers to be used in satisfying related obligations,
$2.1 million paid for purchases of property and equipment for new offices, network infrastructure and computer equipment to support our growth in employee headcount and off-shore efforts, $0.5 million paid for purchases of other intangible assets
primarily consisting of domain names, and an increase in restricted cash of $0.4 million. We intend to continue to invest in our content data sets, software development and network infrastructure to ensure our continued ability to enhance our
existing software, expand our data sets, introduce new products, and maintain the reliability of our network.

Cash provided by financing
activities was $15.3 million, which consisted primarily of borrowings of $8.1 million against our line of credit primarily used to fund the acquisition of Genesys in December 2008, $7.9 million related to increases in payroll customer related
obligations and $0.2 million received from the issuance of common stock related to the employee stock purchase plan, offset by $0.4 million of repurchases of common stock and a $0.2 million repayment of a note payable from a vendor.

On December 30, 2006, we entered into an agreement with a vendor to obtain additional data sets that runs for an initial one year term following the
date of the initial delivery. The fee for the initial term was $1.5 million. At the end of the initial term, November 17, 2008, the agreement automatically renewed in accordance with the terms of the agreement for the first of up to six
subsequent one year renewal terms, the remainder of such subsequent renewal terms are terminable by us. In December 2008, we extended the initial term of the agreement to June 30, 2009. The annual fees due to the vendor related to years two
through seven of the agreement are $0.5 million, $0.6 million, $0.6 million, $0.7 million, $0.8 million, and $0.9 million, respectively.

On August 3, 2007, we acquired the assets of ITG. Under the terms of the agreement, the owners of ITG are eligible to earn up to $1.0 million in additional consideration based on meeting certain performance targets during the first two
years after the closing of the acquisition, and can earn additional consideration if these targets are exceeded. The additional consideration will be paid 75% in cash and 25% in common stock. As of March 31, 2009, all $1.0 million of the
additional consideration has been earned, of which approximately $0.5 million was earned in fiscal 2009 and recorded as additional goodwill. The additional consideration was paid in October 2008.

On December 21, 2007, we acquired the assets of Schoonover. Schoonover will be eligible to earn additional consideration based on meeting certain
performance targets during the first five fiscal years after March 31, 2008. The additional consideration, if earned, consists of cash payments of no more than $100,000 per year for 5 years and 112,646 newly issued shares of common stock valued
at $1.5 million, which are eligible to vest ratably over such five-year period. As of March 31, 2009, $100,000 of the additional consideration has been earned.



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On June 27, 2007, we entered into a master equipment lease agreement (Leaseline #1) with a maximum
commitment of $300,000. The lease term began on September 1, 2007 and runs for a term of 36 months. On August 13, 2007, we increased the maximum commitment of Leaseline #1 to $600,000. As of March 31, 2009, we had leased approximately
$381,000 of equipment under the terms of Leaseline #1. On September 13, 2007, we entered into an additional lease commitment (Leaseline #2) with the same lender with a maximum commitment of $350,000. On December 4, 2007, we increased the
maximum commitment of Leaseline #2 to $400,000. The lease term began on January 1, 2008 and runs for a term of 36 months. As of March 31, 2009, we had leased approximately $391,000 of equipment under the terms of Leaseline #2. On
January 17, 2008, we entered into a third lease commitment (Leaseline #3) with the same lender with a maximum commitment of $350,000. The lease term began on April 1, 2008 and runs for a term of 36 months. As of March 31, 2009, we had
leased approximately $250,000 of equipment under the terms of Leaseline #3. On April 17, 2008, we entered into an additional lease commitment (Leaseline #4) with a maximum commitment of $350,000. The lease term begins on July 1, 2008 and
runs for a term of 36 months. As of March 31, 2009, we had leased approximately $173,000 of equipment under the terms of this leaseline. On July 24, 2008, we entered into a leaseline agreement (Leaseline #5) with a maximum available
commitment of $200,000. The lease term began on October 1, 2008 and runs for a term of 36 months. As of March 31, 2009, we had not leased any equipment under the terms of this leaseline. In addition, we have approximately $1.1 million, in
a restricted cash account as collateral for equipment with a value of approximately $1.1 million in accordance with all of our master lease agreements.

In June 2008, we entered into an agreement with a vendor to finance the purchase of perpetual software licenses in the amount of approximately $738,000. We will make quarterly payments of approximately $64,000 for a
term of 36 months.

On August 8, 2008, we entered into a modification of our existing credit facility with Silicon Valley Bank to
modify certain of the financial covenants and extend the term of the agreement to September 23, 2008. On September 17, 2008, we entered into a second modification of our credit facility to extend the term of the agreement to
October 8, 2008. On October 8, 2008, we entered into a third modification of our credit facility to extend the term of this credit facility two years to October 8, 2010 and increased the line of credit from $5,000,000 to $10,000,000.
On March 16, 2009, we entered into a fourth modification of our agreement, which added Genesys as a guarantor to our obligations under the credit facility. As of March 31, 2009, there was $8.1 million outstanding under the credit facility.
On April 27, 2009, we paid all of the outstanding amounts due under our credit facility.

On June 29, 2009, we entered into a
Fifth Loan Modification Agreement with Silicon Valley Bank. The agreement modifies our existing credit facility with Silicon Valley Bank to, among other things:



| |  |  | Increase the interest rate payable by us on advances from our revolving line of credit, so that our borrowings bear interest at the greater of the banks prime
rate and 4% or, if our unrestricted cash balance falls below $20 million, at the banks prime rate plus 0.5%;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increase the fee payable on the unused portion of our revolving line of credit to 0.5%;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Amend certain financial covenants to be based upon our adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) rather
than our domestic invoices; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing the amount of stock we can repurchase under our repurchase plans to $2.25 million.
| | - |  | ---------------------------------------------------------------------------------------------

Up to $10 million is available under this credit facility and the facility is collateralized by substantially all of our assets and expires on
October 8, 2010. Up to $5 million of the line of credit may be used to secure letters of credit and cash management services, and up to $5 million of the line of credit may be used in connection with foreign exchange forward contracts. The
modification agreement contains financial covenants that require us to maintain an unrestricted cash balance at Silicon Valley Bank of at least $20 million. If our unrestricted cash falls below $20 million, then the amount we could borrow under
the line of credit would be limited to a borrowing base consisting of a specified percentage of accounts receivable and a specified percentage of future billings. In addition, we are required to maintain unrestricted cash plus borrowing availability
of at least $15 million and meet adjusted EBITDA targets for trailing three-month periods on a monthly basis.



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On August 21, 2008, we acquired the share capital of InfoBasis. Under the terms of the agreement,
the former employee owners of InfoBasis will be eligible to earn additional consideration based on meeting certain performance targets during each of the five twelve month periods ending August 31, 2009, 2010, 2011, 2012 and 2013. The
additional consideration, if earned, consists of cash payments of a maximum of $200,000 per year for 5 years, allocated proportionately amongst the former employee owners.

In October 2008, we entered into a new office lease for our subsidiary in Shanghai, China. The lease is for approximately 2,900 square meters and has an
initial term of three years, commencing in January 2009. We can extend the lease for an additional three years at the end of the initial term. Rental payments under the lease are 365,000 Chinese Yuan RMB per month (approximately $54,000 per month).

On December 15, 2008, the Board of Directors authorized the repurchase by us of up to $2.5 million of our common stock from time to
time at prevailing prices in the open market or in negotiated transactions off the market. On April 17, 2009, our Board of Directors increased the size of its share repurchase program from $2.5 million to $7.5 million. As of March 31,
2009, 193,824 shares with a total value of approximately $375,000 have been repurchased by us pursuant to this repurchase program.

On
December 17, 2008, we acquired all issued and outstanding shares of Genesys. Under the terms of the agreement, the Genesys shareholders and optionholders are eligible to earn additional consideration of up to $2,000,000 which would be paid in
cash or shares of our common stock, at our option, based on Genesys meeting certain performance targets during the first year after the closing of the merger.

On January 7, 2009, we implemented and completed a workforce reduction of approximately 100 employees, representing approximately 16% of the our workforce. We implemented this workforce reduction in response
to the current and anticipated macro-economic uncertainties. As a result of the workforce reduction, we recorded restructuring charges of approximately $3.1 million. These charges were comprised of $1.8 million in stock compensation charges
associated with the accelerated vesting of unvested awards, $1.2 million in severance payments, and $0.1 million in various other costs. We expect the reduction in workforce to yield approximately $10 million in pre-tax annual cost savings.

In February 2009, we entered into a new office lease for our wholly foreign owned enterprise in Montego Bay, Jamaica. The lease is for
approximately 511 square meters and has an initial term of two years, commencing in November 2008. We can extend the lease for an additional year at the end of the initial term.

Given our current cash and accounts receivable, we believe that we will have sufficient liquidity to fund our business and meet our contractual
obligations for at least the next 12 months. However, we may need to raise additional funds in the future in the event that we pursue acquisitions or investments in complementary businesses or technologies or experience operating losses that exceed
our expectations. If we raise additional funds through the issuance of equity or convertible securities, our stockholders may experience dilution. In the event that additional financing is required, we may not be able to obtain it on acceptable
terms or at all.

During the last four fiscal years, inflation and changing prices have not had a material effect on our business and we do
not expect that inflation or changing prices will materially affect our business in the foreseeable future.

Off-Balance-Sheet Arrangements

Under generally accepted accounting principles in the United States (GAAP), certain obligations and commitments are not required to be
included in the consolidated balance sheet. These obligations and commitments, while entered into in the normal course of business, may have a material impact on liquidity. We do 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



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facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity,
market, or credit risk that could arise if we had engaged in such relationships. The following table discloses our contractual payment obligations as of March 31, 2009. As of March 31, 2009, we did not have any material purchase
obligations, capital leases, or other material long-term commitments reflected on our balance sheet.

The following table summarizes our
contractual cash obligations at March 31, 2009 and the effect such obligations are expected to have on our liquidity and cash flow in future periods:



|                          |  |                        |        |                 |   |          |  |          |       |                  |   |     |  |   |  
|------------------------- |  | ---------------------- | ------ | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | --- |  | - | -
|                          |  | Payments Due by Period
|Contractual obligations   |  | Total                  |        | Less than1 Year |   | 1-3Years |  | 3-5Years |       | More than5 Years
|                          |  | (in thousands)        
|Operating leases          |  | $                      | 5,752  |                 | $ | 2,176    |  | $        | 2,866 |                  | $ | 710 |  | $ | 
|Revolving credit facility |  |                        | 8,125  |                 |   | 8,125    |  |          |      |                  |   |    |  |   | 
|Contractual commitments   |  |                        | 1,137  |                 |   | 1,041    |  |          | 96    |                  |   |    |  |   | 
|                          |  |                        |        |                 |   |          |  |          |       |                  |   |     |  |   |  
|Total                     |  | $                      | 15,014 |                 | $ | 11,342   |  | $        | 2,962 |                  | $ | 710 |  | $ | 
|                          |  |                        |        |                 |   |          |  |          |       |                  |   |     |  |   |  

The contractual commitment amounts in the table above are associated with agreements that are
enforceable and legally binding and that specify all significant terms, including: fixed or minimum services to be used; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Obligations under agreements that we
can cancel without a significant penalty are not included in the table above.

Critical Accounting Policies

Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different
assumptions or conditions.

We believe that of our significant accounting policies, which are described in the notes to our financial
statements, the following accounting policies involve a greater degree of judgment, complexity and effect on materiality. A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to
make difficult, subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, these are the policies we believe are the most critical to aid in fully
understanding and evaluating our financial condition and results of operations.

Revenue Recognition.    In
accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by Staff Accounting Bulletin No. 104, Revenue Recognition, we recognize revenues from subscription
agreements for our on-demand software and related services when there is persuasive evidence of an arrangement, the service has been provided to the customer, the collection of the fee is probable and the amount of the fees to be paid by the
customer is fixed or determinable. Amounts that have been invoiced are recorded in accounts receivable and deferred revenue. Our subscription agreements generally contain multiple service elements and deliverables. These elements include access to
our software and often specify initial services including implementation and training. Except under limited circumstances, our subscription agreements do not provide customers the right to take possession of the software at any time.

In accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or EITF 00-21, issued by the Emerging
Issues Task Force of the Financial Accounting Standards Board, or FASB, in May 2003, and Statement of Position (SOP) 97-2, Software Revenue Recognition, or SOP No. 97-2, we define all elements in our multiple element
subscription agreements as a single unit of accounting, and accordingly, recognize all associated revenue over the subscription period, which is typically one



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to five years in length. In the event professional services relating to implementation are required, we generally do not recognize revenue until such
implementation is complete. In applying the guidance in EITF 00-21 and SOP 97-2, we determined that we do not have objective and reliable evidence of the fair value of the subscription to our on-demand software after delivery of specified initial
services. We therefore account for our subscription arrangements and our related service fees as a single unit. Additionally, we license software under non-cancelable license agreements and provide services including implementation, consulting,
training services and postcontract customer support (PCS). On certain software license arrangements, we have established vendor-specific objective evidence (VSOE) for postcontract customer support, using the substantive renewal rate method. For
arrangements for which we have established VSOE, we allocate revenue using VSOE for the postcontract customer support (PCS) and the residual method for the other elements and accounts for other elements as a single unit of accounting. The revenue
related to the postcontract customer support for which we have established VSOE is recognized ratably from the delivery date of the license through the contract period. If we are not able to establish VSOE on postcontract customer support, and
postcontract customer support is the only undelivered element, then all revenue from the arrangement is recognized ratably over the contract period. However, if VSOE is not established but PCS has been delivered, then all revenue from the
arrangement is recognized ratably over the contract period once the last element is delivered.

Income
Taxes.    We account for income taxes in accordance with FASB Statement No. 109, Accounting for Income Taxes, or SFAS 109, which requires that deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion
of all of the deferred tax asset will not be realized. The realization of the deferred tax assets is evaluated quarterly by assessing the valuation allowance and by adjusting the amount of the allowance, if necessary. As of March 31, 2009, we
have a valuation allowance of $16.8 million against our deferred tax assets.

In July 2006, the FASB issued Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition
threshold and measurement requirements a tax position must meet before being recognized as a benefit in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for
interim periods and disclosures for uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. Our adoption of FIN 48 on April 1, 2007 did not result in the recognition of a tax liability for any
previously unrecognized tax benefits and did not have an effect on our financial position or results of operations as we had a full valuation allowance against its deferred tax assets.

Software Development Costs.    We capitalize certain internal software development costs under the provisions of Statement of
Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 requires computer software costs associated with internal use software to be charged to operations as
incurred until certain capitalization criteria are met.Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development
stage are capitalized as property, equipment and software. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization begins when the preliminary project stage is complete, management with
the relevant authority authorizes and commits to the funding of the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. These costs are amortized using the
straight-line method over the estimated useful life of the software, generally three years.

Allowance for Doubtful
Accounts.    We maintain an allowance for doubtful accounts for estimated losses resulting from our customers inability to pay us. The provision is based on our historical experience and for specific customers that, in
our opinion, are likely to default on our receivables from them. In order to identify these customers, we perform ongoing reviews of all customers that have breached their payment terms, as well as



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those that have filed for bankruptcy or for whom information has become available indicating a significant risk of non-recoverability. In addition, we have
experienced significant growth in the number of our customers, and we have less payment history to rely upon with these customers. We rely on historical trends of bad debt as a percentage of total revenue and apply these percentages to the accounts
receivable associated with new customers and evaluate these customers over time. To the extent that our future collections differ from our assumptions based on historical experience, the amount of our bad debt and allowance recorded may be
different.

Stock-Based Compensation.    We follow the provisions of FAS 123R, which requires that all
stock-based compensation be recognized as an expense in the financial statements over the vesting period and that such expense be measured at the fair value of the award.

Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the use of highly subjective assumptions, including the expected life of the stock-based payment awards
and stock price volatility. Beginning in fiscal year 2006, we have used the Black-Scholes option-pricing model to value our option grants and determine the related compensation expense. The assumptions used in calculating the fair value of
stock-based payment awards represent managements best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future. Prior to the adoption of SFAS 123R, we had adopted SFAS 123, but in accordance with SFAS 123, we had elected not to apply fair value-based accounting for awards under
our employee stock incentive plan through March 31, 2005. Instead, we measured compensation expense for our stock plans using the intrinsic value method prescribed by APB 25 and related interpretations and provided pro forma disclosures as
permitted under SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure an amendment of SFAS 123.

We have historically estimated our expected volatility based on that of our publicly traded peer companies as we determined that we did not have adequate historical data from our traded share price. Until February
2007, we were a private company and therefore lack sufficient company-specific historical and implied volatility information. The Company did not grant any new stock options during the fiscal year ended March 31, 2009; however, previously
granted stock option awards were modified in connection with our workforce reduction on January 7, 2009. The modification of the awards consisted of acceleration of the respective awards vesting schedule. For the modified awards issued
during the year ended March 31, 2009, the Company determined it has adequate historical data from our traded share price; as such expected volatilities utilized in the model are based on the historic volatility of the Companys stock
price.

The risk-free interest rate used for each grant is equal to the U.S. Treasury yield curve in effect at the time of grant for
instruments with a similar expected life.

The expected term of the options granted was determined based upon review of the period that our
share-based awards are expected to be outstanding and is estimated based on historical experience of similar awards, giving consideration to the contractual term of the awards, vesting schedules, employee turnover and expectations of employee
exercise behavior.

The stock price volatility and expected terms utilized in the calculation of fair values involve managements best
estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the vesting period of the option. SFAS 123R also requires that we
recognize compensation expense for only the portion of options that are expected to vest. Therefore, we have estimated expected forfeitures of stock options with the adoption of SFAS 123R. In developing a forfeiture rate estimate, we have
considered our historical experience, our growing employee base and the historical limited liquidity of our common stock. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense
may be required in future periods.



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We recognized stock-based compensation pursuant to SFAS 123R in the amount of $9.8 million, $5.1
million and $4.4 million for fiscal years ended March 31, 2009, 2008 and 2007, respectively. As of March 31, 2009, we had $12.7 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted
under our equity plans. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.8 years.

Valuation of Goodwill and Intangible Assets.    We follow the guidance of SFAS No. 142, Goodwill and Other Intangible Assets or SFAS 142. In accordance with SFAS No. 142, goodwill and certain
intangible assets are no longer amortized, but instead we assess the impairment of goodwill and identifiable intangible assets on at least an annual basis and whenever events or changes in circumstances indicate that the carrying value of the
goodwill or intangible asset is greater than its fair value. Factors we consider important that could trigger an impairment review include significant underperformance relative to historically or projected future operating results, identification of
other impaired assets within a reporting unit, the disposition of a significant portion of a reporting unit, significant adverse changes in business climate or regulations, significant changes in senior management, significant changes in the manner
of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, a decline in our credit rating, or a reduction of our
market capitalization relative to net book value. Determining whether a triggering event has occurred includes significant judgment from management.

The estimation of the fair values of goodwill and the reporting units to which it pertains requires the use of discounted cash flow valuation models. Those models require estimates of future revenue, profits, capital
expenditures and working capital for each unit. These estimates will be determined by evaluating historical trends, current budgets, operating plans and industry data. Determining the fair value of reporting units and goodwill includes significant
judgment by management and different judgments could yield different results.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R), Business Combinations(SFAS 141(R)).SFAS 141(R) applies to any transaction or other event that meets the definition of a business combination. Where applicable, SFAS 141(R) establishes principles and requirements for how the acquirer
recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree and goodwill or gain from a bargain purchase. In addition, SFAS 141(R) determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the business combination. This statement is to be applied prospectively for fiscal years beginning after December 15, 2008. SFAS 141(R) is effective for us beginning
April 1, 2009. We will evaluate the impact of SFAS 141(R) on its consolidated financial statements in the event future business combinations are consummated.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS No. 162 sets forth the level of authority to a given accounting
pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOBs
amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 requires an entity, which expects to widely distribute its financial statements to its shareholders and other users, to evaluate
subsequent events through the issuance date of the respective financial statements. In addition, SFAS 165 requires companies to reflect in their financial statements the effects of subsequent events that provide additional evidence about conditions
at the balance-sheet date (recognized subsequent events). The Statement prohibits companies from reflecting in their financial statements the effects of subsequent events that provide evidence about conditions that arose after the balance-sheet date
(nonrecognized subsequent events), but requires information about the events to be disclosed if the financial statements would otherwise be misleading. These



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disclosures include the nature of the event and either an estimate of its financial effect or a statement that an estimate cannot be made. SFAS 165 is
effective for interim and annual financial periods ending after June 15, 2009 and should be applied prospectively. The Company does not expect the adoption of SFAS 165 to have any material impact on its consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141(R)-1). FSP FAS 141(R)-1 amends the provisions in Statement 141R for the initial recognition and measurement, subsequent measurement and
accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The FSP eliminates the distinction between contractual and noncontractual contingencies, including the initial recognition and measurement
criteria, in Statement 141R and instead carries forward most of the provisions in FASB Statement No. 141, Business Combinations, for acquired contingencies. The FSP also amends the subsequent measurement and accounting guidance, and disclosure
requirements in Statement 141R. No subsequent accounting guidance is provided in the FSP, and the Board expects an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on
their nature. The FSP is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We will evaluate the impact of FSP 141 (R)-1 on its consolidated financial statements in the event future business combinations are consummated.

