Annual Reports

 
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  • 10-Q (Nov 4, 2013)
  • 10-Q (Aug 2, 2013)
  • 10-Q (May 3, 2013)
  • 10-Q (Nov 7, 2012)
  • 10-Q (Aug 6, 2012)
  • 10-Q (May 10, 2012)

 
8-K

 
Other

Vocus 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1
e10vq
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
     
(Mark One)    
 
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended June 30, 2010
o
  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 000-51644
 
 
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  58-1806705
(I.R.S. Employer
Identification No.)
 
4296 Forbes Boulevard
Lanham, Maryland 20706
(301) 459-2590
(Address including zip code, and telephone number,
including area code, of principal executive offices)
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o
 
 
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No þ
 
 
As of August 2, 2010, 19,425,049 shares of common stock, par value $0.01 per share, of the registrant were outstanding.
 


 

 
 
             
        Page
 
PART I — FINANCIAL INFORMATION
Item 1.   Consolidated Financial Statements     3  
    Consolidated Balance Sheets as of December 31, 2009 and June 30, 2010     3  
    Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2010     4  
    Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2010     5  
    Notes to Consolidated Financial Statements     6  
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     16  
Item 3.   Quantitative and Qualitative Disclosures about Market Risk     23  
Item 4.   Controls and Procedures     23  
PART II — OTHER INFORMATION
Item 1.   Legal Proceedings     24  
Item 1A.   Risk Factors     24  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds     36  
Item 6.   Exhibits     37  
SIGNATURES     38  
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1


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Table of Contents

 
 
Item 1.   Consolidated Financial Statements
 
Vocus, Inc. and Subsidiaries
 
Consolidated Balance Sheets
 
                 
    December 31,
    June 30,
 
    2009     2010  
          (Unaudited)  
    (Dollars in thousands, except per share data)  
 
Current assets:
               
Cash and cash equivalents
  $ 85,817     $ 86,980  
Short-term investments
    17,851       8,645  
Accounts receivable, net of allowance for doubtful accounts of $212 and $548 at December 31, 2009 and June 30, 2010, respectively
    18,245       13,479  
Current portion of deferred income taxes
    685       685  
Prepaid expenses and other current assets
    1,753       2,389  
                 
Total current assets
    124,351       112,178  
Long-term investments
    1,001        
Property, equipment and software, net
    4,666       5,866  
Intangible assets, net
    3,980       8,022  
Goodwill
    17,090       25,855  
Deferred income taxes, net of current portion
    7,459       7,460  
Other assets
    693       591  
                 
Total assets
  $ 159,240     $ 159,972  
                 
Current liabilities:
               
Accounts payable
  $ 1,148     $ 2,030  
Accrued compensation
    2,384       2,728  
Accrued expenses
    3,239       5,782  
Current portion of notes payable and capital lease obligations
    197       200  
Current portion of deferred income taxes
          156  
Current portion of deferred revenue
    46,789       46,817  
                 
Total current liabilities
    53,757       57,713  
Notes payable and capital lease obligations, net of current portion
    48       225  
Deferred income taxes, net of current portion
          991  
Other liabilities
    93       1,634  
Deferred revenue, net of current portion
    961       496  
                 
Total liabilities
    54,859       61,059  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2009 and June 30, 2010
           
Common stock, $0.01 par value, 90,000,000 shares authorized; 19,854,585 and 20,039,061 shares issued at December 31, 2009 and June 30, 2010, respectively; 18,173,444 and 17,972,310 shares outstanding at December 31, 2009 and June 30, 2010, respectively
    199       200  
Additional paid-in capital
    149,279       155,810  
Treasury stock, 1,681,141 and 2,066,751 shares at December 31, 2009 and June 30, 2010, respectively at cost
    (14,914 )     (23,226 )
Accumulated other comprehensive income (loss)
    305       (847 )
Accumulated deficit
    (30,488 )     (33,024 )
                 
Total stockholders’ equity
    104,381       98,913  
                 
Total liabilities and stockholders’ equity
  $ 159,240     $ 159,972  
                 
 
See accompanying notes.


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Table of Contents

Vocus, Inc. and Subsidiaries
 
 
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2009     2010     2009     2010  
    (Unaudited)  
    (Dollars in thousands, except per share data)  
 
Revenues
  $ 21,079     $ 23,781     $ 41,490     $ 46,052  
Cost of revenues
    3,847       4,723       7,754       9,158  
                                 
Gross profit
    17,232       19,058       33,736       36,894  
Operating expenses:
                               
Sales and marketing
    10,190       12,492       19,706       23,895  
Research and development
    1,138       1,341       2,295       2,655  
General and administrative
    5,186       5,828       10,231       11,027  
Amortization of intangible assets
    490       593       980       1,062  
                                 
Total operating expenses
    17,004       20,254       33,212       38,639  
Income (loss) from operations
    228       (1,196 )     524       (1,745 )
Other income (expense):
                               
Interest and other income
    105       10       330       78  
Interest expense
    (7 )     (13 )     (13 )     (20 )
                                 
Total other income (expense)
    98       (3 )     317       58  
Income (loss) before provision for income taxes
    326       (1,199 )     841       (1,687 )
Provision for income taxes
    669       758       1,662       849  
                                 
Net loss
  $ (343 )   $ (1,957 )   $ (821 )   $ (2,536 )
                                 
Net loss per share:
                               
Basic
  $ (0.02 )   $ (0.11 )   $ (0.05 )   $ (0.14 )
Diluted
  $ (0.02 )   $ (0.11 )   $ (0.05 )   $ (0.14 )
Weighted average shares outstanding used in computing per share amounts:
                               
Basic
    18,051,243       17,955,925       18,038,888       18,008,822  
Diluted
    18,051,243       17,925,925       18,038,888       18,008,822  
 
See accompanying notes.


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Vocus, Inc. and Subsidiaries
 
 
                 
    Six Months Ended June 30,  
    2009     2010  
    (Unaudited)  
    (Dollars in thousands)  
 
Cash flows from operating activities:
               
Net loss
  $ (821 )   $ (2,536 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Depreciation and amortization of property, equipment and software
    839       820  
Amortization of intangible assets
    980       1,104  
Loss on disposal of assets
    3       1  
Stock-based compensation
    6,237       6,273  
Provision for doubtful accounts
    233       15  
Deferred income taxes
    (300 )     (456 )
Excess tax benefits from equity awards
    (2,508 )     (727 )
Changes in operating assets and liabilities:
               
Accounts receivable
    5,125       5,794  
Prepaid expenses and other current assets
    931       (494 )
Other assets
    (69 )     201  
Accounts payable
    798       618  
Accrued compensation
    (483 )     (35 )
Accrued expenses
    2,768       1,174  
Deferred revenue
    (3,456 )     (2,095 )
Other liabilities
    (21 )     (186 )
                 
Net cash provided by operating activities
    10,256       9,471  
Cash flows from investing activities:
               
Purchases of available-for-sale securities
    (20,027 )     (4,097 )
Maturities of available-for-sale securities
    24,075       14,294  
Business acquisitions, net of cash acquired
          (8,921 )
Purchases of property, equipment and software
    (726 )     (1,156 )
Software development costs
    (91 )     (414 )
                 
Net cash provided by (used in) investing activities
    3,231       (294 )
Cash flows from financing activities:
               
Repurchases of common stock
    (4,121 )     (8,312 )
Proceeds from the exercise of stock options
    1,773       106  
Excess tax benefits from equity awards
    2,508       727  
Payments on notes payable and capital lease obligations
    (179 )     (226 )
                 
Net cash used in financing activities
    (19 )     (7,705 )
Effect of exchange rate changes on cash and cash equivalents
    (41 )     (309 )
                 
Net increase in cash and cash equivalents
    13,427       1,163  
Cash and cash equivalents, beginning of period
    65,429       85,817  
                 
Cash and cash equivalents, end of period
  $ 78,856     $ 86,980  
                 
Supplemental disclosure of non-cash investing activities:
               
Accrued contingent consideration for business acquisitions
  $     $ 1,327  
                 
 
See accompanying notes.