In April 2008, the FASB FSP No. 142-3, Determination of the Useful Life of Intangible Assets(FSP 142-3). FSP 142-3 amends the factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired
individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is
prohibited. We do not expect the adoption of FSP 142-3 to have any material impact on our consolidated financial statements.

In February
2008, the FASB issued FSP No. SFAS 157-2, Effective Date of FASB Statement No. 157, (FSP SFAS 157-2). FSP SFAS 157-2 amends SFAS 157, to delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its scope, FSP SFAS 157-2 defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. We are in the process of determining what effect, if any; the adoption of FSP SFAS 157-2 will have on our consolidated financial statements.

In October 2008, the FASB issued FSP No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active(FSP 157-3) which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007 for financial assets carried at fair value, and years beginning after November 15, 2008 for non-financial assets not carried at fair value. We are in the
process of determining what effect, if any; the adoption of FSP SFAS 157-3 will have on our consolidated financial statements.

In
April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP
157-4) amends SFAS No. 157 and provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset and liability have significantly decreased, as well as provides
guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009. We are in the process of determining what effect, if any; the adoption of FSP
SFAS 157-4 will have on our consolidated financial statements.



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In April 2009, the FASB issued FSP SFAS 107-1/APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments (FSP 107-1). FSP FAS 107-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim
reporting periods. This FSP applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as defined by APB 28, and requires that a publicly traded company shall include disclosures about the fair value of
its financial instruments whenever it issues summarized financial information for interim reporting periods. FSP 107-1 shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. We are in the process of determining what effect, if any; the adoption of FSP SFAS 107-1 will have on our consolidated financial statements.

On June 16, 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1). FSP EITF
03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the
two-class method described in paragraphs 60 and 61 of SFAS 128. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. We have determined that the
implementation of FSP EITF 03-6-1 will result in the restricted stock outstanding that is related to the early exercise of stock options being included in the computation of EPS. As of March 31, 2009, we had 683,341 shares of restricted stock
outstanding related to the early exercise of stock options that would have been included in the computation of EPS. If FSP EITF 03-6-1 was effective for the three and twelve months ended March 31, 2009, EPS would have been $(0.53) and $(1.66),
respectively.

On November 24, 2008, the FASB issued EITF 08-7, Accounting for Defensive Intangible Assets (EITF
08-7). EITF 08-7 requires that an acquired defensive intangible asset be accounted for as a separate unit of accounting at acquisition, not combined with the acquirers recognized or unrecognized intangible assets. The useful life of the
asset should be determined as the period over which the reporting entity expects a defensive asset to contribute directly or indirectly to the entitys future cash flows, in accordance with paragraph 11 of FASB Statement No. 142,
Goodwill and Other Intangible Assets. The scope of the issue excludes acquired in-process research and development assets. EITF 08-7 is effective for defensive assets acquired on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008 and shall be applied prospectively. Early application is not permitted. The Company is in the process of determining what effect, if any, the adoption of EITF 08-7 will have on its consolidated financial
statements.



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|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Foreign Currency Exchange Risk.    Substantially all sales to customers and arrangements with vendors provide for pricing and payment in United States dollars, thereby reducing the impact of foreign exchange rate
fluctuations on our results. A small percentage of our consolidated revenues and operational expenses consist of international revenues and operational expenses which are denominated in foreign currencies. Exchange rate volatility could negatively
or positively impact those revenues and operating costs. For the fiscal years ended March 31, 2009, the Company incurred foreign exchange losses of $0.2 million. Fluctuations in currency exchange rates could have a greater effect on our
business in the future to the extent our expenses increasingly become denominated in foreign currencies.

Interest Rate
Sensitivity.    Interest income and expense are sensitive to changes in the general level of U.S. interest rates. However, based on the nature and current level of our investments, which are primarily cash and debt
obligations, we believe that there is no material risk of exposure.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

The
information required by Item 8 is contained on pages F-1 through F-30 of this report.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------



|(a) | Evaluation of Disclosure Controls and Procedures
|--- | ------------------------------------------------

As required by Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (Exchange Act), we have evaluated, with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and our management necessarily was required to apply its judgment in
evaluating and implementing our disclosure controls and procedures. Based upon the evaluation described above, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the Securities and Exchange Commissions rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.



|(b) | Managements Annual Report on Internal Control Over Financial Reporting
|--- | -----------------------------------------------------------------------

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A companys internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as



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necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the consolidated financial statements.

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

Our management conducted an
evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2009 based on the Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2009.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only managements report in this annual report.



|(c) | Changes in Internal Control Over Financial Reporting
|--- | ----------------------------------------------------

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION.
|-------- | ------------------

Employee Separation Agreements

As previously reported on a Form 8-K filed on May 14, 2008, Christopher Powers employment with us was
terminated. Mr. Power had served as our Chief Financial Officer. In connection with Mr. Powers separation, we entered into a Separation Agreement and Release with Mr. Power effective January 21, 2009. Under
the agreement, on March 31, 2009, we paid Mr. Power a lump sum severance payment of $150,000 in cash. The foregoing summary of Mr. Powers severance benefits is qualified in its entirety by reference to the full text of the
Separation Agreement and Release effective January 21, 2009, a copy of which is filed as Exhibit 10.20 to this Annual Report on Form 10-K.

As previously reported on a Form 8-K filed on June 2, 2009, Meredith Hanrahans employment with us was terminated. Ms. Hanrahan had served as our Senior Vice President and Chief
Marketing Officer. In connection with Ms. Hanrahans separation, we entered into a Separation Agreement and Release with Ms. Hanrahan effective June 4, 2009. Under the agreement, Ms. Hanrahan will receive 12 weeks of
base salary in severance benefits which will be paid in equal semi-monthly installments of approximately $8,000. In addition, we accelerated the vesting on approximately 7,500 shares of restricted common stock and approximately 23,000
stock options held by Ms. Hanrahan. The foregoing summary of Ms. Hanrahans severance benefits is qualified in its entirety by reference to the full text of the Separation Agreement and Release effective June 4, 2009, a copy
of which is filed as Exhibit 10.9 to this Annual Report on Form 10-K.



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Revolving Credit Facility Amendment

On March 16, 2009, we entered into a Fourth Loan Modification Agreement with Silicon Valley Bank, which added Genesys as a guarantor to our obligations under the credit facility.

On June 29, 2009, we entered into a Fifth Loan Modification Agreement with Silicon Valley Bank. The agreement modifies our existing credit facility
with Silicon Valley Bank to, among other things:



| |  |  | Increase the interest rate payable by us on advances from our revolving line of credit, so that our borrowings bear interest at the greater of the banks prime
rate and 4% or, if our unrestricted cash balance falls below $20 million, at the banks prime rate plus 0.5%;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increase the fee payable on the unused portion of our revolving line of credit to 0.5%;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Amend certain financial covenants to be based upon our adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) rather
than our domestic invoices; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing the amount of stock we can repurchase under our repurchase plans to $2.25 million.
| | - |  | ---------------------------------------------------------------------------------------------

Up to $10 million is available under this credit facility and the facility is collateralized by substantially all of our assets and expires on
October 8, 2010. Up to $5 million of the line of credit may be used to secure letters of credit and cash management services, and up to $5 million of the line of credit may be used in connection with foreign exchange forward contracts. The
modification agreement contains financial covenants that require us to maintain an unrestricted cash balance at Silicon Valley Bank of at least $20 million. If our unrestricted cash falls below $20 million, then the amount we could borrow under
the line of credit would be limited to a borrowing base consisting of a specified percentage of accounts receivable and a specified percentage of future billings. In addition, we are required to maintain unrestricted cash plus borrowing availability
of at least $15 million and meet adjusted EBITDA targets for trailing three-month periods on a monthly basis.

There are no outstanding
borrowings under this credit facility. Silicon Valley Bank and/or its affiliates have provided and may continue to provide commercial banking, investment management and other services to us, our affiliates and our employees, for which they receive
customary fees and commissions.

The foregoing description of the Fifth Loan Modification Agreement is qualified in its entirety by
reference to the Fifth Loan Modification Agreement, a copy of which is attached hereto as Exhibit 10.8.5 and incorporated herein by reference.



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PART III



|ITEM 10. | DIRECTORS , EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | -------------------------------------------------------

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended March 31, 2009.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required by
this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended March 31, 2009.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of our fiscal year ended March 31, 2009.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|-------- | ------------------------------------------------------------------------

The information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
March 31, 2009.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
information required by this item is incorporated by reference to our Proxy Statement for the 2009 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended March 31, 2009.



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PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



|                                                                                                                                                                 |  |                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|                                                                                                                                                                 |  | Page Number inthis Form 10-K
|(a)(1) INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS  The Financial Statements required to be filed by Item 8 of Form 10-K, and
filed herewith, are as follows: |  |                             
|                                                                                                                                                                 | 
|Report of Independent Registered Public Accounting Firm                                                                                                          |  | F-1                         
|                                                                                                                                                                 | 
|Consolidated Balance Sheets as of March 31, 2009 and 2008                                                                                                        |  | F-2                         
|                                                                                                                                                                 | 
|Consolidated Statements of Operations for the three years ended March 31, 2009, 2008 and 2007                                                                    |  | F-3                         
|                                                                                                                                                                 | 
|Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Loss for the three years ended March 31,
 2009, 2008 and 2007                        |  | F-4                         
|                                                                                                                                                                 | 
|Consolidated Statements of Cash Flows for the three years ended March 31, 2009, 2008 and 2007                                                                    |  | F-5                         
|                                                                                                                                                                 | 
|Notes to Consolidated Financial Statements                                                                                                                       |  | F-6                         
|                                                                                                                                                                 | 
|(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULE                                                                                                                     |  |                             
|                                                                                                                                                                 | 
|Schedule IIValuation and Qualifying Accounts and Reserves                                                                                                       |  | S-1                         

Schedules not listed above have been omitted because the information requested to be set forth
therein is either not applicable or the required information is included in the consolidated financial statements or related notes.

(a)(3) INDEX TO
EXHIBITS

See attached Exhibit Index of this Annual Report on Form 10-K.

(b) Exhibits

The Company hereby files as part of this Form 10-K the Exhibits listed in Item 15
(a) (3) above. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission (the Commission), 450 Fifth Street, Room
1024, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.

(c) FINANCIAL STATEMENT SCHEDULES

The Company hereby
files as part of this Form 10-K the consolidated financial statements schedule listed in Item 15 (a)(2) above, which is attached hereto.



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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 on
June 29, 2009.



SALARY.COM, INC.By:

/S/    G. KENT PLUNKETTG. Kent PlunkettChairman of the Board, President and Chief Executive Officer


Power of Attorney

Each person whose signature appears below constitutes and appoints G. Kent Plunkett and Bryce Chicoyne, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution in each of them, for him and in his name, place, and stead, and in any and all capacities, to sign this Annual Report on Form 10-K of Salary.com, Inc. and any amendments thereto, and to
file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

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



|                                             |  |                                                                                                                     |  |              
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                                    |  | Title                                                                                                               |  | Date         
|                                             |  |                                                                                                                    
|/s/    G. KENT
PLUNKETT G. Kent Plunkett     |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)                          |  | June 29, 2009
|                                             |  |                                                                                                                    
|/s/    BRYCE
CHICOYNE Bryce Chicoyne         |  | Senior Vice President, Chief Financial Officer, Treasurer and Director (Principal Financial and Accounting Officer) |  | June 29, 2009
|                                             |  |                                                                                                                    
|/s/    YONG
ZHANG Yong Zhang                 |  | Executive Vice President, Chief Operating Officer and Director                                                      |  | June 29, 2009
|                                             |  |                                                                                                                    
|/s/    PAUL R.
DAOUST Paul R. Daoust         |  | Director                                                                                                            |  | June 29, 2009
|                                             |  |                                                                                                                    
|/s/    JOHN F.
GREGG John F. Gregg           |  | Director                                                                                                            |  | June 29, 2009
|                                             |  |                                                                                                                    
|/s/    EDWARD F.
MCCAULEY Edward F. McCauley |  | Director                                                                                                            |  | June 29, 2009



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|                                               |  |          |  |              
|---------------------------------------------- |  | -------- |  | -------------
|Signature                                      |  | Title    |  | Date         
|                                               |  |         
|/s/    JOHN R.
SUMSER John R. Sumser           |  | Director |  | June 29, 2009
|                                               |  |         
|/s/    TERRY
TEMESCU Terry Temescu             |  | Director |  | June 29, 2009
|                                               |  |         
|/s/    ROBERT A.
TREVISANI Robert A. Trevisani |  | Director |  | June 29, 2009



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                         
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                             
|2.1           |  | Membership Interest Purchase Agreement dated as of May 15, 2007 by and among Salary.com, Inc., ICR Limited, L.C., Joseph Duggan and Roger Sturtevant, Jr. (incorporated by reference to
Exhibit 2.1 filed with the Companys Current Report on Form 8-K dated May 15, 2007, SEC File No. 001-33312).                                                    
|              | 
|2.2           |  | Share Purchase Agreement dated as of May 15, 2007, by and among Salary.com, Inc., John Cunnell and Valerie Cunnell (incorporated by reference to Exhibit 2.2 filed with the Companys
Current Report on Form 8-K dated May 15, 2007, SEC File No. 001-33312).                                                                                           
|              | 
|2.3           |  | Asset Purchase Agreement dated as of July 31, 2007 by and among Salary.com, Inc., ITG Competency Group, LLC and Douglas Crisman (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed July 31, 2007, SEC File No. 001-33312).                                                                                     
|              | 
|2.4           |  | Asset Purchase Agreement, dated as of December 21, 2007, by and among Salary.com, Inc., Stephen C. Schoonover, Schoonover Associates, Inc. and Helen Schoonover (incorporated by reference to
Exhibit 2.1 to the Companys Current Report on Form 8-K filed December 28, 2007, SEC File No. 001-33312).                                                 
|              | 
|2.5           |  | Agreement and Plan of Merger, dated as of December 9, 2008, by and among Salary.com, Inc., Genesys Software Systems, Inc., Cobalt Acquisition Corp. and Lawrence J. Munini (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed December 10, 2008, SEC File No. 001-33312).                                      
|              | 
|2.6           |  | Share Purchase Agreement, dated as of August 21, 2008, by and among Salary.com, Inc., the Principals, Oxford and the Additional Shareholders (incorporated by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed August 27, 2008, SEC File No. 001-33312).                                                                      
|              | 
|3.1           |  | Amended and Restated Certificate of Incorporation of the Registrant Agreement (incorporated by reference to Exhibit 3.1 filed with Amendment No. 2 to the Companys Registration Statement on
Form S-1, dated January 19, 2007, Registration No. 333-138646).                                                                                           
|              | 
|3.2           |  | Form of Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 filed with Amendment No. 2 to the Companys Registration Statement on Form S-1,
dated January 19, 2007, Registration No. 333-138646).                                                                                                        
|              | 
|3.3           |  | Amended and Restated By-Laws (incorporated by reference to Exhibit 3.3 filed with Amendment No. 2 to the Companys Registration Statement on Form S-1, dated January 19, 2007,
Registration No. 333-138646).                                                                                                                                            
|              | 
|3.4           |  | Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Salary.com, Inc. classifying and designating the Series A Junior Participating Cumulative Preferred Stock
(incorporated by reference to Exhibit 3.1 filed with the Companys Registration Statement on Form 8-A, filed November 20, 2008, SEC File No. 001-33312).
|              | 
|4.1           |  | Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 filed with Amendment No. 2 to the Companys Registration Statement on Form S-1, dated January 19, 2007,
Registration No. 333-138646).                                                                                                                                       
|              | 
|4.2           |  | Shareholder Rights Agreement, dated as of November 14, 2008, by and between Salary.com, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference
to Exhibit 4.1 filed with the Companys Registration Statement on Form 8-A, filed November 20, 2008, SEC File No. 001-33312).                                 



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|              |  |                                                                                                                                                                                                                                                                                     
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                         
|10.1          |  | Second Amended and Restated 2000 Stock Option Incentive Plan (incorporated by reference to Exhibit 10.1 filed with the Companys Registration Statement on Form S-1, dated November 13,
2006, Registration No. 333-138646). *                                                       
|              | 
|10.1.1        |  | 2000 Stock Option and Incentive Plan, Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1.1 filed with the Companys Registration Statement on Form S-1,
dated November 13, 2006, Registration No. 333-138646). *                                   
|              | 
|10.2          |  | First Amended and Restated 2004 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 filed with the Companys Registration Statement on Form S-1, dated
November 13, 2006, Registration No. 333-138646). *                                                    
|              | 
|10.2.1        |  | 2004 Stock Option and Incentive Plan, Form of Stock Option Agreement (incorporated by reference to Exhibit 10.2.1 filed with the Companys Registration Statement on Form S-1, dated
November 13, 2006, Registration No. 333-138646).*                                              
|              | 
|10.3          |  | 2007 Stock Option and Incentive Plan (incorporated by reference to Appendix A of the Companys Proxy Statement, filed July 29, 2008, SEC File No. 001-33312). *                                                                                                                     
|              | 
|10.3.1        |  | 2007 Stock Option and Incentive Plan, Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.3.1 filed with Amendment No. 2 to the Companys Registration
Statement on Form S-1, dated January 19, 2007, Registration No. 333-138646). *                 
|              | 
|10.3.2        |  | 2007 Stock Option and Incentive Plan, Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.3.2 filed with Amendment No. 2 to the Companys Registration
Statement on Form S-1, dated January 19, 2007, Registration No. 333-138646). *             
|              | 
|10.3.3        |  | 2007 Stock Option and Incentive Plan, Form of Non-Qualified Stock Option Non-Employee Agreement (incorporated by reference to Exhibit 10.3.3 filed with Amendment No. 2 to the Companys
Registration Statement on Form S-1, dated January 19, 2007, Registration No. 333-138646). *
|              | 
|10.3.4        |  | 2007 Stock Option and Incentive Plan, Form of Deferred Stock Award Agreement (incorporated by reference to Exhibit 10.3.4 filed with the Companys Annual Report on Form 10-K filed
June 13, 2008, SEC File No. 001-33312). *                                                       
|              | 
|10.4          |  | 2007 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 filed with Amendment No. 2 to the Companys Registration Statement on Form S-1, dated January 19, 2007,
Registration No. 333-138646). *                                                                
|              | 
|10.5          |  | Second Amended and Restated Stockholders Agreement (incorporated by reference to Exhibit 10.5 filed with the Companys Registration Statement on Form S-1, dated November 13, 2006,
Registration No. 333-138646).                                                                   
|              | 
|10.5.1        |  | Amendment to Second Amended and Restated Stockholders Agreement (incorporated by reference to Exhibit 10.5.1 filed with Amendment No. 1 to the Companys Registration Statement on Form S-1,
dated December 21, 2006, Registration No. 333-138646).                                 
|              | 
|10.6          |  | Second Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 10.6 filed with the Companys Registration Statement on Form S-1, dated November 13,
2006, Registration No. 333-138646).                                                            
|              | 
|10.7          |  | Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.7 filed with the Companys Registration Statement on Form S-1, dated November 13, 2006, Registration No.
333-138646).                                                                                
|              | 
|10.8          |  | Loan and Security Agreement (incorporated by reference to Exhibit 10.9 filed with the Companys Registration Statement on Form S-1, dated November 13, 2006, Registration No.
333-138646).                                                                                          



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|              |  |                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                
|10.8.1        |  | First Loan Modification Agreement, dated as of August 8, 2008, by and between Salary.com, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q filed August 11, 2008, SEC File No. 001-33312).*                          
|              | 
|10.8.2        |  | Second Loan Modification Agreement, dated as of September 17, 2008, by and between Salary.com, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q filed November 10, 2008, SEC File No. 001-33312).*                   
|              | 
|10.8.3        |  | Third Loan Modification Agreement, dated as of October 8, 2008, by and between Salary.com, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed October 15, 2008, SEC File No. 001-33312).*                           
|              | 
|10.8.4        |  | Fourth Loan Modification Agreement, dated as of March 16, 2009, by and between Salary.com, Inc. and Silicon Valley Bank (filed
herewith).*                                                                                                                                                 
|              | 
|10.8.5        |  | Fifth Loan Modification Agreement, dated as of June 29, 2009, by and between Salary.com, Inc. and Silicon Valley Bank (filed
herewith).*                                                                                                                                                   
|              | 
|10.9          |  | Separation Agreement and Release, dated as of May 26, 2009, by and between Salary.com, Inc. and Meredith Hanrahan (filed
herewith).*                                                                                                                                                       
|              | 
|10.10         |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.12 filed with Amendment No. 2 to the Companys Registration Statement on Form S-1, dated January 19, 2007,
Registration No. 333-138646).                                                                        
|              | 
|10.11         |  | Form of Employment Agreement with G. Kent Plunkett (incorporated by reference to Exhibit 10.13 filed with Amendment No. 3 to the Companys Registration Statement on Form S-1, dated
February 9, 2007, Registration No. 333-138646).*                                                      
|              | 
|10.11.1       |  | Salary.com, Inc. Amended and Restated Employment Agreement, dated as of December 30, 2008, by and between Salary.com, Inc. and G. Kent Plunkett (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q filed February 9, 2009, SEC File No. 001-33312).*
|              | 
|10.12         |  | Letter Agreement Re: Employment and Compensation with Kenneth S. Goldman (incorporated by reference to Exhibit 10.12 filed with the Companys Registration Statement on Form S-1, dated
November 13, 2006, Registration No. 333-138646).*                                                  
|              | 
|10.13         |  | Salary.com, Inc. Employment offer letter dated as of December 12, 2007, by and between Salary.com and Chris G. Power (incorporated by reference to Exhibit 2.1 to the Companys
Quarterly Report on Form 10-Q filed February 14, 2008, SEC File No. 001-33312).*                           
|              | 
|10.14         |  | Separation Agreement and Release, dated as of January 8, 2008, by and between Salary.com, Inc. and Kenneth S. Goldman (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed December 28, 2007, SEC File No. 001-33312).*                            
|              | 
|10.15         |  | Salary.com, Inc. Employment offer letter dated as of April 2, 2008, by and between Salary.com and Bryce Chicoyne (incorporated by reference to Exhibit 10.17 to the Companys Annual
Report on Form 10-K for the year ended March 31, 2008, SEC File No. 001-33312).*                      
|              | 
|10.15.1       |  | Salary.com, Inc. Amendment to Employment offer letter dated as of December 31, 2008, by and between Salary.com, Inc. and Bryce Chicoyne (incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q filed February 9, 2009, SEC File No. 001-33312).*        
|              | 
|10.16         |  | Separation Agreement and Release, dated as of January 7, 2009, by and between Salary.com, Inc. and Christopher Fusco (incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q filed February 9, 2009, SEC File No. 001-33312).*                           



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|              |  |                                                                                                                                                                                                                                                                                    
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                        
|              | 
|10.17         |  | Lease Contract, dated as of October 24, 2008, by and between SDC China Limited and Shanghai Zhangjiang Microelectronics Port Co., Ltd. (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q filed November 10, 2008, SEC File No. 001-33312).*
|              | 
|10.19         |  | Separation Agreement and Release, dated as of April 7, 2009, by and between Salary.com, Inc. and William H. Coleman (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed April 13, 2009, SEC File No. 001-33312).*                         
|              | 
|10.20         |  | Separation Agreement and Release, dated as of December 19, 2008, by and between Salary.com, Inc. and Christopher Power (filed herewith).*                                                                                                                                          
|              | 
|21.1          |  | Subsidiaries of the Company (filed herewith).                                                                                                                                                                                                                                      
|              | 
|23.1          |  | Consent of Grant Thornton LLP (filed herewith).                                                                                                                                                                                                                                    
|              | 
|24.1          |  | Power of Attorney (filed herewith as part of the signature page hereto).                                                                                                                                                                                                           
|              | 
|31.1          |  | Rule 13a-14(a) Certification of Chief Executive Officer (filed herewith).                                                                                                                                                                                                          
|              | 
|31.2          |  | Rule 13a-14(a) Certification of Chief Financial Officer (filed herewith).                                                                                                                                                                                                          
|              | 
|32.1          |  | Certification 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 (furnished
herewith).                                                                                



|* | Compensatory plan or arrangement applicable to management.
|- | ----------------------------------------------------------



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Salary.com, Inc.