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Table of Contents

Vocus, Inc. and Subsidiaries
 
 
1.   Business Description
 
 
Vocus, Inc. (Vocus or the Company) is a provider of on-demand software for public relations management. The Company’s on-demand software addresses the critical functions of public relations including media relations, news distribution and news monitoring. The Company is headquartered in Lanham, Maryland with sales and other offices in Virginia, Maryland, California, Washington, England, France, China and Morocco.
 
2.   Summary of Significant Accounting Policies
 
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 9, 2010.
 
 
The consolidated financial statements include the accounts of Vocus, Inc., its wholly owned subsidiaries and a variable interest entity for which Vocus is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
 
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
 
Management determines the appropriate classification of investments at the time of purchase and evaluates such determination as of each balance sheet date. The Company’s investments were classified as available-for-sale securities and were stated at fair value at December 31, 2009 and June 30, 2010. Realized gains and losses are included in other income (expense) based on the specific identification method. Realized gains and losses for the three and six months ended June 30, 2009 and June 30, 2010 were not material. Net unrealized gains and losses on available-for-sale securities are reported as a component of other comprehensive income (loss), net of tax. As of June 30, 2010, the net unrealized losses on available-for-sale securities were not material. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. Management believes no such declines in value existed at June 30, 2010.


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
 
The Company measures certain financial assets and liabilities at fair value, including cash equivalents, available-for-sale securities and accrued contingent consideration pursuant to a fair value hierarchy based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:
 
Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities.
 
Level 2 — Inputs are quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable and market-corroborated inputs which are derived principally from or corroborated by observable market data.
 
Level 3 — Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
 
 
The Company derives its revenues from subscription arrangements and related services permitting customers to access and utilize the Company’s on-demand software and from the online distribution of press releases. The Company recognizes revenue 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.
 
Subscription agreements generally contain multiple service elements and deliverables. These elements include access to the Company’s on-demand software and often specify initial services including implementation and training. Subscription agreements do not provide customers the right to take possession of the software at any time. The Company considers all elements in its multiple element subscription arrangements as a single unit of accounting and recognizes all associated fees over the subscription period. The Company determined that it does not have objective and reliable evidence of the fair value of the subscription fees after delivery of specified initial services; and therefore, accounts for its subscription arrangements and its related service fees as a single unit of accounting. As a result, all revenue from multiple element subscription arrangements is recognized ratably over the term of the subscription. The subscription term commences on the start date specified in the subscription arrangement or the date access to the software is provided to the customer. The Company also has entered into a royalty agreement with a reseller of its application service. The Company recognizes this revenue over the term of the end-user subscription upon obtaining persuasive evidence, which includes monthly notification from the reseller, that the service has been sold and delivered. The Company recognizes revenue from professional services sold separately from subscription arrangements as the services are performed.
 
The Company distributes press releases over the Internet which are indexed by major search engines and distributed directly to various news sites, journalists and other key constituents. The Company recognizes revenue on a per-transaction basis when the press releases are made available to the public.
 
 
Sales commissions are expensed when a subscription agreement is executed by the customer.
 
 
The Company’s share-based arrangements include stock option awards and restricted stock awards. The Company recognizes compensation expense for its equity awards on a straight-line basis over the requisite service


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
period of the award based on the estimated portion of the award that is expected to vest and applies estimated forfeiture rates based on analyses of historical data, including termination patterns and other factors. The Company uses the quoted closing market price of its common stock on the grant date to measure the fair value of restricted stock awards and the Black-Scholes option pricing model to measure the fair value of stock option awards. The Company became a public entity in December 2005, and therefore has a limited history of volatility. Accordingly, the expected volatility is based primarily on the historical volatilities of similar entities’ common stock over the most recent period commensurate with the estimated expected term of the awards. The expected term of an award is equal to the midpoint between the vesting date and the end of the contractual term of the award. The risk-free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero.
 
 
Income taxes are determined utilizing the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax-credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 
The Company recognizes uncertain tax positions when it is determined that the tax position is more likely than not to be sustained upon examination by taxing authorities and records the largest amount of the benefit that is expected to be realized upon settlement. Interest and penalties are accrued on any unrecognized tax positions as a component of income tax expense. The Company files income tax returns in the U.S. federal jurisdictions and various state and foreign jurisdictions. The Company is subject to U.S. federal tax, state and foreign tax examinations for years ranging from 2002 to 2009.
 
 
Comprehensive income (loss) includes the Company’s net income (loss) as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. Other comprehensive income (loss) includes foreign currency translation adjustments and net unrealized gains and losses on investments classified as available-for-sale securities. For the three and six months ended June 30, 2009 and 2010, comprehensive loss was determined as follows (in thousands):
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2009     2010     2009     2010  
 
Net loss
  $ (343 )   $ (1,957 )   $ (821 )   $ (2,536 )
Other comprehensive loss:
                               
Change in foreign currency translation adjustment
    (288 )     (1,236 )     (282 )     (1,147 )
Net change in unrealized net loss on available-for-sale investments
    (4 )     (1 )     (29 )     (5 )
                                 
Total comprehensive loss
  $ (635 )   $ (3,194 )   $ (1,132 )   $ (3,688 )
                                 


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
 
The Company’s chief operating decision maker manages the Company’s operations on a consolidated basis for purposes of assessing performance and making operating decisions. Accordingly, the Company reports on one segment of its business.
 
 
Basic net income or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Nonvested shares of restricted stock are not included in the computation of basic net income or loss per share until vested. Diluted net income or loss 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. Diluted net income or loss per share includes the dilutive effect of nonvested shares of restricted stock.
 
For the three and six months ended June 30, 2009 and 2010, the Company incurred net losses and, therefore, the effect of the Company’s outstanding stock options and nonvested shares of restricted stock was not included in the calculation of diluted loss per share as the effect would be anti-dilutive. Accordingly, basic and diluted net loss per share were identical. For the three and six months ended June 30, 2009 and 2010, diluted earnings per share excluded 2,208,955 and 2,729,607 outstanding stock options, respectively, and 1,217,083 and 1,433,939 nonvested shares of restricted stock, respectively, as the result would be anti-dilutive.
 
Recent Accounting Pronouncements
 
In October 2009, the FASB issued authoritative guidance on multiple deliverable revenue arrangements. Pursuant to the new guidance, when vendor specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact the adoption of the new guidance will have on its consolidated financial statements.
 
3.   Business Combinations
 
On April 16, 2010, the Company acquired all of the outstanding shares of capital stock of Data Presse SAS (Datapresse), a provider of media content and on-demand public relations software in France which complements the Company’s current suite of on-demand solutions and broadens the Company’s presence in Europe. The purchase consideration consisted of approximately $9.7 million in cash paid at closing and contingent cash consideration for the achievement of certain financial performance metrics. The fair value of the contingent consideration was recorded in accrued expenses in the consolidated balance sheet at June 30, 2010. The Company incurred acquisition costs of approximately $900,000, which are included in general and administrative expense in the consolidated statements of operations. The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. The operating results of Datapresse are included in the accompanying consolidated financial statements from the date of acquisition.
 
The purchase consideration consisted of the following (in thousands):
 
         
Cash consideration
  $ 9,723  
Fair value of contingent consideration
    572  
         
Total purchase consideration
  $ 10,295  
         


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The identifiable intangible assets are subject to amortization on a straight-line basis. The excess of the purchase price over the net tangible and identifiable intangible assets acquired was recorded as goodwill which is not deductible for tax purposes. The allocation of the purchase price was based upon the Company’s preliminary valuations, which included estimates and assumptions that are subject to change.
 
The preliminary allocation of the purchase price as of the acquisition date was as follows:
 
                 
    Estimated
    Estimated
 
    Useful Life     Fair Value  
 
Cash and cash equivalents
          $ 2,798  
Accounts receivable, net
            1,055  
Prepaid and other current assets
            210  
Property, equipment and software, net
            426  
Other assets
            68  
Trade name
    5 years       218  
Customer relationships
    7 years       3,617  
Purchased technology
    5 years       842  
Goodwill
            6,018  
Accounts payable and accrued liabilities
            (1,195 )
Notes payable and capital lease obligations
            (418 )
Deferred income taxes
            (1,412 )
Deferred revenue
            (1,793 )
Other liabilities
            (139 )
                 
Total purchase price
          $ 10,295  
                 
 
The following unaudited pro forma consolidated results of operations for the three and six months ended June 30, 2009 and 2010 assumes that the Datapresse acquisition occurred at the beginning of each respective year. The unaudited pro forma information combines the historical results for the Company with the historical results for Datapresse for the same period. The following unaudited pro forma information is not intended to be indicative of future operating results (dollars in thousands, except per share data):
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2009     2010     2009     2010  
 
Pro forma revenue
  $ 22,341     $ 25,406     $ 44,244     $ 49,206  
                                 
Pro forma net income (loss)
  $ (201 )   $ (1,938 )   $ (1,103 )   $ (2,461 )
                                 
Pro forma net income per share:
                               
Basic and diluted
  $ (0.01 )   $ (0.11 )   $ (0.06 )   $ (0.14 )
                                 
 
During the three months ended June 30, 2010, the Company completed two additional acquisitions which were not material, individually or in the aggregate. These acquisitions were accounted for under the purchase method of accounting in accordance with ASC 805, and operating results of each are included in the Company’s consolidated financial statements from the dates of acquisition. On April 16, 2010, the Company acquired all of the outstanding shares of capital stock of privately held BDL Media Ltd, Hong Kong, (BDL Media), a provider of on-demand public relations software and services in China, for approximately $557,000 in cash and $811,000 of contingent consideration for the achievement of revenue targets in 2010 and 2011. The Company recorded approximately


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
$275,000 of identifiable intangible assets and $2.4 million of goodwill that is not deductible for tax purposes. Additionally, in connection with the acquisition, the Company identified an uncertain tax position and as a result, the Company recorded $1.2 million in other liabilities in the consolidated balance sheet at June 30, 2010. The allocation of the purchase price was based upon the Company’s preliminary valuations, which included estimates and assumptions that are subject to change. On June 9, 2010, the Company acquired certain assets and assumed certain liabilities of Two Cats and a Cup of Coffee, LLC, or Help a Reporter Out (HARO), a provider of online services that link reporters and bloggers with small businesses and public relations professionals, for approximately $1.6 million in cash. The Company recorded approximately $660,000 of identifiable intangible assets and $950,000 of goodwill that is deductible for tax purposes.
 
4.   Cash Equivalents and Investments
 
The components of cash equivalents and investments at December 31, 2009 are as follows (dollars in thousands):
 
                                 
          Unrealized     Fair
 
    Cost     Gains     Losses     Value  
 
Cash equivalents:
                               
Money market funds
  $ 7,045     $     $     $ 7,045  
Commercial paper
    37,144                   37,144  
Certificates of deposit
    2,900                   2,900  
Short-term investments:
                               
Commercial paper
    6,497       2             6,499  
Government-sponsored agency debt securities
    8,746       5             8,751  
Certificates of deposit
    700                   700  
Corporate notes and bonds
    1,900       1             1,901  
Long-term investments:
                               
Government-sponsored agency debt securities
    1,000       1             1,001  
                                 
Total
  $ 65,932     $ 9     $     $ 65,941  
                                 
 
The components of cash equivalents and investments at June 30, 2010 are as follows (dollars in thousands):
 
                                 
          Unrealized     Fair
 
    Cost     Gains     Losses     Value  
 
Cash equivalents:
                               
Money market funds
  $ 27,262     $     $     $ 27,262  
Commercial paper
    25,172                   25,172  
Certificates of deposit and time deposits
    916                   916  
U.S. Treasury securities
    4,550                   4,550  
Government-sponsored agency debt securities
    1,366                   1,366  
Short-term investments:
                               
Government-sponsored agency debt securities
    7,745                   7,745  
Corporate notes and bonds
    900                   900  
                                 
Total
  $ 67,911     $     $     $ 67,911  
                                 


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
Cash equivalents have original maturity dates of three months or less. Short-term investments have original maturity dates greater than three months but less than one year. Long-term investments have original maturity dates between one and two years.
 
5.   Goodwill and Intangible Assets
 
The changes in the carrying amount of goodwill for the six months ended June 30, 2010, are as follows (dollars in thousands):
 
         
Balance as of January 1, 2010
  $ 17,090  
Goodwill acquired
    9,371  
Effects of foreign currency translation
    (606 )
         
Balance as of June 30, 2010
  $ 25,855  
         
 
Intangible assets at December 31, 2009 consisted of the following (dollars in thousands):
 
                                 
    Weighted-
                   
    Average
    Gross
             
    Amortization
    Carrying
          Net Carrying
 
    Period     Amount     Amortization     Amount  
 
Customer relationships
    5.0     $ 3,041     $ (2,326 )   $ 715  
Trade names
    7.0       3,946       (1,920 )     2,026  
Agreements not-to-compete
    5.0       3,913       (2,674 )     1,239  
                                 
Total
          $ 10,900     $ (6,920 )   $ 3,980  
                                 
 
Intangible assets at June 30, 2010 consisted of the following (dollars in thousands):
 
                                 
    Weighted-
                   
    Average
    Gross
             
    Amortization
    Carrying
          Net Carrying
 
    Period     Amount     Amortization     Amount  
 
Customer relationships
    6.0     $ 6,953     $ (2,704 )   $ 4,249  
Trade names
    6.9       4,308       (2,213 )     2,095  
Purchased technology
    4.8       867       (37 )     830  
Agreements not-to-compete
    5.0       3,913       (3,065 )     848  
                                 
Total
          $ 16,041     $ (8,019 )   $ 8,022  
                                 
 
Amortization expense of intangible assets for the three and six months ended June 30, 2009 was $490,000 and $980,000, respectively. Amortization expense of intangible assets for the three and six months ended June 30, 2010 was $630,000 and $1.1 million, respectively. Future expected amortization of intangible assets at June 30, 2010 was as follows (dollars in thousands):
 
         
Remainder of 2010
  $ 1,308  
2011
    2,110  
2012
    1,397  
2013
    1,127  
2014
    777  
2015
    630  
Thereafter
    673  
         
    $ 8,022  
         


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
6.   Fair Value Measurements
 
The fair value measurements of the Company’s financial assets and liabilities measured on a recurring basis at June 30, 2010 are as follows (dollars in thousands):
 
                                 
    Total     Level 1     Level 2     Level 3  
 
Assets:
                               
Cash equivalents
  $ 59,266     $ 34,094     $ 25,172     $  
Short-term investments
    8,645       8,645              
                                 
Total assets measured at fair value
  $ 67,911     $ 42,739     $ 25,172     $  
                                 
Liabilities
                               
Accrued contingent consideration
  $ 1,327     $     $     $ 1,327  
                                 
Total liabilities measured at fair value
  $ 1,327     $     $     $ 1,327  
                                 
 
Cash equivalents and investments are classified within Level 1 or Level 2 of the fair value hierarchy since they are valued using quoted market prices or alternative pricing sources that utilize market observable inputs
 
Contingent consideration liabilities are classified as Level 3 of the fair value hierarchy since they are valued using unobservable inputs and value drivers. Contingent consideration for Datapresse of $572,000 is based upon the achievement of revenue targets and earnings before interest and taxes for the twelve month period ending April 30, 2011. Contingent consideration for BDL Media of $811,000 is based upon revenue earned in 2010 and 2011. The Company estimated the fair value of the accrued contingent consideration using expected future cash flows based on several scenarios over the period in which the obligation is expected to be settled and applied a discount rate that appropriately captures a market participant’s view of the risk associated with the obligation. At June 30, 2010, contingent consideration of $957,000 and $370,000 was included in accrued expenses and other liabilities in the consolidated balance sheet, respectively.
 
7.   Stockholders’ Equity
 
 
In November 2008, the Company’s Board of Directors authorized a stock repurchase program for up to $30,000,000 of the Company’s shares of common stock. The shares may be purchased from time to time in the open market. During the six months ended June 30, 2009 and 2010, the Company purchased an aggregate of 224,192 and 477,286 shares of its common stock for $3,500,000 and $7,012,000, respectively. During the six months ended June 30, 2009 and 2010, the Company also repurchased 40,591 and 86,908 shares of restricted stock that were withheld from employees to satisfy the minimum statutory tax withholding obligations of $621,000 and $1,300,000, respectively, related to the taxable income recognized by these employees upon the vesting of their restricted stock awards.