We have audited the accompanying consolidated balance sheets of Salary.com, Inc. and subsidiaries (a Delaware corporation) (collectively the
Company) as of March 31, 2009 and 2008, and the related consolidated statements of operations, stockholders equity (deficit) and comprehensive loss, and cash flows for each of the three years in the period ended March 31,
2009. Our audits of the basic financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Salary.com, Inc. and subsidiaries as of March 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the three years in the period ended March 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Grant Thornton LLP

Boston, Massachusetts

June 29, 2009



F-1



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##### Table of Contents

SALARY.COM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in
thousands, except share amounts)



|                                                                                                                                           |  |               |         |   |               |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                                                           |  | March 31,2009 |         |   | March 31,2008 |  
|Assets                                                                                                                                     |  |               |         |   |               |   |         |  
|Current assets:                                                                                                                            |  |               |         |   |               |   |         |  
|Cash and cash equivalents                                                                                                                  |  | $             | 21,085  |   |               | $ | 37,727  |  
|Accounts receivable, less allowance for doubtful accounts of $170 and $247, at March 31, 2009 and March 31, 2008,
respectively             |  |               | 6,040   |   |               |   | 4,734   |  
|Prepaid expenses and other current assets                                                                                                  |  |               | 1,558   |   |               |   | 1,922   |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total currents assets before funds held for clients                                                                                        |  |               | 28,683  |   |               |   | 44,383  |  
|Funds held for clients                                                                                                                     |  |               | 12,964  |   |               |   |        |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total current assets                                                                                                                       |  |               | 41,647  |   |               |   | 44,383  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Property, equipment and software, net                                                                                                      |  |               | 3,025   |   |               |   | 1,566   |  
|Amortizable intangible assets, net                                                                                                         |  |               | 16,112  |   |               |   | 9,082   |  
|Other intangible assets                                                                                                                    |  |               | 1,504   |   |               |   | 460     |  
|Goodwill                                                                                                                                   |  |               | 14,734  |   |               |   | 9,549   |  
|Restricted cash                                                                                                                            |  |               | 1,125   |   |               |   | 739     |  
|Other assets                                                                                                                               |  |               | 554     |   |               |   | 430     |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total assets                                                                                                                               |  | $             | 78,701  |   |               | $ | 66,209  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Liabilities and Stockholders Equity                                                                                                       |  |               |         |   |               |   |         |  
|Current liabilities:                                                                                                                       |  |               |         |   |               |   |         |  
|Accounts payable                                                                                                                           |  | $             | 1,379   |   |               | $ | 1,961   |  
|Accrued compensation                                                                                                                       |  |               | 963     |   |               |   | 2,720   |  
|Accrued expenses and other current liabilities                                                                                             |  |               | 3,300   |   |               |   | 3,146   |  
|Revolving credit facility                                                                                                                  |  |               | 8,125   |   |               |   |        |  
|Deferred revenue, current portion                                                                                                          |  |               | 26,556  |   |               |   | 20,523  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total current liabilities before client funds obligations                                                                                  |  |               | 40,323  |   |               |   | 28,350  |  
|Client funds obligations                                                                                                                   |  |               | 12,964  |   |               |   |        |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total current liabilities                                                                                                                  |  |               | 53,287  |   |               |   | 28,350  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Deferred revenue, less current portion                                                                                                     |  |               | 1,729   |   |               |   | 1,510   |  
|Other long-term liabilities                                                                                                                |  |               | 1,742   |   |               |   | 181     |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total liabilities                                                                                                                          |  |               | 56,758  |   |               |   | 30,041  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Commitments and contingencies (Note 7)                                                                                                     |  |               |        |   |               |   |        |  
|Stockholders equity:                                                                                                                      |  |               |         |   |               |   |         |  
|Preferred stock, $.0001 par value; 5,000,000 shares authorized; none issued or outstanding                                                 |  |               |        |   |               |   |        |  
|Common stock, $.0001 par value; 100,000,000 shares authorized; 16,104,454 and 14,452,999 issued and outstanding at March 31, 2009 and
2008 |  |               | 2       |   |               |   | 1       |  
|Additional paid-in capital                                                                                                                 |  |               | 89,372  |   |               |   | 76,166  |  
|Accumulated deficit                                                                                                                        |  |               | (66,452 | ) |               |   | (39,994 | )
|Accumulated other comprehensive loss                                                                                                       |  |               | (979    | ) |               |   | (5      | )
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total stockholders equity                                                                                                                 |  |               | 21,943  |   |               |   | 36,168  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  
|Total liabilities and stockholders equity                                                                                                 |  | $             | 78,701  |   |               | $ | 66,209  |  
|                                                                                                                                           |  |               |         |   |               |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



F-2



---

##### Table of Contents

SALARY.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------ |  | --------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                         |  | Years ended March 31, |        
|                                                                         |  | 2009                  |         |   | 2008 |   |         | 2007 | 
|Revenues:                                                                |  |                       |         |   |      |   |         |      |  |   |        |  
|Subscription                                                             |  | $                     | 39,630  |   |      | $ | 31,552  |      |  | $ | 20,503 |  
|Advertising                                                              |  |                       | 2,825   |   |      |   | 2,955   |      |  |   | 2,531  |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Total revenues                                                           |  |                       | 42,455  |   |      |   | 34,507  |      |  |   | 23,034 |  
|Cost of revenues                                                         |  |                       | 13,157  |   |      |   | 8,229   |      |  |   | 5,334  |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Gross profit                                                             |  |                       | 29,298  |   |      |   | 26,278  |      |  |   | 17,700 |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Operating expenses:                                                      |  |                       |         |   |      |   |         |      |  |   |        |  
|Research and development                                                 |  |                       | 8,846   |   |      |   | 4,941   |      |  |   | 4,116  |  
|Sales and marketing                                                      |  |                       | 26,139  |   |      |   | 18,963  |      |  |   | 12,792 |  
|General and administrative                                               |  |                       | 15,723  |   |      |   | 13,499  |      |  |   | 8,922  |  
|Amortization of intangible assets                                        |  |                       | 1,988   |   |      |   | 1,126   |      |  |   | 126    |  
|Restructuring charges                                                    |  |                       | 3,081   |   |      |   |        |      |  |   |       |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Total operating expenses                                                 |  |                       | 55,777  |   |      |   | 38,529  |      |  |   | 25,956 |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Loss from operations                                                     |  |                       | (26,479 | ) |      |   | (12,251 | )    |  |   | (8,256 | )
|Other income (expense):                                                  |  |                       |         |   |      |   |         |      |  |   |        |  
|Interest income                                                          |  |                       | 537     |   |      |   | 1,906   |      |  |   | 298    |  
|Other expense, net                                                       |  |                       | (308    | ) |      |   | (48     | )    |  |   | (124   | )
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Total other income                                                       |  |                       | 229     |   |      |   | 1,858   |      |  |   | 174    |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Loss before provision for income taxes                                   |  |                       | (26,250 | ) |      |   | (10,393 | )    |  |   | (8,082 | )
|Provision for income taxes                                               |  |                       | 208     |   |      |   | 205     |      |  |   |       |  
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Net loss                                                                 |  |                       | (26,458 | ) |      |   | (10,598 | )    |  |   | (8,082 | )
|Accretion of preferred stock                                             |  |                       |        |   |      |   |        |      |  |   | (471   | )
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Net loss attributable to common stockholders                             |  | $                     | (26,458 | ) |      | $ | (10,598 | )    |  | $ | (8,553 | )
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Net loss attributable to common stockholders per sharebasic and diluted |  | $                     | (1.73   | ) |      | $ | (0.77   | )    |  | $ | (1.42  | )
|                                                                         |  |                       |         |   |      |   |         |      |  |   |        |  
|Weighted average shares outstandingbasic and diluted                    |  |                       | 15,297  |   |      |   | 13,792  |      |  |   | 6,024  |  

The accompanying notes are an integral part of the consolidated financial statements.



F-3



---

##### Table of Contents

SALARY.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

AND COMPREHENSIVE LOSS

(in thousands, except share amounts)



|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|---------------------------------------------------------------------- |  | ------------ | - | ------------------------ | ------ | - | -------------- | ------ | ------ | ---------------------- | ------ | ------ | ------------------ |  | - | --------------------------------- | - |  | --------------------------------- | ---- | - |  | - | ------- | - |  | - | ---- | - |  | - | ------- | -
|                                                                       |  | Common Stock |   | AdditionalPaid-InCapital |        |   | Treasury Stock |        |        | SubscriptionReceivable |        |        | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveLoss |   |  | TotalStockholders'Equity(Deficit) |     
|                                                                       |  | Shares       |   |                          | Amount |   |                | Shares |        |                        | Amount |        |                    |  |   |                                  
|Balance at March 31, 2006                                              |  | 4,658,312    |   |                          | $      |  |                | $      | 3,209  |                        |        | 4,480  |                    |  | $ | (1                                | ) |  | $                                 | (279 | ) |  | $ | (20,843 | ) |  | $ |     |   |  | $ | (17,914 | )
|Issuance of common stock for warrant and options exercises and bonuses |  | 100,929      |   |                          |        |  |                |        | 277    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 277     |  
|Vesting of early exercise stock options                                |  | 1,554,020    |   |                          |        |  |                |        | 497    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 497     |  
|Subscription receivable                                                |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   | 279  |   |  |   |        |   |  |   |     |   |  |   | 279     |  
|Initial public offering, net of offering costs                         |  | 5,248,200    |   |                          |        | 1 |                |        | 48,023 |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 48,024  |  
|Conversion of preferred stock                                          |  | 1,758,599    |   |                          |        |  |                |        | 11,009 |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 11,009  |  
|Accretion of preferred stock to redemption value                       |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   | (471    | ) |  |   |      |   |  |   | (471    | )
|Retirement of treasury stock                                           |  | (4,480       | ) |                          |        |  |                |        | (1     | )                      |        | (4,480 | )                  |  |   | 1                                 |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   |        |  
|Stock-based compensation expense                                       |  |             |   |                          |        |  |                |        | 4,365  |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 4,365   |  
|Comprehensive loss:                                                    |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Cumulative translation adjustment                                      |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   | (1   | ) |  |   | (1      | )
|Net loss                                                               |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   | (8,082  | ) |  |   |     |   |  |   | (8,082  | )
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Comprehensive loss                                                     |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   | (8,083  | )
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balance at March 31, 2007                                              |  | 13,315,580   |   |                          |        | 1 |                |        | 67,379 |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   | (29,396 | ) |  |   | (1   | ) |  |   | 37,983  |  
|Issuance of common stock for warrant and options exercises             |  | 202,144      |   |                          |        |  |                |        | 409    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 409     |  
|Vesting of early exercise stock options                                |  | 444,140      |   |                          |        |  |                |        | 252    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 252     |  
|Vesting of restricted stock awards                                     |  | 164,571      |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   |        |  
|Issuance of common stock for bonuses                                   |  | 147,451      |   |                          |        |  |                |        | 1,899  |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 1,899   |  
|Issuance of common stock for business acquisitions                     |  | 151,211      |   |                          |        |  |                |        | 773    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 773     |  
|Issuance of common stock for legal settlement                          |  | 18,000       |   |                          |        |  |                |        | 225    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 225     |  
|Issuance of common stock for employee stock purchase plan              |  | 9,902        |   |                          |        |  |                |        | 100    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 100     |  
|Stock-based compensation expense                                       |  |             |   |                          |        |  |                |        | 5,129  |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 5,129   |  
|Comprehensive loss:                                                    |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Cumulative translation adjustment                                      |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   | (4   | ) |  |   | (4      | )
|Net loss                                                               |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   | (10,598 | ) |  |   |      |   |  |   | (10,598 | )
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Comprehensive loss                                                     |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   | (10,602 | )
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balance at March 31, 2008                                              |  | 14,452,999   |   |                          |        | 1 |                |        | 76,166 |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   | (39,994 | ) |  |   | (5   | ) |  |   | 36,168  |  
|Issuance of common stock for warrant and options exercises             |  | 108,019      |   |                          |        |  |                |        | 24     |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 24      |  
|Vesting of early exercise stock options                                |  | 386,901      |   |                          |        |  |                |        | 174    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 174     |  
|Vesting of restricted stock awards                                     |  | 739,890      |   |                          |        | 1 |                |        | (327   | )                      |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | (326    | )
|Issuance of common stock for consulting fees                           |  | 52,521       |   |                          |        |  |                |        | 250    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 250     |  
|Issuance of common stock for business acquisitions                     |  | 73,154       |   |                          |        |  |                |        | 234    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 234     |  
|Issuance of common stock for bonuses and incentive awards              |  | 373,734      |   |                          |        |  |                |        | 1,725  |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 1,725   |  
|Issuance of common stock for Board of Director fees                    |  | 67,312       |   |                          |        |  |                |        | 278    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 278     |  
|Issuance of common stock for employee stock purchase plan              |  | 43,748       |   |                          |        |  |                |        | 197    |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   | 197     |  
|Repurchase and retirement of common stock                              |  | (193,824     | ) |                          |        |  |                |        | (375   | )                      |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | (375    | )
|Severance payments settled in common stock                             |  |             |   |                          |        |  |                |        | 154    |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 154     |  
|Options assumed as part of acquisition                                 |  |             |   |                          |        |  |                |        | 1,110  |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 1,110   |  
|Stock-based compensation expense                                       |  |             |   |                          |        |  |                |        | 9,762  |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   |     |   |  |   | 9,762   |  
|Comprehensive loss:                                                    |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Cumulative translation adjustment                                      |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   |        |   |  |   | (974 | ) |  |   | (974    | )
|Net loss                                                               |  |             |   |                          |        |  |                |        |       |                        |        |       |                    |  |   |                                  |   |  |                                   |     |   |  |   | (26,458 | ) |  |   |     |   |  |   | (26,458 | )
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Comprehensive loss                                                     |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   | (27,432 | )
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  
|Balance at March 31, 2009                                              |  | 16,104,454   |   |                          | $      | 2 |                | $      | 89,372 |                        |        |       |                    |  | $ |                                  |   |  | $                                 |     |   |  | $ | (66,452 | ) |  | $ | (979 | ) |  | $ | 21,943  |  
|                                                                       |  |              |   |                          |        |   |                |        |        |                        |        |        |                    |  |   |                                   |   |  |                                   |      |   |  |   |         |   |  |   |      |   |  |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



F-4



---

##### Table of Contents

SALARY.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                          |  | Years ended March 31, |        
|                                                                                          |  | 2009                  |         |   | 2008 |   |         | 2007 | 
|Cash flows from operating activities:                                                     |  |                       |         |   |      |   |         |      |  |   |        |  
|Net loss                                                                                  |  | $                     | (26,458 | ) |      | $ | (10,598 | )    |  | $ | (8,082 | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |                       |         |   |      |   |         |      |  |   |        |  
|Depreciation and amortization of property, equipment and software                         |  |                       | 1,411   |   |      |   | 972     |      |  |   | 842    |  
|Amortization of intangible assets                                                         |  |                       | 3,622   |   |      |   | 1,814   |      |  |   | 133    |  
|Stock-based compensation                                                                  |  |                       | 9,762   |   |      |   | 5,129   |      |  |   | 4,365  |  
|Legal settlement paid in common stock                                                     |  |                       |        |   |      |   | 237     |      |  |   |       |  
|Board of Directors fees paid in common stock                                              |  |                       | 278     |   |      |   |        |      |  |   |       |  
|Consulting fees paid in common stock                                                      |  |                       | 250     |   |      |   |        |      |  |   |       |  
|(Reduction in) provision for doubtful accounts                                            |  |                       | (117    | ) |      |   | 67      |      |  |   | 13     |  
|Changes in operating assets and liabilities, net of acquisition:                          |  |                       |         |   |      |   |         |      |  |   |        |  
|(Increase) decrease in:                                                                   |  |                       |         |   |      |   |         |      |  |   |        |  
|Accounts receivable                                                                       |  |                       | 84      |   |      |   | (203    | )    |  |   | (477   | )
|Prepaid expenses and other current assets                                                 |  |                       | 479     |   |      |   | 311     |      |  |   | (1,135 | )
|Other assets                                                                              |  |                       | (487    | ) |      |   | (73     | )    |  |   | 73     |  
|Increase (decrease) in:                                                                   |  |                       |         |   |      |   |         |      |  |   |        |  
|Accounts payable                                                                          |  |                       | (1,002  | ) |      |   | 1,354   |      |  |   | 318    |  
|Accrued expense and other current liabilities                                             |  |                       | (56     | ) |      |   | 3,760   |      |  |   | 1,298  |  
|Other long-term liabilities                                                               |  |                       | (20     | ) |      |   | 181     |      |  |   |       |  
|Deferred revenue                                                                          |  |                       | 3,851   |   |      |   | 5,477   |      |  |   | 5,719  |  
|Deferred tax liabilities                                                                  |  |                       | 181     |   |      |   |        |      |  |   |       |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Net cash (used in) provided by operating activities                                       |  |                       | (8,222  | ) |      |   | 8,428   |      |  |   | 3,067  |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Cash flows from investing activities:                                                     |  |                       |         |   |      |   |         |      |  |   |        |  
|Cash paid for acquisition of business, net of cash acquired                               |  |                       | (12,693 | ) |      |   | (16,366 | )    |  |   | (660   | )
|Cash paid for acquisition of data                                                         |  |                       | (23     | ) |      |   | (2,369  | )    |  |   | (1,500 | )
|Cash paid for other intangible assets                                                     |  |                       | (484    | ) |      |   | (36     | )    |  |   | (43    | )
|Increase in restricted cash                                                               |  |                       | (386    | ) |      |   | (739    | )    |  |   |        |  
|Purchases of property, equipment and software                                             |  |                       | (2,058  | ) |      |   | (252    | )    |  |   | (1,301 | )
|Capitalization of software development costs                                              |  |                       | (153    | ) |      |   | (390    | )    |  |   | (269   | )
|Net increase in assets held to satisfy client funds obligations                           |  |                       | (7,890  | ) |      |   |        |      |  |   |       |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Net cash used in investing activities                                                     |  |                       | (23,687 | ) |      |   | (20,152 | )    |  |   | (3,773 | )
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Cash flows from financing activities:                                                     |  |                       |         |   |      |   |         |      |  |   |        |  
|Proceeds from revolving credit facility                                                   |  |                       | 8,125   |   |      |   |        |      |  |   |       |  
|Proceeds from initial public offering, net of stock issuance costs                        |  |                       |        |   |      |   |        |      |  |   | 48,023 |  
|Repayments of revolving line of credit, related party                                     |  |                       |        |   |      |   |        |      |  |   | (800   | )
|Repayments of notes payable                                                               |  |                       | (193    | ) |      |   |        |      |  |   |       |  
|Proceeds from exercise of common stock options and warrants                               |  |                       | 221     |   |      |   | 500     |      |  |   | 27     |  
|Repurchase of unvested exercised stock options                                            |  |                       | (56     | ) |      |   | (61     | )    |  |   | (36    | )
|Repurchase and retirement of common and restricted stock                                  |  |                       | (702    | ) |      |   |        |      |  |   |       |  
|Proceeds from subscription payable                                                        |  |                       |        |   |      |   |        |      |  |   | 416    |  
|Proceeds from subscription receivable                                                     |  |                       |        |   |      |   |        |      |  |   | 279    |  
|Proceeds from revolving line of credit and term loan                                      |  |                       |        |   |      |   |        |      |  |   | 7,400  |  
|Repayments of borrowings under line of credit and term loan                               |  |                       |        |   |      |   |        |      |  |   | (7,400 | )
|Net increase in client funds obligations                                                  |  |                       | 7,890   |   |      |   |        |      |  |   |       |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Net cash provided by financing activities                                                 |  |                       | 15,285  |   |      |   | 439     |      |  |   | 47,909 |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Effect of exchange rate changes on cash and cash equivalents                              |  |                       | (18     | ) |      |   | (4      | )    |  |   | (1     | )
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Net (decrease) increase in cash and cash equivalents                                      |  |                       | (16,642 | ) |      |   | (11,289 | )    |  |   | 47,202 |  
|Cash and cash equivalents, beginning of year                                              |  |                       | 37,727  |   |      |   | 49,016  |      |  |   | 1,814  |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  
|Cash and cash equivalents, end of year                                                    |  | $                     | 21,085  |   |      | $ | 37,727  |      |  | $ | 49,016 |  
|                                                                                          |  |                       |         |   |      |   |         |      |  |   |        |  

The accompanying notes are an integral part of the consolidated financial statements.



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##### Table of Contents

SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. | BUSINESS
|-- | --------

Salary.com, Inc. (the
Company) is a leading provider of on-demand human resource management systems (HRMS)/payroll, compensation, performance management and competency management solutions in the human capital software-as-a-service
(SaaS) market. The Companys software, services and proprietary content help businesses and individuals manage pay and performance, as well as automate, streamline and optimize critical talent management processes. The
Companys products include: CompAnalyst®, a suite of on-demand compensation management applications that integrates the
Companys data, third-party survey data and a customers own pay data with a complete analytics offering; TalentManager®, the Companys employee lifecycle performance management software suite which helps businesses automate performance reviews, streamline compensation planning, perform succession planning, and link employee pay to performance; and
IPAS®, a global compensation technology survey with coverage of technology jobs from clerk to chief executive officer in more
than 70 countries. The Company also offers one of the largest libraries of leadership and job-specific competencies and a leading job-competency model to manage competencies by position. The Company was incorporated in Delaware in 1999 and its
principal operations are located in Needham, Massachusetts. Since December of 2006, the Company has operated a facility in Shanghai, China, primarily for research and development activities. In August 2008, the Company acquired Infobasis Limited
(Infobasis), a competency-based, learning and development software company, located in Abingdon, United Kingdom. On December 17, 2008, the Company acquired Genesys Software Systems, Inc. (Genesys), a leading provider of on-demand HRMS, benefits
and payroll services. The Company conducts its business primarily in the United States, however, it expects to continue to expand its international business in the future.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------

Principles of
Consolidation

The consolidated financial statements include the accounts of Salary.com, Inc. and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates these estimates and judgments, including those related to revenue recognition, valuation of long-lived assets, goodwill and intangible assets, acquisition accounting, income taxes, allowance for doubtful
accounts, stock-based compensation and capitalization of software development costs eligible for capitalization. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company
believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By
their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.

Cash and Cash
Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to
be cash equivalents. The Company invests its excess cash in money market accounts and overnight repurchase agreements. These investments are subject to minimal credit and market risks. At March 31, 2009 and 2008, the Company has classified as
cash equivalents, investments totaling approximately $20.2 million and $33.5 million, respectively. The carrying amount of these investments approximates fair market value.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Allowance for Doubtful Accounts

Accounts receivable are stated at the amount management expects to collect from customer accounts. Management reviews accounts receivable on a periodic
basis to determine if any receivables will potentially be uncollectible. Estimates are used to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to its estimated net realizable value. These estimates
are made by analyzing the status of significant past due receivables and by establishing general provisions for estimated losses by analyzing current and historical bad debt trends. Actual collection experience has not varied significantly from
estimates, due primarily to credit and collection policies and the financial strength of the Companys customers. Receivables that are ultimately deemed uncollectible are charged off as a reduction of receivables and the allowance for doubtful
accounts. Accounts receivable balances are not collateralized.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The company may invest in high-quality money market instruments, securities of the U.S. government and high quality corporate issues. At March 31, 2009 and 2008, the Company had cash balances at certain financial
institutions in excess of federally insured limits. However, the Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Accounts receivable are typically
uncollateralized and are derived from revenues earned from customers primarily located in the United States.

Restricted Cash

Restricted cash consists of certificates of deposit totaling approximately $1.1 million and $0.7 million as of March 31, 2009 and 2008, respectively.
The certificates of deposit are held in the Companys name with a major financial institution to collateralize the Companys equipment leases.

Property and Equipment

Property and equipment are carried at cost and are depreciated over the estimated useful
life, generally three years, using the straight-line method. Depreciation of leasehold improvements is recorded over the shorter of the estimated useful life of the leasehold improvement or the remaining lease term. Expenditures for maintenance and
repairs are charged to operations when incurred, while additions and betterments are capitalized. When assets are retired or disposed, the assets original cost and related accumulated depreciation are eliminated from the accounts and any gain
or loss is reflected in the statement of operations.

Business Combinations

The Company accounts for business acquisitions in accordance with SFAS No. 141, Business Combinations, which requires that the purchase method
of accounting be used for all business combinations. The Company determines and records the fair values of assets acquired and liabilities assumed as of the dates of acquisition.

Valuation of Goodwill and Other Intangible Assets

The Company accounts for goodwill and other
intangible assets in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under SFAS No. 142, goodwill and certain other intangible assets with
indefinite lives are not amortized, but instead are reviewed for



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



impairment annually or more frequently if impairment indicators arise. The Company reviews the carrying value of its goodwill by comparing the carrying value
of the related business component to its estimated fair value. The fair value is based on managements estimate of the future discounted cash flows to be generated by the respective business component. Changes in the underlying business could
affect these estimates, which in turn could affect the recoverability of goodwill. If goodwill becomes impaired, some or all of the goodwill could be written off as a charge to operations. During the fourth quarter of fiscal year ended
March 31, 2009, the Company performed its annual impairment test in accordance with SFAS 142 and determined that the carrying value of its goodwill was not impaired. Intangible assets subject to amortization are amortized on a straight-line
basis over their estimated useful lives or contract periods, as applicable.

The estimation of the fair values of goodwill and the
reporting units to which it pertains requires the use of discounted cash flow valuation models. Those models require estimates of future revenue, profits, capital expenditures and working capital for each unit. These estimates will be determined by
evaluating historical trends, current budgets, operating plans and industry data. Determining the fair value of reporting units and goodwill includes significant judgment by management and different judgments could yield different results.

Valuation of Long-Lived Assets

The Company assesses the recoverability of its long-lived assets that are held for use, such as property, plant and equipment and amortizable intangible assets in accordance with SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or an asset group to be held and used is measured by a comparison of the
carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or the asset group. Cash flow projections are based on trends of historical performance and managements estimate of
future performance. If the carrying amount of the asset or asset group exceeds the estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds its estimated fair
value.

Software Development Costs

The Company capitalizes certain internal software development costs under the provisions of Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (SOP
98-1). SOP 98-1 requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met.

The Company incurs software development costs related to its applications developed for subscription services and for management information systems.
Costs are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project stage and the post-implementation stage are
expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property, equipment and software. These costs generally consist of internal labor during configuration, coding, and testing
activities. Capitalization begins when the preliminary project stage is complete, management with the relevant authority authorizes and commits to the funding of the software project, it is probable that the project will be completed, the software
will be used to perform the function intended and technical feasibility has been determined. These costs are amortized using the straight-line method over the estimated useful life of the software, which is generally three years. All other
development costs are expensed as incurred.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Revenue Recognition

The Company derives its revenues from subscription fees and, to a lesser extent, through advertising on its website and syndication fees. Subscription revenues are comprised primarily of subscription fees from
enterprise and small business customers who pay a bundled fee for the Companys on-demand software applications and data products and implementation services related to the Companys subscription products, as well as syndication fees from
the Companys website partners and premium membership subscriptions sold primarily to individuals. To a lesser extent, subscription revenues also include fees for discrete professional services which are not bundled with the Companys
subscription products, revenues from sales of job competency models and related implementation and consulting services, revenues from sales of payroll perpetual licenses, maintenance and hosting services including related implementation and
consulting services, and revenue from the sale of the Companys Compensation Market Study and Salary.com Survey products, which are not sold on a subscription basis. These discrete professional services generally represent stand-alone
compensation related to consulting and benchmarking of specific jobs. The Company follows the provisions of SEC Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in the Financial Statements, as amended
by SAB No. 104, Revenue Recognition. Revenue is recognized when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer; (3) the
amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees from the customer is probable.

Subscription revenue is recognized ratably over the contract period. Customers are generally billed for the subscription on an annual basis. For all customers, regardless of their billing method, subscription revenue is initially recorded
as deferred revenue in the accompanying balance sheets. As services are performed, the Company recognizes subscription revenue over the applicable service period. For selected products where an implementation process occurs prior to the on-demand
applications becoming useful to customers, revenue recognition is deferred until after the product has been implemented and then recognized as revenue ratably over the remaining applicable subscription period.

Subscription agreements that are related to the Companys TalentManager suite of products may contain multiple service elements and deliverables.
These elements include access to the Companys on-demand software and often specify initial services including configuration and training. Except when the Company becomes the subject of a bankruptcy proceeding which is not dismissed within 60
days of filing or the Company makes an assignment for the benefit of its creditors, these particular subscription agreements do not provide customers the right to take possession of the software at any time. In May 2003, the Financial Accounting
Standards Board issued Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables(EITF 00-21). EITF 00-21 was issued to address how companies should determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting. In applying the guidance in EITF 00-21, the Company determined that it does not have objective and reliable evidence for the fair value of the TalentManager subscription fees after
delivery of specified initial services, consisting of configuration and training. The Company cannot establish the fair value of the TalentManager subscription element of the contract due to the variability of the sales price between different
customers for the subscription element of the contract. Furthermore, the initial services do not have stand-alone value to the customer without being bundled with the subscription element of the contract because the Company does not sell the initial
services separately and because such services are not provided by a third party. The Company therefore accounts for these subscriptions arrangements and its related service fees as a single unit of accounting.

Revenues from the Companys sales of job competency models and related implementation services may contain multiple service elements and
deliverables. These elements include delivery of the job competency models, implementation services, consulting services and post contract customer support. The Company recognizes revenue for these transactions in accordance with EITF 00-21. Except
for the post contract customer



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



support services, the Company does not have objective and reliable evidence for the fair value of the deliverables in these types of transactions, primarily
due to the variability of the sales price between different customers. Revenue from the sales of post contract customer support services is recognized ratably over the contract period, generally one year, upon delivery of the job competency models.
The Company accounts for the job competency models, implementation services and consulting services as a single unit of accounting. Revenue from the sale of job competency models, implementation services and consulting services is recognized when
all elements of the contract have been delivered.

Revenues from the Companys payroll sales, including the sale of perpetual licenses
and related post customer support, payroll hosting services and related implementation services, may contain multiple service elements and deliverables. These elements include delivery of the software, hosting services, implementation and consulting
services and postcontract customer support (PCS).

Sales of perpetual licenses involve the sale of software and consequently fall under the
guidance of Statement of Position (SOP) 97-2, Software Revenue Recognition (SOP No. 97-2), for revenue recognition. The Company licenses software under non-cancelable license agreements and provides services
including implementation, consulting, training services and postcontract customer support (PCS). On certain arrangements, the Company has established vendor-specific objective evidence (VSOE) for postcontract customer support, using the substantive
renewal rate method. For arrangements for which the Company has established VSOE, the Company allocates revenue using VSOE for the PCS and the residual method for the other elements and accounts for other elements as a single unit of accounting.
Revenues from this single unit of accounting are recognized when (1) a non-cancelable license agreement has been signed by both parties, (2) the product has been shipped, (3) no significant vendor obligations remain and
(4) collection of the related receivable is considered probable. To the extent any one of these four criteria is not satisfied, license revenue is deferred and not recognized in the consolidated statements of income until all such criteria are
met. The revenue related to the postcontract customer support for which the Company has established VSOE is recognized ratably from the delivery date of the license through the contract period. If the Company is not able to establish VSOE on
postcontract customer support, and postcontract customer support is the only undelivered element, then all revenue from the arrangement is recognized ratably over the contract period. However, if VSOE is not established but PCS has been delivered,
then all revenue from the arrangement is recognized ratably over the contract period once the last element is delivered.

Subscription
revenues generated from hosting services are generally recognized in accordance with EITF No. 00-21 since the customer is purchasing the right to use the payroll software rather than licensing the software on a perpetual basis, except for
situations where the customer has a contractual right to the software licenses. Arrangements where the customer is given the contractual right to the license are recognized in accordance with SOP 97-2. The Company does not currently have objective
and reliable evidence for the fair value of the deliverables in either type of transaction, primarily due to the variability of the sales price between different customers. The elements that typically exist in hosting arrangements include the
hosting services, software maintenance (i.e., product enhancements and customer support) and professional services (i.e., implementation services and training in the use of the software). The pricing for hosting services and the maintenance of the
software is bundled and billed based using a per employee per month (PEPM) fee. Since the Company does not have objective and reliable evidence for the fair value of the aforementioned deliverables, we do not separate the undelivered
elements and recognize revenue on a monthly basis as the services are performed, once the customer processes its first live payroll.

Services revenues include revenues from fees charged for the implementation of the Companys software products and training of customers in the use of such products, fees for other services, the provision of payroll-



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



related forms and the printing of Forms W-2 for certain customers, as well as certain reimbursable out-of-pocket expenses. Revenues for implementation
consulting and training services are recognized as services are performed to the extent the pricing for such services is on a time and materials basis. Other services are recognized as the product is shipped or as the services are rendered depending
on the specific terms of the arrangement. Arrangement fees related to fixed-fee implementation services contracts are recognized using the percentage of completion accounting method, which involves the use of estimates. Percentage of completion is
measured at each reporting date based on hours incurred to date compared to total estimated hours to complete. If a sufficient basis to measure the progress towards completion does not exist, revenue is recognized when the project is completed or
when the Company receives final acceptance from the customer.

Discrete professional services represent a separate earnings process and
revenue is recognized as services are performed. Professional services engagements are generally priced on a fixed-fee basis. Revenue under fixed-fee arrangements is recognized proportionally to the performance of the services utilizing milestones,
if present in the arrangement, or at the completion of the project.

Revenues for the Companys Compensation Market Study and Survey
products, which are not sold on a subscription basis, are recognized only when persuasive evidence of an arrangement exists, delivery of the study or survey has occurred, risk of ownership has passed to the customer, the price is fixed and
determinable, and collection is reasonably assured.

Advertising revenues are comprised of revenues that the Company generates through
agreements to display third party advertising on the Companys website for a fixed period of time or fixed number of impressions. Advertising revenues are recognized as the advertising is displayed on the website.

Cost of Revenues

Cost of revenues consists
primarily of costs for data development and data acquisition, fees paid to the Companys network provider for the hosting and managing of its servers, related bandwidth costs, costs related to sales of payroll-related forms, compensation and
related personnel costs for the support and implementation of the Companys products, costs to provide training to the Companys customers and amortization of capitalized software costs.

Deferred Revenue

Deferred revenue primarily
consists of billings to customers in advance of revenue recognition from the Companys subscription service described above and is recognized as the revenue recognition criteria are met. Deferred revenue to be recognized in the succeeding
12-month period is included in current deferred revenue with the remaining amounts included in non-current deferred revenue. Deferred revenue does not include the unbilled portion of multi-year customer contracts, which is held off the balance
sheet.

Fair Value of Financial Instruments

The carrying value of the Companys financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, including notes payable approximate their fair value because of their
short-term nature.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Comprehensive Loss

SFAS No. 130, Reporting Comprehensive Income, requires that changes in comprehensive loss be shown in a financial statement that is displayed with the same prominence as other financial statements.
The Company has presented other comprehensive loss in the Consolidated Statements of Stockholders Equity (Deficit). Other comprehensive loss consists of the cumulative translation adjustment.

For Salary.com Limited and Salary.com Jamaica Limited, which operates in a local currency environment, assets and liabilities are translated at
period-end exchange rates, and income statement items are translated at the average exchange rates for the period. The local currency for the foreign subsidiary is considered to be the functional currency and, accordingly, translation adjustments
are reported as a separate component of stockholders equity under the caption accumulated other comprehensive loss.

Advertising
Expenses

The Company expenses advertising as incurred. Advertising expense for the years ended March 31, 2009, 2008 and 2007
was approximately $515,000, $3,900 and $68,000, respectively.

Segment Data

The Company manages its operations on a consolidated, single segment basis for purposes of assessing performance and making operating decisions.
Accordingly, the Company does not have reportable segments of its business.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the temporary differences between the financial reporting and tax bases of liabilities and assets, using enacted tax rates in effect in the
years in which the differences are expected to reverse. Realization of the Companys net deferred tax assets is contingent upon generation of future taxable income. Due to the uncertainty of realization of the tax benefits, the Company has
provided a valuation allowance of $16.8 million against its deferred tax assets.

In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income taxes
by prescribing the minimum recognition threshold and measurement requirements a tax position must meet before recognized a benefit in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and
penalties, accounting for interim periods and disclosures for uncertain tax positions. The Companys adoption of FIN 48 on April 1, 2007 did not result in the recognition of a tax liability for any previously recognized tax
benefits and did not have an effect on its financial position or results of operations as the Company had a full valuation allowance against its deferred tax assets.

Other Taxes

Non-income taxes such as sales tax are presented on a net basis.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Net Loss Attributable to Common Stockholders per Share

Net loss attributable to common stockholders per share is presented in accordance with SFAS No. 128, Earnings per Share, which requires
the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. Basic net loss attributable to common stockholders per share is computed by dividing net loss attributable to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per share includes the potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock unless the effect is antidilutive.

The following summarizes the potential outstanding common
stock of the Company as of the end of each period:



|                                                                                                            |  |           |  |           |  |          
|----------------------------------------------------------------------------------------------------------- |  | --------- |  | --------- |  | ---------
|                                                                                                            |  | March 31,
|                                                                                                            |  | 2009      |  | 2008      |  | 2007     
|Options to purchase common stock                                                                            |  | 1,886,042 |  | 1,645,699 |  | 1,941,103
|Warrants to purchase common or preferred stock                                                              |  | 53,612    |  | 56,985    |  | 147,868  
|Restricted stock awards                                                                                     |  | 2,508,915 |  | 1,565,143 |  |         
|Restricted shares (1)                                                                                       |  | 683,341   |  | 1,276,892 |  | 1,991,585
|                                                                                                            |  |           |  |           |  |          
|Total options, warrants, restricted shares and preferred stock exercisable or convertible into common stock |  | 5,131,910 |  | 4,544,719 |  | 4,080,556
|                                                                                                            |  |           |  |           |  |          



|(1) | Represents stock options that have been exercised, but unvested as of the reporting date. As such, the related common stock is legally issued and outstanding. Per SFAS 128, these
shares will not be considered outstanding for accounting purposes until the contingency related to vesting has been resolved through the rendering of the required service or the shares are cancelled upon termination of the respective employee.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If the outstanding options and warrants were exercised or converted into common stock or the restricted stock awards and
restricted shares were to vest, the result would be anti-dilutive. Therefore, basic and diluted net loss attributable to common stockholders per share is the same for all periods presented in the accompanying consolidated statements of operations.

Stock-Based Compensation

The
Company follows the provisions of Financial Accounting Standards Board (FASB) Statement No. 123-revised, Share-Based Payment (SFAS 123R), which revises SFAS No. 123, Accounting for Stock-
Based Compensation. SFAS 123R requires that all stock-based compensation be recognized as an expense in the financial statements over the vesting period and that such expense be measured at the fair value of the award.