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
8.   Stock-Based Compensation
 
The following table sets forth the stock-based compensation expense for equity awards recorded in the consolidated statements of operations for the three and six months ended June 30, 2009 and 2010 (in thousands):
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2009     2010     2009     2010  
 
Cost of revenues
  $ 398     $ 351     $ 743     $ 930  
Sales and marketing
    992       977       1,849       1,414  
Research and development
    256       418       471       791  
General and administration
    1,705       1,625       3,174       3,138  
                                 
Total
  $ 3,351     $ 3,371     $ 6,237     $ 6,273  
                                 
 
Stock Option Awards
 
The following weighted-average assumptions were used in calculating stock-based compensation for stock options awards granted during the three and six months ended June 30, 2009 and 2010:
 
                                 
    Three Months
       
    Ended
    Six Months Ended
 
    June 30,     June 30,  
    2009     2010     2009     2010  
 
Stock price volatility
    62 %     59 %     61 %     60 %
Expected term (years)
    6.3       6.3       6.1       6.3  
Risk-free interest rate
    2.5 %     2.3 %     2.4 %     2.6 %
Dividend yield
    0 %     0 %     0 %     0 %
 
The summary of stock option activity for the six months ended June 30, 2010 is as follows:
 
                                 
    Number of
    Weighted-
          Aggregate
 
    Shares
    Average
    Weighted-
    Intrinsic
 
    Underlying
    Exercise
    Average
    Value as of
 
    Stock
    Price per
    Contractual
    June 30,
 
    Options     Share     Term     2010  
                      (In thousands)  
 
Balance outstanding at December 31, 2009
    2,134,979     $ 14.35                  
Granted
    618,401       14.79                  
Exercised
    (15,315 )     6.92                  
Forfeited or cancelled
    (8,458 )     18.32                  
                                 
Balance outstanding at June 30, 2010
    2,729,607     $ 14.48       6.9     $ 6,745  
                                 
Options vested and expected to vest at June 30, 2010
    2,659,097     $ 14.44       6.9     $ 6,719  
                                 
Exercisable at June 30, 2010
    1,715,174     $ 13.45       5.9     $ 6,178  
                                 
 
The weighted-average grant date fair value of stock options granted during the three months ended June 30, 2009 and 2010 was $10.92 and $9.06, respectively. The weighted-average grant date fair value of stock options granted during the six months ended June 30, 2009 and 2010 was $10.22 and $8.56, respectively. The fair value of stock options that vested during the three months ended June 30, 2009 and 2010 was $196,000 and $249,000, respectively. The fair value of options that vested during the six months ended June 30, 2009 and 2010 was $3,741,000 and $3,110,000, respectively. As of June 30, 2010, $6.8 million of total unrecognized stock-based


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Vocus, Inc. and Subsidiaries
 
Notes to Consolidated Financial Statements — (Continued)
 
compensation cost is related to nonvested stock option awards and is expected to be recognized over a weighted-average period of 2.7 years.
 
The aggregate intrinsic value represents the difference between the exercise price of the underlying equity awards and the quoted closing price of the Company’s common stock at the last day of each respective quarter multiplied by the number of shares that would have been received by the option holders had all option holders exercised on the last day of each respective quarter. The aggregate intrinsic value of stock options exercised during the three months ended June 30, 2009 and 2010 was $291,000 and $116,000, respectively. The aggregate intrinsic value of options exercised during the six months ended June 30, 2009 and 2010 was $1,391,000 and $152,000 respectively.
 
 
The summary of restricted stock award activity for the six months ended June 30, 2010 is as follows:
 
         
    Number of Shares
 
    Underlying
 
    Stock Awards  
 
Balance nonvested at December 31, 2009
    1,229,358  
Awarded
    577,451  
Vested
    (347,745 )
Forfeited
    (25,125 )
         
Balance nonvested at June 30, 2010
    1,433,939  
         
 
The weighted-average grant date fair value of restricted stock awards granted during the three months ended June 30, 2009 and 2010 was $17.81 and $16.01, respectively. The weighted-average grant date fair value of restricted stock awards granted during the six months ended June 30, 2009 and 2010 was $16.68 and $14.68, respectively.
 
As of June 30, 2010, $21.2 million of total unrecognized stock-based compensation cost is related to nonvested shares of restricted stock and is expected to be recognized over a weighted-average period of 2.6 years.
 
9.   Commitments and Contingencies
 
The Company from time to time is subject to lawsuits, investigations and claims arising out of the ordinary course of business, including those related to commercial transactions, contracts, government regulation and employment matters. In the opinion of management based on all known facts, all such matters, if any, are either without merit or are of such kind, or involve such amounts that would not have a material effect on the financial position or results of operations of the Company if disposed of unfavorably.


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Item 2.   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 and in our annual report on Form 10-K for the year ended December 31, 2009.
 
This report includes forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” “will,” “should,” “seeks” or other similar expressions. Forward-looking statements reflect our plans, expectations and beliefs, and involve inherent risks and uncertainties, many of which are beyond our control. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. 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 of Part II.
 
 
We are a leading provider of on-demand software for public relations management. Our web-based software suite helps organizations of all sizes fundamentally change the way they communicate with both the media and the public, optimizing their public relations and increasing their ability to measure its impact. Our on-demand software addresses the critical functions of public relations including media relations, news distribution and news monitoring. We deliver our solutions over the Internet using a secure, scalable application and system architecture, which allows our customers to eliminate expensive up-front hardware and software costs and to quickly deploy and adopt our on-demand software.
 
We sell access to our on-demand software primarily through our direct sales channel. As of June 30, 2010, including our acquisition of Datapresse, we had 7,173 active subscription customers from a variety of industries, including financial and insurance, technology, healthcare and pharmaceutical and retail and consumer products, as well as government agencies, not-for-profit organizations and educational institutions. We define active subscription customers as unique customer accounts that have an active subscription and have not been suspended for non-payment.
 
We are also a provider of online distribution of press releases. We enable our customers to achieve visibility on the Internet by distributing search engine optimized press releases directly to various news sites and the public. We offer on-demand solutions which allow our customers to widely distribute press releases containing important elements of content-rich media such as images, podcasts and video messages designed to drive Internet traffic to websites and increase brand awareness.
 
We plan to continue the expansion of our customer base by expanding our direct distribution channels, expanding our international market penetration and selectively pursuing strategic acquisitions. As a result, we plan to hire additional personnel, particularly in sales and marketing, and expand our domestic and international selling and marketing activities, increase the number of locations around the world where we conduct business and develop our operational and financial systems to manage a growing business. We also intend to seek to identify and acquire companies which would either expand our solution’s functionality, provide access to new customers or markets, or both.
 
On April 16, 2010, we acquired all of the outstanding shares of capital stock of Datapresse, a provider of media content and on-demand public relations software in France. The purchase consideration consisted of approximately $9.7 million in cash paid at closing and contingent cash consideration for the achievement of certain financial performance metrics. We recorded approximately $4.7 million in identifiable intangible assets and $6.0 million of goodwill. The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations, and the operating results of Datapresse are included in our consolidated financial statements from the date of acquisition.
 
On April 16, 2010, we acquired all of the outstanding shares of capital stock of BDL Media, a provider of on-demand public relations software and services in China. The purchase consideration consisted of approximately $557,000 in cash paid at closing and $811,000 of contingent cash consideration. We recorded approximately


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$275,000 of identifiable intangible assets and $2.4 million of goodwill. The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, and the operating results of BDL Media are included in our consolidated financial statements from the date of acquisition.
 
On June 9, 2010, we acquired certain assets and liabilities of HARO, a provider of online services that links reporters and bloggers with small businesses and public relations professionals, for approximately $1.6 million. We recorded approximately $660,000 of identifiable intangible assets and $950,000 of goodwill. The acquisition was accounted for under the purchase method of accounting in accordance with ASC 805, and the operating results of HARO are included in our consolidated financial statements from the date of acquisition.
 
 
We derive our revenues from subscription agreements and related services and from the online distribution of press releases. Our subscription agreements contain multiple service elements and deliverables, which include use of our on-demand software, hosting services, content and content updates, implementation and training services and customer support. The typical term of our subscription agreements is one year; however, our customers may purchase subscriptions with multi-year terms. We invoice our customers in advance of their annual subscription, with payment terms that generally require our customers to pay us within 30 days of invoice. Our subscription agreements typically are non-cancelable, though customers have the right to terminate their agreements for cause if we materially breach our obligations under the agreement. Our subscription agreements may include amounts that are not yet contractually billable to customers, and any such unbilled amounts are not recorded in deferred revenue until invoiced.
 
Additionally, we derive revenue on a per-transaction basis from the online distribution of press releases. We generally receive payment in advance of the distribution of the press release.
 
Professional services revenue consists primarily of data migration, training and configuration services sold separately after the initial subscription agreement. Our professional service engagements are billed on a fixed fee basis with payment terms requiring our customers to pay us within 30 days of invoice. Revenues from professional services sold separately from subscription agreements have not been material to our business.
 
 
Cost of Revenues.  Cost of revenues consists primarily of compensation for training, editorial and support personnel, hosting infrastructure, press release distribution, acquisition, maintenance and amortization of content, amortization of purchased technology, amortization of capitalized software development costs, depreciation associated with computer equipment and software and allocated overhead. We allocate overhead expenses such as employee benefits, computer and office supplies, management information systems and depreciation for computer equipment based on headcount. As a result, indirect overhead expenses are included in cost of revenues and each operating expense category.
 
We believe content is an integral part of our solution and provides our customers with access to broad, current and relevant information critical to their public relations efforts. We expect to continue to make investments in both our own content and content acquired from third parties and to continue to enhance our proprietary information database and news on-demand service. We expect that in 2010, cost of revenues will increase in absolute dollars and as a percentage of revenues.
 
Sales and Marketing.  Sales and marketing expenses are our largest operating expense, accounting for 52% of our revenues for the six months ended June 30, 2010. Sales and marketing expenses consist primarily of compensation for our sales and marketing personnel, sales commissions and incentives, marketing programs, including lead generation, promotional events, webinars and other brand building expenses and allocated overhead. We expense our sales commissions at the time a subscription agreement is executed by the customer, and we recognize substantially all of our revenues ratably over the term of the corresponding subscription agreement. As a result, we incur sales expense before the recognition of the related revenues.
 
As our revenues increase, we plan to invest in sales and marketing by increasing the number of sales and marketing personnel to add new customers, increase sales to our existing customers and increase sales of our online


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press release distribution services. We also plan to expand our marketing activities in order to build brand awareness and generate additional leads for our growing sales personnel. We expect that in 2010, sales and marketing expenses will increase in absolute dollars and as a percentage of revenues.
 
Research and Development.  Research and development expenses consist primarily of compensation for our software application development personnel and allocated overhead. We have historically focused our research and development efforts on increasing the functionality and enhancing the ease of use of our on-demand software. Because of our hosted, on-demand model, we are able to provide all of our customers with a single, shared version of our most recent application. As a result, we do not have to maintain legacy versions of our software, which enables us to have relatively low research and development expenses as compared to traditional enterprise software business models. We expect that in 2010, research and development expenses will increase in absolute dollars but will remain flat as a percentage of revenues.
 
General and Administrative.  General and administrative expenses consist of compensation and related expenses for executive, finance, legal, human resources and administrative personnel, as well as fees for legal, accounting and other consulting services, including acquisition-related transaction costs, facilities rent, other corporate expenses and allocated overhead. We expect that in 2010, general and administrative expenses will increase in absolute dollars but decrease slightly as a percentage of revenues.
 
Amortization of Intangible Assets.  Amortized intangible assets consist of customer relationships, trade names and agreements not-to-complete acquired in business combinations.
 
 
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated 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 Note 2 to the accompanying consolidated financial statements and in our annual report on Form 10-K for the year ended December 31, 2009, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
 
Revenue Recognition.  We recognize revenues 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. 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. Our subscription agreements do not provide customers the right to take possession of the software at any time. All elements in our multiple element subscription agreements are considered a single unit of accounting, and accordingly, we recognize all associated fees over the subscription period, which is typically one year. We recognize our revenue over the subscription period because the access to our software is the last element delivered to the customer and the predominant element of our agreements. 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. When we sell this subscription separately from professional services the price charged varies and, therefore, we cannot objectively and reliably determine the subscription’s fair value. As a result, subscription revenues are recognized ratably over the subscription period. Professional services sold separately from a subscription arrangement are recognized as the services are performed.
 
We distribute press releases over the Internet which are indexed by major search engines and distributed directly to various news sites, journalists and other key constituents. We recognize revenue on a per-transaction basis when the press releases are made available to the public.
 
Sales Commissions.  Sales commissions are expensed when a subscription agreement is executed by the customer. As a result, we incur incremental sales expense before the recognition of the related revenues.


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Stock-Based Compensation.  We recognize compensation expense for equity awards based on the fair value of the award and on a straight-line basis over the requisite service period of the award based on the estimated portion of the award that is expected to vest. We apply estimated forfeiture rates based on analyses of historical data, including termination patterns and other factors. We use the quoted closing market price of our common stock on the grant date to measure the fair value of our restricted stock awards. We use the Black-Scholes option pricing model to measure the fair value of our option awards. We became a public entity in December 2005, and therefore have a limited history of volatility. Accordingly, the expected volatility is based primarily on the historical volatilities of similar entities’ common stock over the most recent period commensurate with the estimated expected term of the awards. The expected term of an award is equal to the midpoint between the vesting date and the end of the contractual term of the award. The risk-free interest rate is based on the rate on U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. We have not paid dividends and do not anticipate paying a cash dividend in the foreseeable future and, accordingly, use an expected dividend yield of zero.
 
Business Combinations.  We have completed acquisitions of businesses that have resulted in the recording of goodwill and identifiable definite-lived intangible assets based on the estimated fair value of those assets. Definite-lived intangible assets consist of acquired customer relationships, trade names, agreements not-to-compete and purchased technology. Definite-lived intangible assets are amortized either on a straight-line or accelerated basis over their estimated useful lives ranging from two to seven years. Accounting for these acquisitions requires us to make determinations about the fair value of assets acquired, useful lives for definite-lived tangible and intangible assets, and liabilities assumed that involve estimates and judgments.
 
Goodwill and Long-Lived Assets.  Goodwill is not amortized, but rather is assessed for impairment at least annually. Goodwill impairment is evaluated using a two step process. The first step is to identify if a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The fair value of the reporting unit is allocated to all the assets and liabilities, including any previously unrecognized intangible assets, as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
 
We assess the impairment of definite-lived intangible and other long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may no longer be fully recoverable. We determine the impairment, if any, by comparing the carrying value of the assets to future undiscounted net cash flows expected to be generated by the related assets. An impairment charge is recognized to the extent the carrying value exceeds the estimated fair value of the assets. There were no events or changes in circumstances through June 30, 2010 indicating that an interim assessment was necessary for goodwill or long-lived assets.
 
Income Taxes.  We use the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax-credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by the valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
 
Our estimates related to liabilities for uncertain tax positions require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits. If we determine it is more likely than not that a tax position will be sustained based on its technical merits, we record the impact of the position in our


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consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement. Our estimates are updated at each reporting date based on the facts, circumstances and information available. We are also required to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to our unrecognized tax benefits will occur during the next twelve months. In connection with our acquisitions, we identified an uncertain tax position, and as a result, recorded $1.2 million in other liabilities in the consolidated balance sheet at June 30, 2010. We file income tax returns in the U.S. federal jurisdictions and various state and foreign jurisdictions and are subject to U.S. federal, state, and foreign tax examinations for years ranging from 2002 to 2009.
 
Results of Operations
 
The following tables set forth selected unaudited consolidated statements of operations data for each of the periods indicated as a percentage of total revenues for the periods indicated.
 