The Company uses the Black-Scholes option pricing model for determining the estimated fair values of its stock option awards. The determination of the
fair value of stock-based awards on the date of grant using an option pricing model is affected by the historical price of the Companys stock as well as key assumptions including the expected life of the award, the expected stock price,
volatility over the term of the award and actual and projected exercise behaviors. For all share-based awards the Company has recognized stock compensation expense using a straight-line amortization method over the vesting period of the award.
SFAS 123R requires that stock-based compensation expense be based on awards that ultimately vest. Therefore, estimated stock-based compensation has been reduced for estimated forfeitures.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Funds Held for Customers and Customers Funds Obligations

Tax filing services provided to customers are being sold directly by the Company to its customers in conjunction with its HRMS/Payroll product. As
part of this process, the Company receives funds from its customers and holds such funds for purposes of paying the appropriate taxing authorities on behalf of such customers. The Company holds customers tax filing deposits for the period
between collection from the customer and remittance to the applicable taxing authority. These funds held for customers and the corresponding customer funds obligations are included in current assets and current liabilities, respectively, in the
Companys consolidated balance sheet as of March 31, 2009. The Company holds such funds in high quality money market accounts until payment is due and has reported the cash flows related to the funds received from customers in the
investing activities section of the consolidated statement of cash flows for the year ended March 31, 2009. The Company has reported the cash flows related to the funds received and paid on behalf of such customers to the applicable taxing
authorities in the financing activities section of the consolidated statement of cash flows for the year ended March 31, 2009.

Recent Accounting
Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R),
Business Combinations(SFAS 141(R)).SFAS 141(R) applies to any transaction or other event that meets the definition of a business combination. Where applicable, SFAS 141(R) establishes principles and requirements for how
the acquirer recognizes and measures identifiable assets acquired, liabilities assumed, noncontrolling interest in the acquiree and goodwill or gain from a bargain purchase. In addition, SFAS 141(R) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is to be applied prospectively for fiscal years beginning after December 15, 2008. SFAS 141(R) is effective for the
Company beginning April 1, 2009. The Company will evaluate the impact of SFAS 141(R) on its consolidated financial statements in the event future business combinations are consummated.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS
No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become
effective 60 days after the SEC approves the PCAOBs amendments to AU Section 411 of the AICPA Professional Standards. SFAS No. 162 has no effect on the Companys consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 requires an entity, which expects to widely
distribute its financial statements to its shareholders and other users, to evaluate subsequent events through the issuance date of the respective financial statements. In addition, SFAS 165 requires companies to reflect in their financial
statements the effects of subsequent events that provide additional evidence about conditions at the balance-sheet date (recognized subsequent events). The Statement prohibits companies from reflecting in their financial statements the effects of
subsequent events that provide evidence about conditions that arose after the balance-sheet date (nonrecognized subsequent events), but requires information about the events to be disclosed if the financial statements would otherwise be misleading.
These disclosures include the nature of the event and either an estimate of its financial effect or a statement that an estimate cannot be made. SFAS 165 is effective for interim and annual financial periods ending after June 15, 2009 and
should be applied prospectively. The Company does not expect the adoption of SFAS 165 to have any material impact on its consolidated financial statements.

In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies
(FSP 141(R)-1).



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



FSP FAS 141(R)-1 amends the provisions in Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures
for assets and liabilities arising from contingencies in business combinations. The FSP eliminates the distinction between contractual and noncontractual contingencies, including the initial recognition and measurement criteria, in Statement 141R
and instead carries forward most of the provisions in FASB Statement No. 141, Business Combinations, for acquired contingencies. The FSP also amends the subsequent measurement and accounting guidance, and disclosure requirements in Statement
141R. No subsequent accounting guidance is provided in the FSP, and the Board expects an acquirer to develop a systematic and rational basis for subsequently measuring and accounting for acquired contingencies depending on their nature. The FSP is
effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will
evaluate the impact of FSP 141 (R)-1 on its consolidated financial statements in the event future business combinations are consummated.

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets(FSP 142-3). FSP 142-3 amends the factors an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, Goodwill and Other Intangible Assets. This new guidance applies prospectively to intangible assets that are acquired
individually or with a group of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is
prohibited. The Company does not expect the adoption of FSP 142-3 to have any material impact on its consolidated financial statements.

In
February 2008, the FASB issued FSP No. SFAS 157-2, Effective Date of FASB Statement No. 157, (FSP SFAS 157-2). FSP SFAS 157-2 amends SFAS 157, to delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. For items within its scope, FSP SFAS 157-2 defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. The Company is in the process of determining what effect, if any, the adoption of FSP SFAS 157-2 will have on its consolidated financial statements.

In October 2008, the FASB issued FSP No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active(FSP 157-3) which clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007 for financial assets carried at fair value, and years beginning after November 15, 2008 for non-financial assets not carried at fair value. The Company is
in the process of determining what effect, if any, the adoption of FSP SFAS 157-3 will have on its consolidated financial statements.

In
April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP
157-4) amends SFAS No. 157 and provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset and liability have significantly decreased, as well as provides
guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009. The Company is in the process of determining what effect, if any, the adoption
of FSP SFAS 157-4 will have on its consolidated financial statements.

In April 2009, the FASB issued FSP SFAS 107-1/APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments (FSP 107-1). FSP FAS 107-1 amends FASB Statement No. 107, Disclosures about



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP applies to
all financial instruments within the scope of Statement 107 held by publicly traded companies, as defined by APB 28, and requires that a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it
issues summarized financial information for interim reporting periods. FSP 107-1 shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We are in
the process of determining what effect, if any; the adoption of FSP SFAS 107-1 will have on our consolidated financial statements.

On
June 16, 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (EITF 03-6-1). FSP EITF 03-6-1 addresses whether instruments
granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method described in
paragraphs 60 and 61 of SFAS 128. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. The Company has determined that the implementation of FSP
EITF 03-6-1 will result in the restricted stock outstanding that is related to the early exercise of stock options being included in the computation of EPS. As of March 31, 2009, the Company had 683,341 shares of restricted stock outstanding
related to the early exercise of stock options that would have been included in the computation of EPS. If FSP EITF 03-6-1 was effective for the three and twelve months ended March 31, 2009, EPS would have been $(0.53) and $(1.66),
respectively.

On November 24, 2008, the FASB issued EITF 08-7, Accounting for Defensive Intangible Assets (EITF
08-7). EITF 08-7 requires that an acquired defensive intangible asset be accounted for as a separate unit of accounting at acquisition, not combined with the acquirers recognized or unrecognized intangible assets. The useful life of the
asset should be determined as the period over which the reporting entity expects a defensive asset to contribute directly or indirectly to the entitys future cash flows, in accordance with paragraph 11 of FASB Statement No. 142,
Goodwill and Other Intangible Assets. The scope of the issue excludes acquired in-process research and development assets. EITF 08-7 is effective for defensive assets acquired on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008 and shall be applied prospectively. Early application is not permitted. The Company is in the process of determining what effect, if any, the adoption of EITF 08-7 will have on its consolidated financial
statements.



|3. | ACQUISITION OF BUSINESSES
|-- | -------------------------

Genesys Software Systems, Inc.

On December 17, 2008, the Company acquired all issued and outstanding shares of Genesys, a leading provider of on-demand and
licensed human resources management systems and payroll solutions. Under the terms of the agreement, the Company paid the former owners of Genesys $6.0 million, net of cash acquired and converted approximately $1.1 million of options to purchase
Genesys common into options to purchase approximately 519,492 shares of the Companys common stock. In addition, the Genesys shareholders and optionholders are eligible to earn additional consideration of up to $2,000,000 which would be paid in
cash or shares of the Companys common stock, at the Companys option, based on Genesys meeting certain performance targets during the eighteen months after the closing of the acquisition. The purchase price to be allocated for financial
accounting purposes was approximately $7.4 million, which includes $1.1 million of options to purchase the Companys common stock and approximately $1.9 million of net liabilities assumed. Accordingly, the preliminary purchase price
was allocated based upon the fair value of assets acquired and



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



liabilities assumed in accordance with SFAS 141. The Company preliminarily allocated $2.1 million of the purchase price to goodwill based upon the estimated
fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from the Companys belief that the products and services offered by Genesys will be complementary to the Companys on-demand software suites. The
allocation of the purchase price is preliminary and subject to change. The results of operations include the impact of this acquisition since December 17, 2008.

The Company has allocated the purchase price on a preliminary basis based upon the estimated fair value of the net assets acquired, as follows:



|                                                                                        |  |                |        |  
|--------------------------------------------------------------------------------------- |  | -------------- | ------ | -
|                                                                                        |  | (in thousands) |       
|                                                                                        |  | Amount         |       
|Assets acquired, primarily accounts receivable, excluding $1.5 million of cash acquired |  | $              | 5,299  |  
|Assumed liabilities                                                                     |  |                | (7,154 | )
|                                                                                        |  |                |        |  
|Net liabilities acquired                                                                |  |                | (1,855 | )
|                                                                                        |  |                |        |  
|Non-compete agreement (amortization period 5 years)                                     |  |                | 60     |  
|Customer relationships (amortization period 7 years)                                    |  |                | 2,400  |  
|Developed technology (amortization period 7 years)                                      |  |                | 4,000  |  
|Trade name (amortization period 5 years)                                                |  |                | 750    |  
|Goodwill (not deductible for tax purposes)                                              |  |                | 2,077  |  
|                                                                                        |  |                |        |  
|Total purchase price                                                                    |  | $              | 7,432  |  
|                                                                                        |  |                |        |  

InfoBasis Ltd.

On August 21, 2008, the Company acquired the share capital of InfoBasis. InfoBasis, located in the United Kingdom, is a provider of competency-based learning and development software. Under the terms of the
agreement, the Company paid the former owners of InfoBasis $5.2 million in cash of which $0.5 million of the cash paid will be held in escrow until one year from the anniversary of the closing. The escrow fund will be available to compensate the
Company for any losses that the Company may incur as a result of any breach of the representations or warranties by the former owners of InfoBasis contained in the purchase agreement, and certain liabilities arising out of the ownership or operation
of InfoBasis prior to the acquisition. The former employee owners of InfoBasis will also be eligible to earn additional consideration based on meeting certain performance targets during each of the five twelve-month periods ending August 31,
2009, 2010, 2011, 2012 and 2013. The additional consideration, if earned, consists of cash payments of a maximum of $200,000 per year for five years, allocated proportionately amongst the employee owners. The total cash paid for the acquisition was
approximately $5.4 million, which includes approximately $0.2 million of direct acquisition costs plus approximately $1.3 million of net liabilities assumed. Accordingly, the preliminary purchase price was allocated based upon the fair value of
assets acquired and liabilities assumed in accordance with SFAS 141. The Company preliminarily allocated $3.3 million of the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition. Goodwill from the
acquisition resulted from the Companys belief that the products and services offered by InfoBasis will be complementary to the Companys existing competency business and on-demand software suites. The allocation of the purchase price is
preliminary and subject to change. The results of operations include the impact of this acquisition since August 22, 2008.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has allocated the purchase price on a preliminary basis based upon the estimated fair
value of the net assets acquired, as follows:



|                                                     |  |                |        |  
|---------------------------------------------------- |  | -------------- | ------ | -
|                                                     |  | (in thousands) |       
|                                                     |  | Amount         |       
|Assets acquired, primarily accounts receivable       |  | $              | 304    |  
|Assumed liabilities                                  |  |                | (1,572 | )
|                                                     |  |                |        |  
|Net liabilities acquired                             |  |                | (1,268 | )
|                                                     |  |                |        |  
|Non-compete agreement (amortization period 5 years)  |  |                | 261    |  
|Customer relationships (amortization period 7 years) |  |                | 2,090  |  
|Developed technology (amortization period 5 years)   |  |                | 1,399  |  
|Trade name                                           |  |                | 727    |  
|Direct acquisition costs                             |  |                | 167    |  
|Goodwill (not deductible for tax purposes)           |  |                | 3,272  |  
|Deferred tax liability                               |  |                | (1,263 | )
|                                                     |  |                |        |  
|Total purchase price                                 |  | $              | 5,385  |  
|                                                     |  |                |        |  

Schoonover Associates

On December 21, 2007, the Company acquired the assets of Schoonover Associates, Inc. (Schoonover). Schoonover is a provider of competency management data and consulting services with over 20 years of
experience helping clients maximize their human capital. Under the terms of the agreement, the Company has paid the owner of Schoonover $4.4 million in cash of which $0.4 million reflects payments made by the Company in connection with a
pre-existing license agreement by and between the parties. In addition, $0.5 million of the cash paid was held in escrow until one year from the anniversary of the closing. The escrow fund was available to compensate the Company for any losses the
Company may have incurred as a result of any breach of the representations or warranties by Schoonover or its founder, Dr. Stephen C. Schoonover, contained in the purchase agreements, and certain liabilities arising out of the ownership or
operation of Schoonover prior to the acquisition. As of March 31, 2009, the $0.5 million in the escrow account has been released to the owners of Schoonover. Schoonover will also be eligible to earn additional consideration based on meeting certain
performance targets during the first five fiscal years beginning on April 1, 2008. The additional consideration, if earned, consists of cash payments of a maximum of $100,000 per year for 5 years and 112,646 shares of common stock valued at
$1.5 million, which are eligible to vest ratably over such five-year period. Under the terms of the agreement, the number of shares issued was calculated as the $1.5 million of additional consideration divided by the average of the closing bid
prices of the Companys common stock as reported on the NASDAQ Global Market over the last ten trading days prior to the closing of the agreement. The total cost of the acquisition was approximately $4.4 million and as of March 31, 2009,
$100,000 of the additional consideration had been earned and recorded as compensation expense. Accordingly, the purchase price was allocated based upon the fair value of assets acquired and liabilities assumed. The Company allocated $2.6 million of
the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from the Companys belief that the products and services offered by Schoonover will be
complementary to the Companys existing competency business and on-demand software suites. The results of operations include the impact of this acquisition since December 21, 2007.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



ITG Competency Group

On August 3, 2007, the Company acquired the assets of ITG Competency Group, LLC (ITG). ITG is a provider of off-the-shelf competency models and related implementation services used in a wide range of
industries. Under the terms of the agreement, the Company has paid the owner of ITG $1.8 million in cash and shares of the Companys common stock valued at $500,000. ITG received an additional $0.25 million in April 2008 and was also eligible
to earn up to $1.0 million in additional consideration based on meeting certain performance targets during the first two years after the closing of the acquisition, and can earn additional consideration if these targets are exceeded. The additional
consideration, if earned, will be paid 50% in cash and 50% in common stock. As of March 31, 2009, approximately $1.0 million of the additional consideration had been earned and recorded as goodwill. The total cost of the acquisition was
approximately $3.0 million. Accordingly, the purchase price was allocated based upon the fair value of assets acquired and liabilities assumed. The Company allocated $1.4 million of the purchase price to goodwill based upon the estimated fair value
of the assets acquired in the acquisition and the value of the contingent consideration earned as of March 31, 2009. Goodwill from the acquisition resulted from the Companys belief that the products developed by ITG will be complementary
to the Companys on-demand software suites. The results of operations include the impact of this acquisition since August 3, 2007.

ICR

On May 15, 2007, the Company acquired all of the membership interests of ICR Limited, L.C. and all of the outstanding share
capital of ICR International Ltd. (collectively, ICR), a leading provider of industry-specific market intelligence for employee pay and benefits for the global technology and specialty consumer goods markets. Pursuant to the terms of the
purchase agreements, the Company paid $10.3 million to the owners of ICR, of which $1.0 million was placed in escrow for 12 months. The escrow fund was available to compensate the Company for any losses the Company may incur as a result of any
breach of the representations or warranties by the owners of ICR contained in the purchase agreements, and certain liabilities arising out of the ownership or operation of ICR prior to the acquisition. As of March 31, 2009, the $1.0 million in the
escrow account has been released to the owners of ICR. The total cost of the acquisition, including legal fees of $20,000, was approximately $10.3 million. Accordingly, the purchase price was allocated based upon the fair value of assets acquired
and liabilities assumed. The Company allocated $5.8 million of the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition. Goodwill from the acquisition resulted from the Companys belief that
the products developed by ICR will be complementary to the Companys on-demand software suites. The results of operations include the impact of this acquisition since May 15, 2007.

eComp Data Services

On April 3, 2006,
the Company acquired certain assets of the eComp Data Services Division (eComp) from Aon Consulting, Inc., a global human capital consulting firm located in New York City. eComp Data Services is a leading provider of executive
compensation data. The assets acquired included the eComp database and certain software and proprietary assets, including all intellectual property rights. Pursuant to the terms of the agreement, the Company paid $585,000. Included in the
acquisition was an additional $75,000 paid by the Company to a former principal of eComp for a non-compete agreement. Accordingly, the purchase price was allocated based upon the fair value of assets acquired and liabilities assumed. The Company
allocated $266,000 of the purchase price to goodwill based upon the estimated fair value of the assets acquired in the acquisition. The results of operations include the impact of this acquisition since April 3, 2006.



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|4. | PROPERTY, EQUIPMENT AND SOFTWARE
|-- | --------------------------------

Property,
equipment and software at March 31, 2009 and 2008 consisted of the following:



|                                       |  |                |       |      |   |      
|-------------------------------------- |  | -------------- | ----- | ---- | - | -----
|                                       |  | (in thousands)
|                                       |  | 2009           |       | 2008
|Computer equipment and software        |  | $              | 4,478 |      | $ | 2,667
|Office equipment                       |  |                | 592   |      |   | 261  
|Furniture and fixtures                 |  |                | 727   |      |   | 430  
|Capitalized software development costs |  |                | 1,335 |      |   | 1,183
|Leasehold Improvements                 |  |                | 865   |      |   | 306  
|                                       |  |                |       |      |   |      
|                                       |  |                | 7,997 |      |   | 4,847
|Less: accumulated depreciation         |  |                | 4,972 |      |   | 3,281
|                                       |  |                |       |      |   |      
|Property and equipment, net            |  | $              | 3,025 |      | $ | 1,566
|                                       |  |                |       |      |   |      

Depreciation expense for the years ended March 31, 2009, 2008 and 2007 was approximately $1.1
million, $764,000 and $716,000, respectively.

During the years ended March 31, 2009 and 2008, the Company capitalized approximately
$153,000 and $390,000, respectively, of costs of computer software developed or obtained for internal use. These costs are being amortized to cost of revenues on a straight-line basis over their estimated useful life of three years. Amortization
expense related to capitalized software development costs amounted to approximately $274,000, $169,000 and $126,000 during the years ended March 31, 2009, 2008 and 2007, respectively.



|5. | GOODWILL AND OTHER INTANGIBLE ASSETS
|-- | ------------------------------------

Goodwill and
intangible assets as of March 31, 2009 and 2008 consist of the following:



|                                                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|----------------------------------------------------------- |  | -------------- | ------ | ----------------------- | - | -------------- |  | ---- | ------ | ----------------------- | - | -------------- |  | - | ----- |  | - | ------
|                                                            |  | (in thousands)
|                                                            |  | March 31, 2009 |        | March 31, 2008         
|                                                            |  | Cost           |        | AccumulatedAmortization |   | CarryingAmount |  | Cost |        | AccumulatedAmortization |   | CarryingAmount
|Amortizable intangible assets:                              |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|Non-compete agreements (5 years)                            |  | $              | 1,826  |                         | $ | 898            |  | $    | 928    |                         | $ | 1,595          |  | $ | 388   |  | $ | 1,207 
|Customer relationships (5-7 years)                          |  |                | 9,059  |                         |   | 2,090          |  |      | 6,969  |                         |   | 5,010          |  |   | 835   |  |   | 4,175 
|Developed technology (5-7 years)                            |  |                | 5,094  |                         |   | 297            |  |      | 4,797  |                         |   |               |  |   |      |  |   |      
|Other intangible assets (5-18 years)                        |  |                | 326    |                         |   | 164            |  |      | 162    |                         |   | 201            |  |   | 58    |  |   | 143   
|Trade name (5 years)                                        |  |                | 750    |                         |   | 43             |  |      | 707    |                         |   |                |  |   |       |  |   |       
|Data acquisition costs (1-3 years)                          |  |                | 4,643  |                         |   | 2,094          |  |      | 2,549  |                         |   | 4,207          |  |   | 650   |  |   | 3,557 
|                                                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|Total amortizable intangible assets                         |  |                | 21,698 |                         | $ | 5,586          |  |      | 16,112 |                         |   | 11,013         |  | $ | 1,931 |  |   | 9,082 
|                                                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|Unamortizable intangible assets:                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|Goodwill                                                    |  |                | 14,734 |                         |   |                |  |      | 14,734 |                         |   | 9,549          |  |   |       |  |   | 9,549 
|Other indefinite lived intangible assets                    |  |                | 1,504  |                         |   |                |  |      | 1,504  |                         |   | 460            |  |   |       |  |   | 460   
|                                                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|Total goodwill and other indefinite lived intangible assets |  |                | 16,238 |                         |   |                |  |      | 16,238 |                         |   | 10,009         |  |   |       |  |   | 10,009
|                                                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       
|Total intangible assets                                     |  | $              | 37,936 |                         |   |                |  | $    | 32,350 |                         | $ | 21,022         |  |   |       |  | $ | 19,091
|                                                            |  |                |        |                         |   |                |  |      |        |                         |   |                |  |   |       |  |   |       



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Companys indefinite-lived acquired intangible assets consist of trade names and domain
names. All of the Companys finite-lived acquired intangible assets are subject to amortization over their estimated useful lives. No residual value is estimated for these intangible assets. Acquired intangible asset amortization for the fiscal
years ended March 31, 2009 and 2008 was approximately $3.6 million and $1.8 million, respectively, of which $1.6 million and $0.7 million, respectively, is included in cost of revenues. Amortization for the data acquisition costs begins once
the acquired data is integrated into the related product and that product is available to the Companys customers.