                                 
    Three Months
       
    Ended
    Six Months
 
    June 30,     Ended June 30,  
    2009     2010     2009     2010  
 
Revenues
    100 %     100 %     100 %     100 %
Cost of revenues
    19       20       18       20  
                                 
Gross profit
    81       80       82       80  
Operating expenses:
                               
Sales and marketing
    47       53       48       52  
Research and development
    6       6       6       6  
General and administrative
    25       24       25       24  
Amortization of intangible assets
    2       2       2       2  
                                 
Total operating expenses
    80       85       81       84  
Income (loss) from operations
    1       (5 )     1       (4 )
Other income, net
    1                    
                                 
Income (loss) before provision for income taxes
    2       (5 )     1       (4 )
Provision for income taxes
    4       3       3       2  
                                 
Net loss
    (2 )%     (8 )%     (2 )%     (6 )%
                                 
 
Three Months Ended June 30, 2010 and 2009
 
Revenues.  Revenues for the three months ended June 30, 2010 were $23.8 million, an increase of $2.7 million, or 13%, over revenues of $21.1 million for the comparable period in 2009. The increase in revenues was primarily due to the increase in the number of total active subscription customers to 7,173 as of June 30, 2010 from 3,761 as of June 30, 2009. The increase in active subscription customers was the result of our acquisitions and additional sales personnel focused on acquiring new customers and renewing existing customers. We acquired approximately 1,900 active subscription customers from the acquisition of Datapresse. Revenue growth from the increase in active subscription customers was $2.1 million. Total deferred revenue as of June 30, 2010 was $47.3 million, representing an increase of $7.5 million, or 19%, over total deferred revenue of $39.8 million as of June 30, 2009. We acquired approximately $1.8 million of deferred revenue from the acquisition of Datapresse.
 
Cost of Revenues.  Cost of revenues for the three months ended June 30, 2010 was $4.7 million, an increase of $876,000, or 23%, over cost of revenues of $3.8 million for the comparable period in 2009. The increase in cost of revenues was primarily due to an increase of $318,000 in employee-related costs from additional personnel, including personnel from acquisitions in the three months ended June 30, 2010 and $132,000 in third-party license and royalty fees. We had 202 full-time employee equivalents in our professional and other support services group at June 30, 2010 compared to 151 full-time employee equivalents at June 30, 2009.


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Sales and Marketing Expenses.  Sales and marketing expenses for the three months ended June 30, 2010 were $12.5 million, an increase of $2.3 million, or 23%, over sales and marketing expenses of $10.2 million for the comparable period in 2009. The increase in sales and marketing was primarily due to an increase of $1.0 million in employee-related costs from additional personnel, $469,000 in sales commissions and incentive compensation and $756,000 in marketing program costs primarily to increase awareness and attract customers to our online press release services. We had 303 full-time employee equivalents in sales and marketing at June 30, 2010 compared to 236 full-time employee equivalents at June 30, 2009.
 
Research and Development Expenses.  Research and development expenses for the three months ended June 30, 2010 were $1.3 million, an increase of $203,000, or 18%, over research and development expenses of $1.1 million for the comparable period in 2009. The increase in research and development was primarily due to an increase of $163,000 in stock-based compensation. For the three months ended June 30, 2010, we capitalized $292,000 of employee-related costs for internally developed software. For the three months ended June 30, 2009, we capitalized $48,000 of employee-related costs for internally developed software. We had 40 full-time employee equivalents in research and development at June 30, 2010 compared to 29 full-time employee equivalents at June 30, 2009.
 
General and Administrative Expenses.  General and administrative expenses for the three months ended June 30, 2010 were $5.8 million, an increase of $642,000, or 12%, over general and administrative expenses of $5.2 million for the comparable period in 2009. The increase in general and administrative expenses was primarily due to an increase of $700,000 in professional fees primarily for acquisition related costs. We had 62 full-time employee equivalents in our general and administrative group at June 30, 2010 compared to 46 full-time employee equivalents at June 30, 2009.
 
Amortization of Intangible Assets.  Amortization of intangible assets for the three months ended June 30, 2010 was $593,000, an increase of $103,000, or 21%, compared to $490,000 for the comparable period in 2009. The increase in amortization is primarily attributable to the intangible assets related to the acquisitions of businesses in the three months ended June 30, 2010.
 
Other Income (Expense).  Other expense for the three months ended June 30, 2010 was $3,000, a decrease of $101,000, or 103%, compared to other income of $98,000 for the comparable period in 2009. The decline in interest yields for fixed income securities resulted in decreased interest income.
 
Provision for Income Taxes.  The provision for income taxes for the three months ended June 30, 2010 was $758,000, which reflects our actual income tax for the period rather than our estimated annual effective tax rate for the 2010, as we could not reliably estimate such rate. Our effective tax rate differs from the U.S. Federal statutory rate primarily due to non-deductible stock-based compensation, operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain other non-deductible expenses.
 
The provision for income taxes for the three months ended June 30, 2009 was $669,000, which reflected our estimated annual effective tax rate for the year. Our effective tax rate differed from the U.S. Federal statutory rate primarily due to operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain non-deductible expenses.
 
Six Months Ended June 30, 2010 and 2009
 
Revenues.  Revenues for the six months ended June 30, 2010 were $46.1 million, an increase of $4.6 million, or 11%, over revenues of $41.5 million for the comparable period in 2009. The increase in revenues was primarily due to the increase in the number of total active subscription customers to 7,173 as of June 30, 2010 from 3,761 as of June 30, 2009. The increase in active subscription customers was the result of our acquisitions and additional sales personnel focused on acquiring new customers and renewing existing customers. We acquired approximately 1,900 active subscription customers from the acquisition of Datapresse. Revenue growth from the increase in active subscription customers was $3.2 million. Total deferred revenue as of June 30, 2010 was $47.3 million, representing an increase of $7.5 million, or 19%, over total deferred revenue of $39.8 million as of June 30, 2009. We acquired approximately $1.8 million of deferred revenue from the acquisition of Datapresse.


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Cost of Revenues.  Cost of revenues for the six months ended June 30, 2010 was $9.2 million, an increase of $1.4 million, or 18%, over cost of revenues of $7.8 million for the comparable period in 2009. The increase in cost of revenues was primarily due to an increase of $354,000 in employee-related costs, $234,000 in third-party license and royalty fees and $187,000 in stock-based compensation. We had 202 full-time employee equivalents in our professional and other support services group at June 30, 2010 compared to 151 full-time employee equivalents at June 30, 2009.
 
Sales and Marketing Expenses.  Sales and marketing expenses for the six months ended June 30, 2010 were $23.9 million, an increase of $4.2 million, or 21%, over sales and marketing expenses of $19.7 million for the comparable period in 2009. The increase was primarily due to an increase of $2.1 million in employee-related costs from additional personnel, $1.1 million in sales commissions and incentive compensation and $1.4 million in marketing program costs primarily to increase awareness and attract customers to our online press release services. We had 303 full-time employee equivalents in sales and marketing at June 30, 2010 compared to 236 full-time employee equivalents at June 30, 2009.
 
Research and Development Expenses.  Research and development expenses for the six months ended June 30, 2010 were $2.7 million, an increase of $360,000, or 16%, over research and development expenses of $2.3 million for the comparable period in 2009. The increase in research and development was primarily due to an increase of $321,000 in stock-based compensation. For the six months ended June 30, 2010, we capitalized $478,000 of employee-related costs for internally developed software. For the six months ended June 30, 2009, we capitalized $91,000 of employee-related costs for internally developed software. We had 40 full-time employee equivalents in research and development at June 30, 2010 compared to 29 full-time employee equivalents at June 30, 2009.
 
General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 2010 were $11.0 million, an increase of $796,000, or 8%, over general and administrative expenses of $10.2 million for the comparable period in 2009. The increase in general and administrative expenses was primarily due to an increase of $333,000 in employee-related costs and $791,000 in professional fees primarily for acquisition related costs. We had 62 full-time employee equivalents in our general and administrative group at June 30, 2010 compared to 46 full-time employee equivalents at June 30, 2009.
 
Amortization of Intangible Assets.  Amortization of intangible assets for the six months ended June 30, 2010 was $1.1 million, an increase of $82,000, or 8%, compared to $980,000 for the comparable period in 2009. The increase in amortization is primarily attributable to the intangible assets related to the acquisitions of businesses in the six months ended June 30, 2010.
 
Other Income (Expense).  Other income for the six months ended June 30, 2010 was $58,000, a decrease of $259,000, or 82%, compared to other income of $317,000 for the comparable period in 2009. The continued decline in interest yields for fixed income securities resulted in decreased interest income.
 
Provision for Income Taxes.  The provision for income taxes for the six months ended June 30, 2010 was $849,000 which reflects our actual income tax for the period rather than our estimated annual effective tax rate for the 2010, as we could not reliably estimate such rate. Our effective tax rate differs from the U.S. Federal statutory rate primarily due to non-deductible stock-based compensation, operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain other non-deductible expenses.
 