Estimated annual
amortization expense for the next five years related to intangible assets is as follows:



|     |  |                       |      
|---- |  | --------------------- | -----
|     |  | (in thousands)       
|     |  | Year ending March 31,
|2010 |  | $                     | 4,451
|2011 |  |                       | 3,726
|2012 |  |                       | 2,748
|2013 |  |                       | 1,869
|2014 |  |                       | 1,352

The changes in the carrying amount of goodwill for the year ended March 31, 2009 are as
follows:



|                                                        |  |                |       
|------------------------------------------------------- |  | -------------- | ------
|                                                        |  | (in thousands)
|Balance as of March 31, 2008                            |  | $              | 9,549 
|Goodwill acquired during the year                       |  |                | 4,649 
|Increase to goodwill from contingent consideration paid |  |                | 536   
|                                                        |  |                |       
|Balance as of March 31, 2009                            |  | $              | 14,734
|                                                        |  |                |       



|6. | REVOLVING CREDIT FACILITY
|-- | -------------------------

On August 8, 2008,
we entered into a modification of our existing credit facility with Silicon Valley Bank to modify certain of the financial covenants and extend the term of the agreement to September 23, 2008. On September 17, 2008, we entered into a
second modification of our credit facility to extend the term of the agreement to October 8, 2008. On October 8, 2008, we entered into a third modification of our credit facility to extend the term of this credit facility two years to
October 8, 2010 and increased the line of credit from $5,000,000 to $10,000,000. On March 16, 2009, we entered into a fourth modification of our agreement, which added Genesys as a guarantor to our obligations under the credit facility. As
of March 31, 2009, there was $8.1 million outstanding under the credit facility. On April 27, 2009, we paid all of the outstanding amounts due under our credit facility.

On June 29, 2009, we entered into a Fifth Loan Modification Agreement with Silicon Valley Bank. The agreement modifies our existing credit facility
with Silicon Valley Bank to, among other things:



| |  |  | Increase the interest rate payable by us on advances from our revolving line of credit, so that our borrowings bear interest at the greater of the banks prime
rate and 4% or, if our unrestricted cash balance falls below $20 million, at the banks prime rate plus 0.5%;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increase the fee payable on the unused portion of our revolving line of credit to 0.5%;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Amend certain financial covenants to be based upon our adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) rather
than our domestic invoices; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increasing the amount of stock we can repurchase under our repurchase plans to $2.25 million.
| | - |  | ---------------------------------------------------------------------------------------------



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Up to $10 million is available under this credit facility and the facility is collateralized by
substantially all of our assets and expires on October 8, 2010. Up to $5 million of the line of credit may be used to secure letters of credit and cash management services, and up to $5 million of the line of credit may be used in
connection with foreign exchange forward contracts. The modification agreement contains financial covenants that require us to maintain an unrestricted cash balance at Silicon Valley Bank of at least $20 million. If our unrestricted cash falls below
$20 million, then the amount we could borrow under the line of credit would be limited to a borrowing base consisting of a specified percentage of accounts receivable and a specified percentage of future billings. In addition, we are required
to maintain unrestricted cash plus borrowing availability of at least $15 million and meet adjusted EBITDA targets for trailing three-month periods on a monthly basis.



|7. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------

The Company has
various non-cancelable operating leases, primarily related to real estate, that expire through 2011. Total rent expense charged to operations was approximately $2.1 million, $1.3 million and $1.2 million for the fiscal years ended March 31,
2009, 2008 and 2007, respectively.

Future minimum lease payments under noncancelable operating leases at March 31, 2009 are as
follows:



|                                    |  |                |      
|----------------------------------- |  | -------------- | -----
|                                    |  | (in thousands)
|2010                                |  | $              | 2,176
|2011                                |  |                | 1,873
|2012                                |  |                | 523  
|2013                                |  |                | 470  
|2014                                |  |                | 438  
|Thereafter                          |  |                | 272  
|                                    |  |                |      
|Total future minimum lease payments |  | $              | 5,752
|                                    |  |                |      

Vendor Financing Agreement

In June 2008, the Company entered into an agreement with a vendor to finance the purchase of perpetual software licenses in the amount of approximately
$738,000. The Company will make quarterly payments of approximately $64,000 for a term of 36 months.

Equipment Leaseline

On April 17, 2008, the Company entered into a leaseline agreement (Leaseline #4) with a maximum available commitment of $350,000. The lease term
began on July 1, 2008 and runs for a term of 36 months. As of March 31, 2009, the Company had leased approximately $173,000 of equipment under the terms of this leaseline. On July 24, 2008, the Company entered into a leaseline
agreement (Leaseline #5) with a maximum available commitment of $200,000. The lease term began on October 1, 2008 and runs for a term of 36 months. As of March 31, 2009, the Company had not leased any equipment under the terms of this
leaseline. As of March 31, 2009, the Company had approximately $1.1 million in a restricted cash account as collateral for equipment leased under the Companys five leaselines with a value of approximately $1.1 million in accordance with
all of its master lease agreements.

Employment Agreements

Certain members of the Companys management have employment agreements that provide for the continuation of salary and benefits, for a period of time, upon ceasing to be an employee as a result of either
termination from or a change in ownership of the Company.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Litigation and Claims

On December 29, 2006, the Company commenced a declaratory judgment action in the Superior Court of Suffolk County, Massachusetts against a former independent consultant to the Company. The action related to a
dispute between the Company and the former consultant over a contract which expired by its terms in November 2000. Pursuant to that contract, the former consultant was entitled to a success fee consisting of a right to purchase 33,600 shares of the
Companys common stock at a price of thirty-six cents per share. On August 23, 2007, the Company entered into a settlement agreement with the former consultant. Pursuant to the settlement agreement, the Company and the former consultant
exchanged mutual releases and the Company agreed to dismiss the pending court action. As part of the settlement, the Company permitted the former consultant to exercise and sell his options to purchase 33,600 shares of Salary.com common stock and to
forego the $12,000 exercise cost. The Company also paid the former consultant $250,000 and issued 18,000 shares of Salary.com common stock, valued at approximately $225,000 to an affiliate of the former consultant.

On February 1, 2007, Mercer (US) Inc. (formerly Mercer Human Resource Consulting, Inc.) (Mercer) filed a Complaint against the Company
in the United States District Court for the Southern District of New York relating to, among other things, the Companys use of Mercers products and data. The Company filed several counterclaims against Mercer in the New York action, and
filed a separate action against Mercer in the United States District Court for the District of Massachusetts on May 15, 2007, relating to, among other things, Mercers use of the Companys products and data. On September 27,
2007, the Company entered into a Settlement Agreement with Mercer under which the Company and Mercer settled all ongoing litigation and exchanged mutual releases. No payments were made by either party under the settlement agreement. Both
the action filed by Mercer against the Company in New York and the action filed by the Company against Mercer in Massachusetts were dismissed. As part of the settlement agreement, Mercer confirmed that customers which have purchased
compensation surveys from Mercer have the right to use the Companys Survey Center product to load and manage their Mercer surveys, as well as other third party surveys.

In addition to the matters noted above, from time to time the Company is subject to legal proceedings and claims in the ordinary course of business. In
the opinion of management, the amount of ultimate expense with respect to any other current legal proceedings and claims will not have a material adverse effect on the Companys financial position or results of operations.



|8. | COMMON STOCK
|-- | ------------

Authorized Shares and Activity

At March 31, 2009, the Company had authorized 100,000,000 shares of common stock and 5,000,000 of preferred stock. An
aggregate of 8,069,347 shares were reserved for the future issuance of common stock related to the vesting of restricted stock awards, the employee stock purchase plan and the exercise of options and warrants at March 31, 2009.

On January 17, 2007, the Company amended its certificate of incorporation to:



| |  |  | effect a 1 for 8.93 reverse stock split of the outstanding common stock;
| | - |  | ------------------------------------------------------------------------



| |  |  | adjust the conversion prices applicable to each series of preferred stock to reflect the reverse stock split; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | set the authorized capital stock of the Company at 105,000,000 shares.
| | - |  | ----------------------------------------------------------------------

The stock split was approved by the Board of Directors on January 12, 2007 and was effective as of January 17, 2007. All common stock, option
and warrant share and per share data were retroactively adjusted to reflect the 1 for 8.93 stock split.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|9. | STOCK-BASED COMPENSATION AND STOCK INCENTIVE PLANS
|-- | --------------------------------------------------

Effective April 1, 2005, the Company adopted SFAS 123R using the prospective method of application, which requires the Company to recognize compensation expense on a prospective basis; therefore, prior period financial statements have
not been restated. Compensation expense recognized includes the expense of stock options granted on and subsequent to April 1, 2005. Stock options granted by the Company prior to that time are specifically excluded from SFAS 123R and will
continue to be accounted for in accordance with APB 25. These options were valued using the minimum value method.

Stock-based compensation
includes expense charges for all stock-based awards to employees and directors. Such awards include option grants, restricted stock awards and shares expected to be purchased under an employee stock purchase plan. The estimated fair value of the
Companys stock-based awards, less expected forfeitures, is amortized over the awards vesting period on a straight line basis. Stock-based compensation by award type for the years ended March 31, 2009, 2008 and 2007 was as follows:



|                                                |  |                      |       |      |   |       |  |   |      
|----------------------------------------------- |  | -------------------- | ----- | ---- | - | ----- |  | - | -----
|                                                |  | (in thousands)      
|                                                |  | Year Ended March 31,
|                                                |  | 2009                 |       | 2008 |   | 2007 
|Stock-based compensation expense by award type: |  |                      |       |      |   |       |  |   |      
|Stock options                                   |  | $                    | 1,803 |      | $ | 2,312 |  | $ | 4,365
|Restricted stock awards                         |  |                      | 7,832 |      |   | 2,765 |  |   |     
|Employee stock purchase plan                    |  |                      | 127   |      |   | 52    |  |   |     
|                                                |  |                      |       |      |   |       |  |   |      
|Total stock-based compensation                  |  | $                    | 9,762 |      | $ | 5,129 |  | $ | 4,365
|                                                |  |                      |       |      |   |       |  |   |      

Stock-based compensation by line item in the statement of operations for the years ended
March 31, 2009, 2008 and 2007 was as follows:



|                           |  |                       |       |      |   |       |  |   |      
|-------------------------- |  | --------------------- | ----- | ---- | - | ----- |  | - | -----
|                           |  | (in thousands)       
|                           |  | Years ended March 31,
|                           |  | 2009                  |       | 2008 |   | 2007 
|Cost of revenues           |  | $                     | 1,255 |      | $ | 800   |  | $ | 437  
|Research and development   |  |                       | 1,376 |      |   | 459   |  |   | 505  
|Sales and marketing        |  |                       | 2,702 |      |   | 1,778 |  |   | 986  
|General and administrative |  |                       | 2,616 |      |   | 2,092 |  |   | 2,437
|Restructuring charges      |  |                       | 1,813 |      |   |      |  |   |     
|                           |  |                       |       |      |   |       |  |   |      
|                           |  | $                     | 9,762 |      | $ | 5,129 |  | $ | 4,365
|                           |  |                       |       |      |   |       |  |   |      

The Company uses the Black-Scholes option-pricing model to value option grants and determine the
related compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent managements best estimates. The Company did not grant any new stock options during the fiscal year ended March 31,
2009; however, previously granted stock option awards were modified in connection with our workforce reduction on January 7, 2009. The modification of the awards consisted of acceleration of the respective awards vesting schedule. For
awards granted in fiscal year ended March 31, 2008, the Company estimated expected volatility based on that of the Companys publicly-traded peer companies. Management believed that the historical volatility of the Companys stock
price did not best represent the expected volatility of the stock price. Prior to the Companys initial public offering in February 2007, the Company was a private company and therefore lacked company-specific historical and implied volatility
information. For the modified awards issued during the year ended March 31, 2009, the Company determined it has adequate historical data from our traded share price, as such expected volatilities utilized in the model are based on the historic
volatility of the Companys stock price.



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##### Table of Contents

SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The risk-free interest rate used for each grant is equal to the U.S. Treasury yield curve in effect
at the time of grant for instruments with a similar expected life.

The expected term of the options granted was determined based upon
review of the period that the Companys share-based awards are expected to be outstanding and is estimated based on historical experience of similar awards, giving consideration to the contractual term of the awards, vesting schedules and
expectations of employee exercise behavior.

SFAS 123R also requires that the Company recognize compensation expense for only the portion
of options that are expected to vest. Therefore, the Company has estimated expected forfeitures of stock options with the adoption of SFAS 123R. In developing a forfeiture rate estimate, the Company considered its historical experience and its
growing employee base. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

The following table provides the assumptions used in determining the fair value of the share-based awards for the years ended March 31, 2009 and
2008, respectively:



|                        |  |                          |   |  |                          |  
|----------------------- |  | ------------------------ | - |  | ------------------------ | -
|                        |  | Year EndedMarch 31, 2009 |   |  | Year EndedMarch 31, 2008 |  
|Risk-Free Rate          |  | 1.66                     | % |  | 4.51 - 4.96              | %
|Expected Life           |  | 0.25 years               |   |  | 5 years                  |  
|Expected Volatility     |  | 146.40                   | % |  | 56.10 - 61.03            | %
|Expected Dividend Yield |  | 0                        | % |  | 0                        | %

Stock Options

Under the 2000 Stock Option and Incentive Plan (the 2000 Plan), the Company may grant up to 672,000 incentive stock options and nonqualified stock options. In April 2002, the Companys Board of
Directors approved an increase in the number of options available for grant under the 2000 Plan to the higher of 1,344,000 or 30% of the fully diluted outstanding common shares. Under the 2004 Stock Option and Incentive Plan (the 2004
Plan), the Company may grant stock options for up to 37.5% of the fully diluted outstanding common shares to a maximum of 2,800,000 options.

On January 12, 2007, the Companys Board of Directors and stockholders approved the adoption of the 2007 Stock Option and Incentive Plan (the 2007 Plan) under which the maximum number of shares of common stock that may
be issued is the sum total of 3,000,000 shares plus all stock option awards or grants returned to the 2000 Plan and the 2004 Plan as a result of expiration or cancellation or termination of such stock option awards. The
maximum contractual term of stock options granted under the 2007 Plan may range from five to ten years from the date of grant.

On
September 18, 2008, the Companys stockholders approved an amendment to the 2007 Plan to increase the number of shares of the Companys common stock authorized for issuance under such plan from 3,000,000 shares to 5,800,000 shares.

Under the 2000 Plan and 2004 Plan, option recipients (Option Holders) are permitted to exercise options in advance of vesting.
Any options exercised in advance of vesting result in the Option Holder receiving Restricted Stock, which is then subject to vesting under the respective options vesting schedule. Restricted Stock is subject to a right of repurchase by the
Company from any Option Holder who is an employee who leaves the Company (either voluntarily or involuntarily), the Company has the right (but not the obligation) to repurchase the Restricted Stock at the original price paid by the Option Holder at
the time the options were exercised.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Because the Company has the right to repurchase the Restricted Stock upon the cessation of employment, the Company has recognized this potential liability
for repurchase on the balance sheet within Accrued expenses and other current liabilities. Upon vesting of the restricted shares, the Subscription Payable is relieved and recorded in equity. As of March 31, 2009 and 2008, there were
683,341 and 1,276,892 restricted shares outstanding, respectively, which resulted from the exercise of unvested stock options.

Stock
option activity, under all plans, during the years ended March 31, 2009, 2008 and 2007 was as follows:



|                              |  |                          |   |                          |                              |                          |                  |           |   |                              |   |                  |  |           |                              |  |   |      
|----------------------------- |  | ------------------------ | - | ------------------------ | ---------------------------- | ------------------------ | ---------------- | --------- | - | ---------------------------- | - | ---------------- |  | --------- | ---------------------------- |  | - | -----
|                              |  | Year EndedMarch 31, 2009 |   | Year EndedMarch 31, 2008 |                              | Year EndedMarch 31, 2007
|                              |  | Number ofOptions         |   |                          | WeightedAverageExercisePrice |                          | Number ofOptions |           |   | WeightedAverageExercisePrice |   | Number ofOptions |  |           | WeightedAverageExercisePrice
|Outstandingbeginning of year |  | 1,645,699                |   |                          | $                            | 6.744                    |                  | 1,941,103 |   |                              | $ | 6.347            |  | 640,341   |                              |  | $ | 0.268
|Granted                       |  |                         |   |                          |                              |                         |                  | 43,340    |   |                              |   | 10.853           |  | 1,559,145 |                              |  |   | 8.290
|Assumed in acquisition        |  | 519,492                  |   |                          |                              | 0.730                    |                  |          |   |                              |   |                 |  |          |                              |  |   |     
|Exercised                     |  | (65,700                  | ) |                          |                              | 0.450                    |                  | (111,261  | ) |                              |   | 1.751            |  | (119,860  | )                            |  |   | 3.642
|Canceled                      |  | (213,449                 | ) |                          |                              | 5.950                    |                  | (227,483  | ) |                              |   | 6.637            |  | (138,523  | )                            |  |   | 2.465
|                              |  |                          |   |                          |                              |                          |                  |           |   |                              |   |                  |  |           |                              |  |   |      
|Outstandingend of year       |  | 1,886,042                |   |                          | $                            | 5.400                    |                  | 1,645,699 |   |                              | $ | 6.744            |  | 1,941,103 |                              |  | $ | 6.347
|                              |  |                          |   |                          |                              |                          |                  |           |   |                              |   |                  |  |           |                              |  |   |      
|Exercisableend of year       |  | 1,322,009                |   |                          | $                            | 4.560                    |                  | 413,562   |   |                              | $ | 5.354            |  | 279,605   |                              |  | $ | 3.850
|                              |  |                          |   |                          |                              |                          |                  |           |   |                              |   |                  |  |           |                              |  |   |      

The weighted average grant date fair value of options granted during fiscal years 2008 and 2007
was $6.089 and $4.822, respectively. The total intrinsic value of options exercised during the years ended March 31, 2009, 2008 and 2007, was approximately $144,000, $1,187,000 and $322,000, respectively.

The following table summarizes information about stock options outstanding at March 31, 2009:



|                |  |                     |  |                                                  |  |                                           |        |                  |           |                                           |   |       
|--------------- |  | ------------------- |  | ------------------------------------------------ |  | ----------------------------------------- | ------ | ---------------- | --------- | ----------------------------------------- | - | ------
|                |  | Options Outstanding |  | Options Vested and CurrentlyExercisable         
|Exercise Price  |  | Number ofOptions    |  | Weighted AverageRemainingContractual Life(Years) |  | Weighted AverageExercise Price(Per Share) |        | Number ofOptions |           | Weighted AverageExercise Price(Per Share)
|$0.223$1.115   |  | 777,513             |  | 8.5                                              |  | $                                         | 0.554  |                  | 686,203   |                                           | $ | 0.598 
|$6.607$8.214   |  | 521,976             |  | 7.7                                              |  |                                           | 6.988  |                  | 291,538   |                                           |   | 6.905 
|$10.500$13.310 |  | 586,553             |  | 7.8                                              |  |                                           | 10.417 |                  | 344,268   |                                           |   | 10.456
|                |  |                     |  |                                                  |  |                                           |        |                  |           |                                           |   |       
|                |  | 1,886,042           |  | 8.1                                              |  | $                                         | 5.403  |                  | 1,322,009 |                                           | $ | 4.556 
|                |  |                     |  |                                                  |  |                                           |        |                  |           |                                           |   |       



F-26



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##### Table of Contents

SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of the Companys unvested shares, included unvested stock options and shares of
unvested exercised restricted shares, as of March 31, 2009, and changes during the years ended March 31, 2009, 2008 and 2007, is presented below:



|                                                                     |  |                                    |   |  |                                        |       |        |       |          |                                    |  |            |                                        |  |        |       |  |                                    |            |   |                                        |            |        |  |   |       |  |   |            |  
|-------------------------------------------------------------------- |  | ---------------------------------- | - |  | -------------------------------------- | ----- | ------ | ----- | -------- | ---------------------------------- |  | ---------- | -------------------------------------- |  | ------ | ----- |  | ---------------------------------- | ---------- | - | -------------------------------------- | ---------- | ------ |  | - | ----- |  | - | ---------- | -
|                                                                     |  | APB 25                             |   |  | SFAS 123R                              |       |        | Total |         
|                                                                     |  | UnvestedOptionsAndRestrictedShares |   |  | WeightedAverageGrantDateIntrinsicValue |       | Amount |       |          | UnvestedOptionsAndRestrictedShares |  |            | WeightedAverageGrantDateIntrinsicValue |  | Amount |       |  | UnvestedOptionsAndRestrictedShares |            |   | WeightedAverageGrantDateIntrinsicValue |            | Amount | 
|Unvested Options and Restricted Shares Outstanding at March 31, 2006 |  | 1,204,469                          |   |  | $                                      | 0.420 |        | $     | 509,911  |                                    |  | 2,879,388  |                                        |  | $      | 2.393 |  | $                                  | 6,880,377  |   |                                        | 4,083,857  |        |  | $ | 1.813 |  | $ | 7,390,288  |  
|Granted                                                              |  |                                   |   |  |                                        |      |        |       |         |                                    |  | 1,512,392  |                                        |  |        | 4.841 |  |                                    | 7,321,288  |   |                                        | 1,512,392  |        |  |   | 4.841 |  |   | 7,321,288  |  
|Vested                                                               |  | (711,653                           | ) |  |                                        | 0.423 |        |       | (301,132 | )                                  |  | (932,363   | )                                      |  |        | 1.812 |  |                                    | (1,689,207 | ) |                                        | (1,644,016 | )      |  |   | 1.211 |  |   | (1,990,339 | )
|Canceled                                                             |  | (59,197                            | ) |  |                                        | 0.239 |        |       | (14,121  | )                                  |  | (239,953   | )                                      |  |        | 2.663 |  |                                    | (639,065   | ) |                                        | (299,150   | )      |  |   | 2.183 |  |   | (653,186   | )
|                                                                     |  |                                    |   |  |                                        |       |        |       |          |                                    |  |            |                                        |  |        |       |  |                                    |            |   |                                        |            |        |  |   |       |  |   |            |  
|Unvested Options and Restricted Shares outstanding at March 31, 2007 |  | 433,619                            |   |  |                                        | 0.449 |        |       | 194,658  |                                    |  | 3,219,464  |                                        |  |        | 3.688 |  |                                    | 11,873,393 |   |                                        | 3,653,083  |        |  |   | 3.304 |  |   | 12,068,051 |  
|Granted                                                              |  |                                   |   |  |                                        |      |        |       |         |                                    |  | 43,340     |                                        |  |        | 6.089 |  |                                    | 263,908    |   |                                        | 43,340     |        |  |   | 6.089 |  |   | 263,908    |  
|Vested                                                               |  | (206,925                           | ) |  |                                        | 0.366 |        |       | (75,641  | )                                  |  | (482,361   | )                                      |  |        | 1.465 |  |                                    | (706,449   | ) |                                        | (689,286   | )      |  |   | 1.135 |  |   | (782,090   | )
|Canceled                                                             |  | (10,443                            | ) |  |                                        | 0.378 |        |       | (3,944   | )                                  |  | (487,665   | )                                      |  |        | 3.387 |  |                                    | (1,651,801 | ) |                                        | (498,108   | )      |  |   | 3.324 |  |   | (1,655,745 | )
|                                                                     |  |                                    |   |  |                                        |       |        |       |          |                                    |  |            |                                        |  |        |       |  |                                    |            |   |                                        |            |        |  |   |       |  |   |            |  
|Unvested Options and Restricted Shares outstanding at March 31, 2008 |  | 216,251                            |   |  |                                        | 0.532 |        |       | 115,073  |                                    |  | 2,292,778  |                                        |  |        | 4.265 |  |                                    | 9,779,051  |   |                                        | 2,509,029  |        |  |   | 3.943 |  |   | 9,894,124  |  
|                                                                     |  |                                    |   |  |                                        |       |        |       |          |                                    |  |            |                                        |  |        |       |  |                                    |            |   |                                        |            |        |  |   |       |  |   |            |  
|Granted                                                              |  |                                   |   |  |                                        |      |        |       |         |                                    |  |           |                                        |  |        |      |  |                                    |           |   |                                        |           |        |  |   |      |  |   |           |  
|Assumed in acquisition                                               |  |                                   |   |  |                                        |      |        |       |         |                                    |  | 519,492    |                                        |  |        | 0.732 |  |                                    | 380,142    |   |                                        | 519,492    |        |  |   | 0.732 |  |   | 380,142    |  
|Vested                                                               |  | (150,899                           | ) |  |                                        | 0.417 |        |       | (62,999  | )                                  |  | (1,423,497 | )                                      |  |        | 1.452 |  |                                    | (2,066,396 | ) |                                        | (1,574,396 | )      |  |   | 1.353 |  |   | (2,129,395 | )
|Canceled                                                             |  | (23,234                            | ) |  |                                        | 0.659 |        |       | (15,321  | )                                  |  | (183,517   | )                                      |  |        | 1.552 |  |                                    | (284,755   | ) |                                        | (206,751   | )      |  |   | 1.451 |  |   | (300,077   | )
|                                                                     |  |                                    |   |  |                                        |       |        |       |          |                                    |  |            |                                        |  |        |       |  |                                    |            |   |                                        |            |        |  |   |       |  |   |            |  
|Unvested Options and Restricted Shares outstanding at March 31, 2009 |  | 42,118                             |   |  | $                                      | 0.873 |        | $     | 36,753   |                                    |  | 1,205,256  |                                        |  | $      | 6.478 |  | $                                  | 7,808,042  |   |                                        | 1,247,374  |        |  | $ | 6.289 |  | $ | 7,844,794  |  
|                                                                     |  |                                    |   |  |                                        |       |        |       |          |                                    |  |            |                                        |  |        |       |  |                                    |            |   |                                        |            |        |  |   |       |  |   |            |  

As of March 31, 2009, there was approximately $3.1 million of total unrecognized compensation
expense related to stock options. That cost is expected to be recognized over a weighted average period of 2.5 years. The total fair value of shares vested during the year ended March 31, 2009 was approximately $2.1 million.

During fiscal 2006 and 2005, the Company offered certain holders of stock options the limited opportunity to exercise their options at a price equal to
the deemed fair value of the Companys stock at the time of the offer. To the extent that the offer was not accepted, the affected options retained their original exercise price. However, because of the Companys offer, these options
became subject to variable accounting as prescribed in FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion No. 25)(FIN 44). The majority of
these awards became fixed upon exercise under the bonus offer during March 2006, as described in the following paragraph, which was accounted for as a modification under SFAS 123R. Compensation expense related to these options had been recognized
during fiscal 2008 and 2007, since the modified option exercise prices were below the reassessed per share fair value of the Companys common stock at that time. The Company recorded compensation expense amounting to approximately $(51,000) and
$912,000 for the years ended March 31, 2008 and 2007, respectively.

During March 2006, the Company offered certain holders of stock
options, totaling 143 employees, the limited opportunity to receive a cash bonus to exercise all of their outstanding stock options. As part of this offer,



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



unvested stock options could be exercised into restricted stock. This offer was accounted for as a modification under SFAS 123R. The additional compensation
expense for the modification was deemed immaterial to the Companys financial statements. There are 683,341 and 1,276,892 shares of common stock subject to restriction as of March 31, 2009 and 2008 related to this offer.

On February 7, 2007, in connection with the negotiation of a new employment agreement with the Companys President and Chief Executive Officer,
the Compensation Committee accelerated the vesting of 854,449 shares of restricted stock held by the Companys President and Chief Executive Officer. These shares had been issued to the Companys President and Chief Executive Officer in
March 2006 upon the exercise of stock options granted to him between June 2003 and March 2006 under the 2000 Plan and the 2004 Plan. The Company recognized a non-cash compensation charge of approximately $1.3 million to general and administrative
expenses in the quarter ending March 31, 2007 as a result of this acceleration.

On January 7, 2009, the Company implemented and
completed a workforce reduction of approximately 100 employees, representing approximately sixteen percent (16%) of the Companys workforce. In connection with the workforce reduction, the Company accelerated the vesting of 180,651 stock
options and 216,759 restricted stock awards held by terminated employees. The Company recognized a non-cash compensation charge of approximately $1.8 million in the quarter ended March 31, 2009 as a result of this acceleration.

Restricted Stock Awards

On January 12,
2007, the Compensation Committee of the Board of Directors of the Company approved a form of restricted stock agreement for use under the Companys 2007 Stock Plan pursuant to which the Company has granted stock options and restricted stock
awards. The shares of restricted stock awards have a per share price of $0.0001 which equals the par value. The fair value is measured based upon the closing NASDAQ market price of the underlying Company stock as of the date of grant. Compensation
expense from the restricted stock awards is amortized over the applicable vesting period, generally 3 years, using the straight-line method. Unamortized compensation cost related to restricted stock awards was $9.6 million as of March 31, 2009.
This cost is expected to be recognized over a weighted-average period of 1.6 years. The following table presents a summary of the restricted stock award activity for the year ended March 31, 2009.



|                                   |  |                          |   |                          |                                    |        |                  |           |   |                                     |   |       
|---------------------------------- |  | ------------------------ | - | ------------------------ | ---------------------------------- | ------ | ---------------- | --------- | - | ----------------------------------- | - | ------
|                                   |  | Year EndedMarch 31, 2009 |   | Year EndedMarch 31, 2008
|                                   |  | Number ofOptions         |   |                          | WeightedAverageGrantDate FairValue |        | Number ofOptions |           |   | WeightedAverageGrant DateFair Value
|Unvested balance at March 31, 2008 |  | 1,565,143                |   |                          | $                                  | 10.861 |                  |          |   |                                     | $ |      
|Awarded                            |  | 3,012,306                |   |                          |                                    | 4.050  |                  | 1,933,845 |   |                                     |   | 11.132
|Vested                             |  | (1,360,201               | ) |                          |                                    | 6.780  |                  | (312,022  | ) |                                     |   | 12.260
|Canceled                           |  | (708,333                 | ) |                          |                                    | 8.660  |                  | (56,680   | ) |                                     |   | 12.400
|                                   |  |                          |   |                          |                                    |        |                  |           |   |                                     |   |       
|Unvested balance at March 31, 2009 |  | 2,508,915                |   |                          | $                                  | 5.480  |                  | 1,565,143 |   |                                     | $ | 10.861
|                                   |  |                          |   |                          |                                    |        |                  |           |   |                                     |   |       



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Shares Available for Grant

The following is a summary of all stock option and restricted stock award activity and shares available for grant under the 2007 Plan and for years ended
March 31, 2009 and 2008.



|                                            |  |                         |   |  |                         |  
|------------------------------------------- |  | ----------------------- | - |  | ----------------------- | -
|                                            |  | Year EndedMarch 31,2009 |   |  | Year EndedMarch 31,2008 |  
|Balancebeginning of period                 |  | 1,567,183               |   |  | 2,999,905               |  
|Increase in shares available                |  | 2,800,000               |   |  |                        |  
|Stock options granted                       |  |                        |   |  | (43,340                 | )
|Restricted stock awards granted             |  | (3,012,306              | ) |  | (1,933,845              | )
|Stock options cancelled/forfeited           |  | 420,199                 |   |  | 487,783                 |  
|Restricted stock awards cancelled/forfeited |  | 708,333                 |   |  | 56,680                  |  
|                                            |  |                         |   |  |                         |  
|Balanceend of period                       |  | 2,483,409               |   |  | 1,567,183               |  
|                                            |  |                         |   |  |                         |  

Distribution and Dilutive Effect of Options and Restricted Shares



|                                                             |  |                          |   |  |                          |  
|------------------------------------------------------------ |  | ------------------------ | - |  | ------------------------ | -
|                                                             |  | Year EndedMarch 31, 2009 |   |  | Year EndedMarch 31, 2008 |  
|Shares of common stock outstanding                           |  | 16,104,454               |   |  | 14,452,999               |  
|                                                             |  |                         
|Stock options granted                                        |  |                         |   |  | 43,340                   |  
|Stock options assumed in acquisition (3)                     |  | 519,492                  |   |  |                         |  
|Restricted stock awards granted (4)                          |  | 3,012,306                |   |  | 1,933,845                |  
|Stock options cancelled/forfeited                            |  | (420,199                 | ) |  | (487,783                 | )
|Restricted stock awards cancelled/forfeited                  |  | (708,333                 | ) |  | (56,680                  | )
|                                                             |  |                          |   |  |                          |  
|Net options/restricted stock granted                         |  | 2,403,266                |   |  | 1,432,722                |  
|                                                             |  |                          |   |  |                          |  
|Grant dilution (1)                                           |  | 14.9                     | % |  | 9.9                      | %
|                                                             |  |                         
|Stock options exercised                                      |  | 65,700                   |   |  | 111,261                  |  
|Restricted stock awards vested                               |  | 1,360,201                |   |  | 312,022                  |  
|                                                             |  |                          |   |  |                          |  
|Total stock options exercised/restricted stock awards vested |  | 1,425,901                |   |  | 423,283                  |  
|                                                             |  |                          |   |  |                          |  
|Exercised dilution (2)                                       |  | 8.9                      | % |  | 2.9                      | %



|(1) | The percentage for grant dilution is computed based on net options and restricted stock awards granted as a percentage of shares of common stock outstanding.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The percentage for exercise dilution is computed based on net options exercised as a percentage of shares of common stock outstanding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(3) | Stock options assumed in the Companys Genesys acquisition. The options were fully vested and have an average exercise price of $0.73 per share. Excluding these options, the
Companys grant dilution would have been 11.7%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 269,700 restricted shares granted as part of the Companys acquisition of Infobasis.
|--- | ---------------------------------------------------------------------------------------------

Employee Stock Purchase Plan

On January 17, 2007, the Companys Board of Directors
and stockholders approved the adoption of the 2007 Employee Stock Purchase Plan (ESPP). Stock purchase rights are granted to eligible employees during six month offering periods with purchase dates at the end of each offering period. The
offering periods generally



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



commence each April 1 and October 1. Shares are purchased through payroll deductions at purchase prices equal to 90% of the fair market value of
the Companys common stock at either the first day or the last day of the offering period, whichever is lower. There are 446,350 shares available for issuance under the ESPP as of March 31, 2009. The Company recorded compensation expense
of approximately $127,000 and $52,000 related to shares issued under the Companys employee stock purchase plan for the years ended March 31, 2009 and 2008, respectively.

Warrants

In conjunction with the subordinated notes payable to stockholders in 2002, the
Company issued warrants to the holders to purchase 28,000 shares of common stock at $0.89 per share and 750,000 shares of Series B preferred stock at $1.00 per share. The Series B preferred stock warrants were replaced with 750,000 warrants to
purchase Series A-4 preferred stock at $0.25 per share in November 2003. In November 2006, the Company issued a warrant to acquire 44,800 shares of its common stock at an exercise price of $6.61 per share to an existing stockholder that is
affiliated with a director of the Company. The Company recorded stock-based compensation expense of approximately $114,000 related to this warrant during the quarter ended December 31, 2006.

As of March 31, 2009, the Company had outstanding warrants to purchase 53,612 shares of common stock at exercise prices ranging from $0.09 to $6.61
per share.



|                              |  |                          |   |                          |                              |                          |                   |         |   |                              |   |                   |  |         |                              |  |   |      
|----------------------------- |  | ------------------------ | - | ------------------------ | ---------------------------- | ------------------------ | ----------------- | ------- | - | ---------------------------- | - | ----------------- |  | ------- | ---------------------------- |  | - | -----
|                              |  | Year EndedMarch 31, 2009 |   | Year EndedMarch 31, 2008 |                              | Year EndedMarch 31, 2007
|                              |  | Number ofWarrants        |   |                          | WeightedAverageExercisePrice |                          | Number ofWarrants |         |   | WeightedAverageExercisePrice |   | Number ofWarrants |  |         | WeightedAverageExercisePrice
|Outstandingbeginning of year |  | 56,985                   |   |                          | $                            | 1.769                    |                   | 147,868 |   |                              | $ | 2.148             |  | 108,666 |                              |  | $ | 0.214
|Granted                       |  |                         |   |                          |                              |                          |                   |        |   |                              |   |                   |  | 44,800  |                              |  |   | 6.607
|Exercised                     |  | (3,373                   | ) |                          |                              | 2.191                    |                   | (90,883 | ) |                              |   | 2.384             |  | (5,598  | )                            |  |   | 0.357
|Canceled                      |  |                         |   |                          |                              |                          |                   |        |   |                              |   |                   |  |        |                              |  |   |      
|                              |  |                          |   |                          |                              |                          |                   |         |   |                              |   |                   |  |         |                              |  |   |      
|Outstandingend of year       |  | 53,612                   |   |                          |                              | 1.743                    |                   | 56,985  |   |                              |   | 1.769             |  | 147,868 |                              |  |   | 2.148
|                              |  |                          |   |                          |                              |                          |                   |         |   |                              |   |                   |  |         |                              |  |   |      
|Exercisableend of year       |  | 53,612                   |   |                          | $                            | 1.743                    |                   | 56,985  |   |                              | $ | 1.769             |  | 147,868 |                              |  | $ | 2.148
|                              |  |                          |   |                          |                              |                          |                   |         |   |                              |   |                   |  |         |                              |  |   |      

Shareholder Rights Agreement

On November 14, 2008, the Companys Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one preferred
stock purchase right for each outstanding share of the Companys common stock to shareholders of record as of the close of business on November 15, 2008. Initially, these rights will not be exercisable and will trade with the shares of the
Companys common stock. Under the Shareholder Rights Plan, the rights generally will become exercisable if a person becomes an acquiring person by acquiring 20% or more of the common stock of the Company or if a person commences a
tender offer that could result in that person owning 20% or more of the common stock of the Company. If a person becomes an acquiring person, each holder of a right (other than the acquiring person) would be entitled to purchase, at the then-current
exercise price, such number of shares of preferred stock which are equivalent to shares of the Companys common stock having a value of twice the exercise price of the right. If the Company is acquired in a merger or other business combination
transaction after any such event, each holder of a right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring companys common stock having a value of twice the exercise price of the right.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Stock Repurchase Program

On December 15, 2008, the Board of Directors authorized the repurchase by the Company of up to $2.5 million of its common stock from time to time at prevailing prices in the open market or in negotiated
transactions off the market. On April 17, 2009, the Companys Board of Directors increased the size of its share repurchase program from $2.5 million to $7.5 million. As of March 31, 2009, 193,824 shares with a total value of
approximately $375,000 have been repurchased and retired by the Company pursuant to this repurchase program.



|10. | FUNDS HELD FOR CLIENTS AND CLIENT FUND OBLIGATIONS
|--- | --------------------------------------------------

Funds held for clients represent assets that are restricted for use solely for the purpose of satisfying the obligations to remit funds relating to the Companys payroll and payroll tax filing services, which are classified as a
current asset under the caption funds held for clients on the Consolidated Balance Sheets. Funds held for clients are invested in overnight money market securities and had a balance of $13.0 million at March 31, 2009.

Client funds obligations represent the Companys contractual obligations to remit funds to satisfy clients payroll and tax payment obligations
and are recorded on the Consolidated Balance Sheets at the time that the Company impounds funds from clients. The client funds obligations represent liabilities that will be repaid within one year of the balance sheet date. The Company has reported
client funds obligations of $13.0 million as a current liability on the Consolidated Balance Sheet as of March 31, 2009. The amount of collected but not yet remitted funds for the Companys payroll and payroll tax filing and other services
will vary significantly during the fiscal year.