The provision for income taxes for the six months ended June 30, 2009 of $1.7 million reflected our estimated annual effective tax rate for the year. Our effective tax rate differed from the U.S. Federal statutory rate primarily due to operating losses in foreign jurisdictions for which no tax benefit is currently available and to a lesser extent, state income taxes and certain non-deductible expenses.
 
 
At June 30, 2010, our principal sources of liquidity were cash and cash equivalents totaling $87.0 million, investments totaling $8.6 million and net accounts receivable of $13.5 million.
 
Net cash provided by operating activities for the six months ended June 30, 2010 was $9.5 million reflecting a net loss of $2.5 million, non-cash charges for depreciation and amortization charges of $1.9 million, stock-based


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compensation expense of $6.3 million and $3.7 million from net decreases in accounts receivable and deferred revenue primarily due to collections from the seasonally high amounts invoiced under our subscription agreements in the fourth quarter of 2009. Net cash provided by operating activities is also impacted by changes in other working capital accounts in the ordinary course of business.
 
Net cash used in investing activities for the six months ended June 30, 2010 was $294,000, which primarily resulted from proceeds received from net maturities of investments of $10.2 million, offset by the acquisitions of businesses of $8.9 million and investments in property, equipment and software of $1.6 million.
 
Net cash used in financing activities for the six months ended June 30, 2010 was $7.7 million, which primarily resulted from our purchase of 564,194 shares of our common stock at an aggregate cost of $8.3 million.
 
We intend to fund our operating expenses and capital expenditures primarily through cash flows from operations. We believe that our current cash, cash equivalents and investments together with our expected cash flows from operations will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for at least the next 12 months.
 
Contractual Obligations, Commercial Commitments and Off-balance Sheet Arrangements
 
As of June 30, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Other than our operating leases for office space and equipment, we do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
 
On March 30, 2010, we signed a twelve year lease for approximately 93,000 square feet of office space in Beltsville, Maryland. We will be relocating our corporate headquarters to the leased premises. The lease term commences on the date on which the landlord delivers the premises to us, which is anticipated to be in the first quarter of 2011. The base annual rent will initially be $15.35 per square foot and will increase on each anniversary by 2.7%. Rental payments will begin on April 1, 2011. There have been no other material changes outside the normal course of business to our contractual obligations and commercial commitments since December 31, 2009.
 
Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our annual report on Form 10-K for the year ended December 31, 2009. Our exposure to interest rate risk has not changed materially since December 31, 2009.
 
 
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and the British pound sterling. As a result, we are exposed to movements in the exchange rates of currencies against the U.S. Dollar. Exchange rate fluctuations have not significantly impacted our results of operations, financial condition and cash flows. Historically, we have not utilized derivative financial instruments to hedge our foreign exchange exposure; however, we may choose to use such contracts in the future.
 
Item 4.   Controls and Procedures
 
 
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act


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of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information required to be disclosed is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
 
There were no changes in our internal controls over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
 
Item 1.   Legal Proceedings
 
We are not currently subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising from our normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actions currently pending against us, we do not expect that any such liability will have a material adverse effect on our financial positions, operating results or cash flows.
 
Item 1A.   Risk Factors
 
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of the risks which may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.
 
Risks Related to Our Business and Industry
 
 
The current economic downturn, which has resulted in declines in corporate spending, decreases in consumer confidence and tightening in the credit markets may adversely affect our financial condition and the financial condition and liquidity of our customers and suppliers. Among other things, these economic and market conditions may result in:
 
  •  reductions in the corporate budgets, including technology spending of our customers and potential customers;
 
  •  declines in demand for our solutions;
 
  •  decreases in collections of our customer receivables;
 
  •  insolvency of our key vendors and suppliers; and
 
  •  volatility in interest rates and decreases in investment income.
 
Any of these events, which are outside of our scope of control, would likely have an adverse effect on our business, financial condition, results of operations and cash flows.


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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:
 
  •  our ability to retain and increase sales to existing customers and attract new customers;
 
  •  changes in the volume and mix of subscriptions sold and press releases distributed in a particular quarter;
 
  •  seasonality of our business cycle, given that our subscription volumes are normally lowest in the first quarter and highest in the fourth quarter;
 
  •  our policy of expensing sales commissions at the time our customers are invoiced for a subscription agreement, while the majority of our revenue is recognized ratably over future periods;
 
  •  the timing and success of new product introductions or upgrades by us or our competitors;
 
  •  changes in our pricing policies or those of our competitors;
 
  •  the amount and timing of expenditures related to expanding our operations;
 
  •  changes in accounting policies or the timing of non-recurring charges;
 
  •  changes in the payment terms for our products and services;
 
  •  changes in foreign currency exchange rates;
 
  •  unforeseen fluctuations in our effective tax rate including changes in the mix of earnings in the various countries in which we operate, the valuation of deferred tax assets and liabilities and the deductibility of certain expenses; and
 
  •  the purchasing and budgeting cycles of our customers.
 
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 report, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance.
 
 
The market for software specifically designed for public relations is relatively new and emerging, making our business and future prospects difficult to evaluate. Many companies have invested substantial personnel and financial resources in their PR departments, and may be reluctant or unwilling to migrate to on-demand software and services specifically designed to address the public relations market. Widespread market acceptance of our solutions is critical to the success of our business. 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 of on-demand public relations management solutions. These challenges, risks and difficulties include the following:
 
  •  generating sufficient revenue to maintain profitability;
 
  •  managing growth in our operations;
 
  •  managing the risks associated with developing new services and modules;
 
  •  attracting and retaining customers; and


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  •  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.
 
 
We derive, and expect to continue to derive for the foreseeable future, principally all of our revenue from providing on-demand solutions. Our success will depend to a substantial extent on the willingness of companies to increase their use of on-demand solutions in general and for on-demand public relations software and services in particular. If businesses do not perceive the benefits of our on- demand solutions, 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.
 
A majority of our on-demand solutions are sold pursuant to subscription agreements, and if our existing subscription customers elect either not to renew these agreements or renew these agreements for fewer modules or users, our business, financial condition and results of operations will be adversely affected.
 
A majority of our on-demand solutions are sold pursuant to annual subscription agreements and our customers have no obligation to renew these agreements. As a result, we may not be able to consistently and accurately predict future renewal rates. Our subscription customers’ renewal rates may decline or fluctuate or our subscription customers may renew for fewer modules or users as a result of a number of factors, including their level of satisfaction with our solutions, budgetary or other concerns, and the availability and pricing of competing products. Additionally, we may lose our subscription customers due to the high turnover rate in the PR departments of small and mid-sized organizations. If large numbers of existing subscription 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 recognize revenue from our subscription customers over the terms of their subscription agreements. The majority of our quarterly revenue usually represents deferred revenue from subscription agreements entered into 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 subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.
 
 
The success of our strategy is dependent, in part, on the success of our efforts to sell additional modules and services to our existing customers and to increase the number of users per subscription customer. These customers might choose not to expand their use of or make additional purchases of our solutions. If we fail to generate additional business from our current customers, our revenue could grow at a slower rate or decrease.
 
 
Our business model continues to evolve, and is therefore subject to additional risk and uncertainty. For example, through our acquisition of PRWeb International, Inc. in August 2006, we began providing online press


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release distribution. We anticipate that our future financial performance and revenue growth will depend, in part, upon the growth of these services. Unlike our historical, subscription-based model, we recognize revenue from our online news distribution services on a per transaction basis when our customers’ press releases are made available to the public. Since our transaction revenue is not derived from subscription agreements, the amount of transaction revenue we recognize in any period could fluctuate significantly from prior periods, which could adversely affect our financial condition and results of operations.
 
 
We rely on search engines to attract new customers, and many of our customers locate our websites by clicking through on search results displayed by search engines such as Google and Yahoo!. Search engines typically provide two types of search results, algorithmic and purchased listings. Algorithmic search results are determined and organized solely by automated criteria set by the search engine and a ranking level cannot be purchased. Advertisers can also pay search engines to place listings more prominently in search results in order to attract users to advertisers’ websites. We rely on both algorithmic and purchased listings to attract customers to our websites. Search engines revise their algorithms from time to time in an attempt to optimize their search result listings. If search engines on which we rely for algorithmic listings modify their algorithms, then our websites may not appear at all or may appear less prominently in search results which could result in fewer customers clicking through to our websites, requiring us to resort to other potentially costly resources to advertise and market our services. If one or more search engines on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, or our revenue could decline and our business may suffer. Additionally, the cost of purchased search listing advertising is rapidly increasing as demand for these channels grows, and further increases could greatly increase our expenses.
 