The Company has reported the cash flows related to the clients funding on a net
basis within net increase in assets held to satisfy client funds obligations in the investing section of the Statements of Consolidated Cash Flows. The Company has reported the cash flows related to the cash received from and paid on
behalf of clients on a net basis within net increase in client funds obligations in the financing section of the Statements of Consolidated Cash Flows.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|11. | INCOME TAXES
|--- | ------------

The provision for income taxes
consists of:



|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|------------------------------ |  | -------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                               |  | (in thousands)       |       
|                               |  | Year Ended March 31, |       
|                               |  | 2009                 |        |   | 2008 |   |        | 2007 | 
|Federal:                       |  |                      |        |   |      |   |        |      |  |   |        |  
|Current                        |  | $                    |       |   |      | $ |       |      |  | $ |       |  
|Deferred                       |  |                      | (5,665 | ) |      |   | (2,990 | )    |  |   | (2,605 | )
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|                               |  |                      | (5,665 | ) |      |   | (2,990 | )    |  |   | (2,605 | )
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|State:                         |  |                      |        |   |      |   |        |      |  |   |        |  
|Current                        |  |                      | 6      |   |      |   | 24     |      |  |   |       |  
|Deferred                       |  |                      | (1,450 | ) |      |   | (1,090 | )    |  |   | (736   | )
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|                               |  |                      | (1,444 | ) |      |   | (1,066 | )    |  |   | (736   | )
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|Foreign:                       |  |                      |        |   |      |   |        |      |  |   |        |  
|Deferred                       |  |                      | (395   | ) |      |   |       |      |  |   | (67    | )
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|                               |  |                      | (395   | ) |      |   |       |      |  |   | (67    | )
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|Change in Valuation Allowance: |  |                      |        |   |      |   |        |      |  |   |        |  
|United States                  |  |                      | 7,401  |   |      |   | 4,261  |      |  |   | 3,341  |  
|Foreign                        |  |                      | 311    |   |      |   |       |      |  |   | 67     |  
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|                               |  |                      | 7,712  |   |      |   | 4,261  |      |  |   | 3,408  |  
|                               |  |                      |        |   |      |   |        |      |  |   |        |  
|Provision for income taxes     |  | $                    | 208    |   |      | $ | 205    |      |  | $ |       |  
|                               |  |                      |        |   |      |   |        |      |  |   |        |  

A reconciliation of the Companys effective income tax rate to the statutory federal income
tax rate of 34% for the years ended March 31, 2009, 2008 and 2007 is as follows:



|                                         |  |                       |    |  |       |    |  |       |   
|---------------------------------------- |  | --------------------- | -- |  | ----- | -- |  | ----- | --
|                                         |  | Years Ended March 31, |   
|                                         |  | 2009                  |    |  | 2008  |    |  | 2007  |   
|Statutory rate                           |  | (34.0                 | )% |  | (34.0 | )% |  | (34.0 | )%
|State taxes, net of federal benefit      |  | (3.7                  | )  |  | (6.8  | )  |  | (7.6  | ) 
|Other                                    |  | 1.5                   |    |  | 1.8   |    |  | (4.5  | ) 
|Expiration of state net operating losses |  |                      |    |  |      |    |  | 1.8   |   
|Change in valuation allowance            |  | 37.0                  |    |  | 41.0  |    |  | 44.3  |   
|                                         |  |                       |    |  |       |    |  |       |   
|                                         |  | (0.8                  | )% |  | 2.0   | %  |  | 0.0   | % 
|                                         |  |                       |    |  |       |    |  |       |   



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount
of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Companys deferred tax assets for the years ended March 31, 2009 and 2008 are as follows:



|                                            |  |                |         |   |      |   |         |  
|------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                            |  | (in thousands) |        
|                                            |  | March 31,      |        
|                                            |  | 2009           |         |   | 2008 |  
|Deferred tax assets:                        |  |                |         |   |      |   |         |  
|Net operating loss carryforwards            |  | $              | 12,696  |   |      | $ | 5,258   |  
|Accrued expenses                            |  |                | 194     |   |      |   | 174     |  
|Property and equipment                      |  |                | 199     |   |      |   | 187     |  
|Intangibles                                 |  |                |        |   |      |   | 530     |  
|Deferred revenue                            |  |                | 608     |   |      |   | 526     |  
|Stock-based compensation                    |  |                | 2,967   |   |      |   | 3,139   |  
|Reserves                                    |  |                | 68      |   |      |   | 99      |  
|Tax credits                                 |  |                | 1,088   |   |      |   | 406     |  
|Other                                       |  |                | 9       |   |      |   | 7       |  
|Foreign NOL                                 |  |                | 358     |   |      |   |        |  
|                                            |  |                |         |   |      |   |         |  
|Total gross deferred tax assets             |  |                | 18,187  |   |      |   | 10,326  |  
|Valuation allowance                         |  |                | (16,825 | ) |      |   | (10,326 | )
|                                            |  |                |         |   |      |   |         |  
|Total deferred tax assets                   |  |                | 1,362   |   |      |   |        |  
|                                            |  |                |         |   |      |   |         |  
|Deferred tax liabilities:                   |  |                |         |   |      |   |         |  
|Amortizationidentifiable intangible assets |  |                | (1,362  | ) |      |   |        |  
|Amortizationforeign intangible assets      |  |                | (892    | ) |      |   |        |  
|Amortizationgoodwill                       |  |                | (466    | ) |      |   | (181    | )
|                                            |  |                |         |   |      |   |         |  
|Total deferred tax liabilities              |  |                | (2,720  | ) |      |   | (181    | )
|                                            |  |                |         |   |      |   |         |  
|Net deferred tax liabilities                |  | $              | (1,358  | ) |      | $ | (181    | )
|                                            |  |                |         |   |      |   |         |  

As of March 31, 2009, the Company had net operating loss carryforwards of approximately $32.2
million for federal income tax purposes and $31.1 million for state income tax purposes. Federal and state net operating losses may be available to offset future federal income tax liabilities. The net operating losses for federal income tax
purposes expire at various dates through 2028 and state net operating losses expire at various dates through 2013. As required by SFAS No. 109, Accounting for Income Taxes,management has determined that is more likely than not that the
Company will not recognize the benefit of federal and state deferred tax assets, and as a result, a valuation allowance of $16.8 million and $10.3 million has been established at March 31, 2009 and 2008, respectively.

For stock-based awards that are deductible for tax purposes, the cumulative compensation cost is treated as a temporary difference. If a deduction
reported on a tax return exceeds the cumulative compensation cost for those awards, any resulting realized tax benefit that exceeds the previously recognized deferred tax asset for those awards (the excess tax benefit) is recognized as additional
paid-in capital. If the amount deductible is less than the cumulative compensation cost recognized for financial reporting purposes, the write-off of a deferred tax asset related to that deficiency, net of the related valuation allowance, if any, is
first offset to the extent of any remaining additional paid-in capital from excess tax benefits from previous awards with the remainder recognized in the statement of operations.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has additional net operating loss carryforwards of approximately $545,000 resulting from
excess tax deductions from stock options exercised since 2006. Pursuant to SFAS No. 123R, the deferred tax asset relating to excess tax benefit from these exercises was not recognized for financial statement purposes; however, this amount
may be recognized for financial statement purposes in the future if the benefit is ultimately realized.

Ownership changes, as defined by
the Internal Revenue Code, may substantially limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income. Subsequent ownership changes could further affect the limitation in future years. Such
annual limitations could result in the expiration of net operating loss carryforwards before utilization.

The Company adopted FIN 48 on
April 1, 2007. FIN 48 clarifies the accounting for the uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48
proscribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.

The amount of
unrecognized tax benefits as of March 31, 2009 was $118,000, which, if ultimately recognized, will reduce the Companys annual effective tax rate. The Company does not expect any material change in unrecognized tax benefits within the next
twelve months.

The change in unrecognized tax benefits for the year ended March 31, 2009 is as follows:



|                                                                  |  |   |         |  
|----------------------------------------------------------------- |  | - | ------- | -
|Balance at April 1, 2008                                          |  | $ | 185,000 |  
|Increase (decrease) for tax positions related to prior years      |  |   |        |  
|Increase (decrease) for tax positions related to the current year |  |   |        |  
|Settlements                                                       |  |   |        |  
|Reductions for Expiration of Statue of Limitations                |  |   | (67,000 | )
|                                                                  |  |   |         |  
|Balance at March 31, 2009                                         |  | $ | 118,000 |  
|                                                                  |  |   |         |  

As of March 31, 2009, the Company is subject to tax in the U.S. Federal, state and foreign
jurisdictions. The Company is open to examination for tax years 2005 through 2008. Additionally, since the Company has net operating loss and tax credit carryforwards available for future years, those years are also subject to review by the taxing
authorities. The Company is not currently under examination by U.S. Federal and state tax authorities or the China taxing authority.

The
Companys policy is to recognize interest and penalties accrued on any unrecognized tax positions as a component of income tax expense, if any. As of March 31, 2009, the Company has not accrued any interest and penalties for unrecognized
tax benefits in its statement of operations.



|12. | BENEFIT PLAN
|--- | ------------

The Company has a retirement savings
plan under Section 401(k) of the Internal Revenue Code (the 401(k) Plan). Participants may contribute up to a maximum percentage of their annual compensation to the plan as determined by the Company, limited to a maximum annual amount set by
the Internal Revenue Service. The Company has not made any matching contributions to the 401(k) Plan during the years ended March 31, 2009, 2008 and 2007.



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|13. | RESTRUCTURING CHARGES
|--- | ---------------------

On January 7, 2009, the
Company implemented and completed a workforce reduction of approximately 100 employees, representing approximately sixteen percent (16%) of the Companys workforce. The Company implemented this workforce reduction in response to the
current and anticipated macro-economic uncertainties. As a result of the workforce reduction, the Company recorded restructuring charges of approximately $3.1 million. These charges were comprised of $1.8 million in stock compensation charges
associated with the accelerated vesting of unvested awards, $1.2 million in severance payments, and $0.1 million in various other costs.

Restructuring charges were as follows:



|                                        |  |                |       |   |                   |   |        |       |  |   |       |   |  |   |        |  
|--------------------------------------- |  | -------------- | ----- | - | ----------------- | - | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                        |  | (in thousands) |      
|                                        |  | Severance      |       |   | StockCompensation |   |        | Other |  |   | Total |  
|Restructuring charges                   |  | $              | 1,205 |   |                   | $ | 1,813  |       |  | $ | 63    |   |  | $ | 3,081  |  
|Cash payments                           |  |                | (937  | ) |                   |   |       |       |  |   | (32   | ) |  |   | (969   | )
|Non-cash charges                        |  |                |      |   |                   |   | (1,813 | )     |  |   |      |   |  |   | (1,813 | )
|                                        |  |                |       |   |                   |   |        |       |  |   |       |   |  |   |        |  
|Restructuring balance at March 31, 2009 |  | $              | 268   |   |                   | $ |       |       |  | $ | 31    |   |  | $ | 299    |  
|                                        |  |                |       |   |                   |   |        |       |  |   |       |   |  |   |        |  

The Company anticipates that the remaining payments related to the restructuring will occur during
the first half of fiscal 2010.



|14. | SEGMENT AND RELATED INFORMATION
|--- | -------------------------------

The following
tables summarize selected financial information of the Companys operations by geographic locations:

Revenues by geographic location
consist of the following:



|                    |  |                      |        |      |   |        |  |   |       
|------------------- |  | -------------------- | ------ | ---- | - | ------ |  | - | ------
|                    |  | (in thousands)      
|                    |  | Year Ended March 31,
|                    |  | 2009                 |        | 2008 |   | 2007  
|Revenues:           |  |                      |        |      |   |        |  |   |       
|United States       |  | $                    | 39,152 |      | $ | 33,816 |  | $ | 23,019
|All other countries |  |                      | 3,303  |      |   | 691    |  |   | 15    
|                    |  |                      |        |      |   |        |  |   |       
|Total revenues      |  | $                    | 42,455 |      | $ | 34,507 |  | $ | 23,034
|                    |  |                      |        |      |   |        |  |   |       

Tangible long-lived assets as of March 31, 2009 and 2008 by geographic location consist of
the following:



|                        |  |                |        |      |   |       
|----------------------- |  | -------------- | ------ | ---- | - | ------
|                        |  | (in thousands)
|                        |  | 2009           |        | 2008
|Long-lived assets       |  |                |        |      |   |       
|United States           |  | $              | 29,976 |      | $ | 21,586
|All other countries     |  |                | 7,078  |      |   | 240   
|                        |  |                |        |      |   |       
|Total long-lived assets |  | $              | 37,054 |      | $ | 21,826
|                        |  |                |        |      |   |       



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|15. | SELECTED CONSOLIDATED QUARTERLY OPERATING RESULTS
|--- | -------------------------------------------------

The following table presents consolidated statement of operations data for each of the eight quarters in the period beginning April 1, 2007 and ending March 31, 2009. This information is derived from our unaudited financial
statements, which in the opinion of management contain all adjustments necessary for a fair presentation of such financial data. Operating results for these periods are not necessarily indicative of the operating results for a full year. Historical
results are not necessarily indicative of the results to be expected in future periods.



|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | ------------------------------------- | ------ | - | ------------ | - | ------ | ----------- |  | - | ------------ | - |  | ----------- | ------ | - | ------------ | - | ------ | ----------- |  | - | ------------ | - |  | - | ------ | - |  | - | ------ | -
|                                                                         |  | (in thousands, except per share data) |       
|                                                                         |  | Three months ended                    |       
|                                                                         |  | June 302007                           |        |   | Sept. 302007 |   |        | Dec. 312007 |  |   | March 312008 |   |  | June 302008 |        |   | Sept. 302008 |   |        | Dec. 312008 |  |   | March 312009 |  
|                                                                         |  | (Unaudited)                           |       
|Statements of Operations Data:                                           |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Revenue:                                                                 |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Subscription revenues                                                    |  | $                                     | 6,758  |   |              | $ | 7,781  |             |  | $ | 8,505        |   |  | $           | 8,508  |   |              | $ | 8,989  |             |  | $ | 9,858        |   |  | $ | 10,267 |   |  | $ | 10,515 |  
|Advertising revenues                                                     |  |                                       | 781    |   |              |   | 687    |             |  |   | 681          |   |  |             | 806    |   |              |   | 625    |             |  |   | 688          |   |  |   | 735    |   |  |   | 777    |  
|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Total revenues                                                           |  |                                       | 7,539  |   |              |   | 8,468  |             |  |   | 9,186        |   |  |             | 9,314  |   |              |   | 9,614  |             |  |   | 10,546       |   |  |   | 11,002 |   |  |   | 11,292 |  
|Cost of revenues                                                         |  |                                       | 1,622  |   |              |   | 1,883  |             |  |   | 2,208        |   |  |             | 2,516  |   |              |   | 3,240  |             |  |   | 3,131        |   |  |   | 2,961  |   |  |   | 3,826  |  
|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Gross profit                                                             |  |                                       | 5,917  |   |              |   | 6,585  |             |  |   | 6,978        |   |  |             | 6,798  |   |              |   | 6,374  |             |  |   | 7,415        |   |  |   | 8,041  |   |  |   | 7,466  |  
|Operating Expenses:                                                      |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Research and development                                                 |  |                                       | 882    |   |              |   | 1,227  |             |  |   | 1,368        |   |  |             | 1,464  |   |              |   | 1,809  |             |  |   | 2,296        |   |  |   | 2,211  |   |  |   | 2,529  |  
|Sales and marketing                                                      |  |                                       | 3,899  |   |              |   | 4,427  |             |  |   | 5,242        |   |  |             | 5,395  |   |              |   | 6,490  |             |  |   | 7,153        |   |  |   | 6,715  |   |  |   | 5,782  |  
|General and administrative                                               |  |                                       | 2,927  |   |              |   | 3,620  |             |  |   | 3,598        |   |  |             | 3,355  |   |              |   | 3,995  |             |  |   | 3,941        |   |  |   | 3,749  |   |  |   | 3,995  |  
|Amortization of intangible assets                                        |  |                                       | 135    |   |              |   | 281    |             |  |   | 321          |   |  |             | 389    |   |              |   | 379    |             |  |   | 444          |   |  |   | 495    |   |  |   | 701    |  
|Restructuring charges                                                    |  |                                       |       |   |              |   |       |             |  |   |             |   |  |             |       |   |              |   |       |             |  |   |             |   |  |   |       |   |  |   | 3,081  |  
|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Total operating expenses                                                 |  |                                       | 7,843  |   |              |   | 9,555  |             |  |   | 10,529       |   |  |             | 10,603 |   |              |   | 12,673 |             |  |   | 13,834       |   |  |   | 13,170 |   |  |   | 16,088 |  
|Loss from operations                                                     |  |                                       | (1,926 | ) |              |   | (2,970 | )           |  |   | (3,551       | ) |  |             | (3,805 | ) |              |   | (6,299 | )           |  |   | (6,419       | ) |  |   | (5,129 | ) |  |   | (8,622 | )
|Other income (expense)                                                   |  |                                       | 561    |   |              |   | 549    |             |  |   | 516          |   |  |             | 232    |   |              |   | 223    |             |  |   | 176          |   |  |   | 9      |   |  |   | (172   | )
|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Loss before provision for income taxes                                   |  |                                       | (1,365 | ) |              |   | (2,421 | )           |  |   | (3,035       | ) |  |             | (3,573 | ) |              |   | (6,076 | )           |  |   | (6,243       | ) |  |   | (5,120 | ) |  |   | (8,794 | )
|Provision for income taxes                                               |  |                                       |       |   |              |   | 89     |             |  |   | 49           |   |  |             | 66     |   |              |   | 86     |             |  |   | 56           |   |  |   | 36     |   |  |   | 36     |  
|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Net loss                                                                 |  |                                       | (1,365 | ) |              |   | (2,510 | )           |  |   | (3,084       | ) |  |             | (3,639 | ) |              |   | (6,162 | )           |  |   | (6,299       | ) |  |   | (5,156 | ) |  |   | (8,830 | )
|                                                                         |  |                                       |        |   |              |   |        |             |  |   |              |   |  |             |        |   |              |   |        |             |  |   |              |   |  |   |        |   |  |   |        |  
|Net loss attributable to common stockholders per sharebasic and diluted |  | $                                     | (0.10  | ) |              | $ | (0.18  | )           |  | $ | (0.22        | ) |  | $           | (0.26  | ) |              | $ | (0.42  | )           |  | $ | (0.42        | ) |  | $ | (0.33  | ) |  | $ | (0.55  | )



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SALARY.COM, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|16. | SUPPLEMENTAL CASH FLOW INFORMATION
|--- | ----------------------------------



|                                                          |  |                       |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------- |  | --------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                          |  | (in thousands)        |       
|                                                          |  | Years ended March 31, |       
|                                                          |  | 2009                  |        |   | 2008 |   |        | 2007 | 
|Supplemental cash flow information:                       |  |                       |        |   |      |   |        |      |  |   |        |  
|Cash paid for interest                                    |  | $                     | 96     |   |      | $ |       |      |  | $ | 119    |  
|                                                          |  |                       |       
|Noncash operating activities:                             |  |                       |        |   |      |   |        |      |  |   |        |  
|Bonus paid in common stock                                |  |                       | 1,607  |   |      |   | 1,898  |      |  |   | 250    |  
|Incentive compensation paid in common stock               |  |                       | 118    |   |      |   |       |      |  |   |       |  
|Board of Directors fees paid in common stock              |  |                       | 278    |   |      |   |       |      |  |   |       |  
|Consulting fees paid in common stock                      |  |                       | 250    |   |      |   |       |      |  |   |       |  
|                                                          |  |                       |       
|Noncash investing activities:                             |  |                       |        |   |      |   |        |      |  |   |        |  
|Liabilities assumed on acquisition of business            |  |                       | (2,895 | ) |      |   | 402    |      |  |   | 120    |  
|                                                          |  |                       |       
|Noncash financing activities                              |  |                       |        |   |      |   |        |      |  |   |        |  
|Vendor financed equipment purchases                       |  |                       | 674    |   |      |   |       |      |  |   |       |  
|Options assumed in acquisition                            |  |                       | 1,110  |   |      |   |       |      |  |   |       |  
|Accretion and dividends on preferred stock                |  |                       |       |   |      |   |       |      |  |   | 471    |  
|Conversion of convertible preferred stock to common stock |  |                       |       |   |      |   |       |      |  |   | 11,009 |  
|                                                          |  |                       |       
|Cash paid for acquisitions, net of cash acquired          |  |                       |        |   |      |   |        |      |  |   |        |  
|Net assets acquired (liabilities assumed)                 |  |                       | (2,895 | ) |      |   | 937    |      |  |   | (120   | )
|Goodwill and intangible assets                            |  |                       | 17,037 |   |      |   | 16,722 |      |  |   | 780    |  
|Deferred/contingent consideration payments                |  |                       | 952    |   |      |   |       |      |  |   |       |  
|Direct acquisition related costs                          |  |                       | 199    |   |      |   |       |      |  |   |       |  
|                                                          |  |                       |        |   |      |   |        |      |  |   |        |  
|Total costs of acquisitions                               |  |                       | 15,293 |   |      |   | 17,659 |      |  |   | 660    |  
|Less:                                                     |  |                       |        |   |      |   |        |      |  |   |        |  
|Options assumed in acquisition                            |  |                       | (1,110 | ) |      |   |       |      |  |   |       |  
|Cash acquired                                             |  |                       | (1,490 | ) |      |   | (90    | )    |  |   |       |  
|Value of common stock issued                              |  |                       |       |   |      |   | (500   | )    |  |   |       |  
|Deferred purchase price                                   |  |                       |       |   |      |   | (703   | )    |  |   |       |  
|                                                          |  |                       |        |   |      |   |        |      |  |   |        |  
|Cash paid for acquisitions, net of cash acquired          |  | $                     | 12,693 |   |      | $ | 16,366 |      |  | $ | 660    |  
|                                                          |  |                       |        |   |      |   |        |      |  |   |        |  



|17. | SUBSEQUENT EVENTS
|--- | -----------------

On April 27, 2009, we paid
all of the outstanding amounts due under our credit facility. On June 29, 2009 we amended our credit facility. Refer to Note 6, Revolving Credit Facility, for details of the amendment.



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SALARY.COM, INC. AND SUBSIDIARIES

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

(in thousands)



|                                                                    |  |                              |  |                   |  |            |   |  |          |  |                       
|------------------------------------------------------------------- |  | ---------------------------- |  | ----------------- |  | ---------- | - |  | -------- |  | ----------------------
|                                                                    |  | Balance atBeginningof Period |  | Charged toExpense |  | Deductions |   |  | Acquired |  | Balance atEndof Period
|Allowance for doubtful accounts (deducted from accounts receivable) |  |                              |  |                   |  |            |   |  |          |  |                       
|Year ended March 31, 2007                                           |  | 166                          |  | 14                |  |           |   |  |         |  | 180                   
|Year ended March 31, 2008                                           |  | 180                          |  | 67                |  |           |   |  |         |  | 247                   
|Year ended March 31, 2009                                           |  | 247                          |  | 130               |  | (247       | ) |  | 40       |  | 170                   
|                                                                    |  |                              |  |                   | 
|                                                                    |  | Balance atBeginningof Period |  | Charged toExpense |  | Deductions |   |  | Acquired |  | Balance atEndof Period
|Deferred tax valuation allowance (deducted from net deferred taxes) |  |                              |  |                   |  |            |   |  |          |  |                       
|Year ended March 31, 2007                                           |  | 5,902                        |  | 3,409             |  |           |   |  |         |  | 9,311                 
|Year ended March 31, 2008                                           |  | 9,311                        |  | 1,015             |  |           |   |  |         |  | 10,326                
|Year ended March 31, 2009                                           |  | 10,326                       |  | 6,499             |  |           |   |  |         |  | 16,825                



S-1