 
Increasing our customer base and achieving broader market acceptance of our solutions will depend to a significant extent on our ability to expand our sales and marketing operations. We plan to continue to expand our direct sales force and engage additional third-party channel partners, both domestically and internationally. This expansion will require us to invest significant financial and other resources. Our business will be seriously harmed if our efforts do not generate a corresponding significant increase in revenue. We may not achieve anticipated revenue growth from expanding our direct sales force if we are unable to hire and develop talented direct sales personnel, if our new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time or if we are unable to retain our existing direct sales personnel. We also may not achieve anticipated revenue growth from our third-party channel partners if we are unable to attract and retain additional motivated third-party channel partners, if any existing or future third-party channel partners fail to successfully market, resell, implement or support our solutions for their customers, or if they represent multiple providers and devote greater resources to market, resell, implement and support competing products and services.
 
 
We believe that developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. Successful promotion of our brands 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 incurred in building our brands. If we fail to successfully promote and maintain our brands, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, 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.


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If our information databases do not maintain market acceptance, our business, financial condition and results of operations could be adversely affected.
 
We have developed our own content that is included in the information databases that we make available to our customers through our on-demand software. If our internally-developed content does not maintain market acceptance, current subscription customers may not continue to renew their subscription agreements with us, and it may be more difficult for us to acquire new subscription customers.
 
We rely on third-parties to provide certain content for our solutions, and if those third-parties discontinue providing their content, our business, financial condition and results of operations could be adversely affected.
 
We rely on third-parties to provide certain data for our information databases and our news on-demand solutions. These third-parties may not renew agreements to provide content to us or may increase the price they charge for their content. Additionally, the quality of the content provided to us may not be acceptable to us and we may need to enter into agreements with additional third-parties. In the event we are unable to use such third-party content or are unable to enter into agreements with third-parties, current subscription customers may not renew their subscription agreements with us, and it may be difficult to acquire new subscription customers.
 
We depend on search engines for the placement of our customers’ online news distribution, and if those search engines change their listings or our relationship with them deteriorates or terminates, our reputation will be harmed and we may lose customers or be unable to attract new customers.
 
Our online news distribution business depends upon the placement of our customers’ news releases. If search engines on which we rely modify their algorithms or purposefully block our content, then information distributed via our online service may not be displayed or may be displayed less prominently in search results, and as a result we could lose customers or fail to attract new customers and our results of operations could be adversely affected.
 
 
We have incurred operating losses in the past and we may incur operating losses in the future. Our recent operating losses were $821,000 for 2007 and $300,000 for 2008. Although we had operating income in 2009, we expect our operating expenses to increase as we expand our operations, and if our increased operating expenses exceed our revenue growth, we may not be able to maintain operating income. You should not consider recent quarterly revenue growth as indicative of our future performance. In fact, in future quarters, we may not have any revenue growth or our revenue could decline.
 
 
The public relations market is fragmented, competitive and rapidly evolving, and there are limited barriers to entry to some segments of this market. We expect the intensity of competition to increase in the future as existing competitors develop their capabilities and as new companies enter our market. 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 from:
 
  •  PR solution providers offering products specifically designed for PR;
 
  •  generic desktop software and other commercially available software not specifically designed for PR;
 
  •  outsourced PR service providers;
 
  •  custom-developed solutions; and
 
  •  press release distribution providers.


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Many of our current and potential competitors have longer operating histories, a larger presence in the general PR 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 time and financial commitments with our competitors.
 
We also expect that new competitors, such as enterprise software vendors and online service providers that have traditionally focused on enterprise resource planning or back office applications, will enter the on-demand public relations management market with competing products as the on-demand public relations management 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.
 
We expect that the traditional press release distribution providers will offer press release distribution services through the internet. We had or continue to have partnerships with these providers to co-market and sell our press release distribution services. It is possible that these new competitors could rapidly acquire significant market share.
 
 
The market for our on-demand solutions is characterized by changes in customer requirements, changes in protocols and evolving industry standards. If we are unable to enhance or develop new features for our existing solutions or develop acceptable new solutions that keep pace with these changes, our on-demand software and services may become obsolete, less marketable and less competitive and our business will be harmed. The success of any enhancements, new modules and on-demand software and services depends on several factors, including timely completion, introduction and market acceptance of our solutions. Failure to produce acceptable new offerings and enhancements may significantly impair our revenue growth and reputation.
 
 
All of our solutions reside on hardware that we own or lease and operate. Our hardware is currently located in multiple third-party facilities maintained and operated globally. Our third-party facility providers do not guarantee that our customers’ access to our solutions will be uninterrupted, error-free or secure. Our operations depend, in part, on our third-party facility providers’ ability to protect systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. In the event that our third-party facility arrangements are terminated, or there is a lapse of service or damage to such third-party facilities, 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 are located at a third-party facility in Baltimore, Maryland. Our disaster recovery systems 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 third-party facilities. Moreover, our disaster recovery computer hardware and systems are located within the same geographic region as one of our third-party facilities and may be equally or more affected by any disaster affecting such third-party facilities. Any or all of these events could cause our customers to lose access to our on-demand software. In addition, the failure by our third-party facilities to meet our capacity requirements could result in interruptions in such service or impede our ability to scale our operations.
 
We architect the system infrastructure and procure and own or lease the computer hardware used for our 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. Any interruptions or delays in


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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 reduce our revenue, subject us to liability, and 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.
 
 
Prospective customers, especially large enterprise customers, may require heavily customized features and functions unique to their business processes. If prospective customers require customized features or functions that we do not offer, and that would be difficult for them to implement themselves, then the market for our solutions will be more limited and our business could suffer.
 
 
One of our business strategies is to selectively acquire companies which would either expand our solutions’ functionality, provide access to new customers or markets, or both. An acquisition may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the 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 subscription customers obtained through acquisitions than our typical renewal rates. Moreover, we cannot provide assurance 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 the ownership of our stockholders;
 
  •  use cash that we may need in the future to operate our business;
 
  •  incur or assume 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 consequences.
 
In April 2010, we acquired all of the outstanding shares of capital stock of Datapresse and BDL Media and in June 2010, we acquired certain assets and liabilities of HARO.
 
 
The information in our databases 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 our inability to access the Internet, the failure of our network or software systems or failure by our third-party facilities 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


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customers’ data that we cannot rectify in a certain 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 acceptable terms, or at all. In addition, we cannot provide assurance that this policy will cover any claim against us for loss of data or other indirect or consequential damages and defending a suit, regardless of its merit, could be costly and divert management’s attention.
 
 
Our on-demand software may contain undetected errors or defects that may result in product failures or otherwise cause our solutions to fail to perform in accordance with customer expectations. 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’ businesses. If that occurs, we could lose future sales or our existing subscription customers could elect to not renew. Product performance problems could result in loss of market share, failure to achieve market acceptance 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 not be sufficient to cover liabilities resulting from such product liability claims. Also, our insurer may disclaim coverage. Our liability insurance also may not continue to be available to us on reasonable terms, in sufficient amounts, or at all. Any product liability claim successfully brought against us could cause our business to suffer.
 
Our online press release and news distribution is a trusted information source. To the extent we were to distribute an inaccurate or fraudulent press release, our reputation could be harmed, even though we are not responsible for the content distributed via our online new distribution service.
 
 
The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting data privacy, the use of the Internet as a commercial medium and the use of email for marketing or other consumer communications. Some of these laws or regulations were enacted prior to the advent of the Internet and related technologies, therefore, they do not specifically address the unique issues of evolving technologies, and those laws and regulations that were enacted specifically in relation to the Internet and related technologies are being interpreted by the courts so that their applicability and scope are often uncertain.
 
In addition, certain government agencies or private organizations have begun to impose taxes, fees or other charges for accessing the Internet or for sending commercial email. These laws or charges could limit the growth of Internet-related commerce or communications generally, result in a decline in the use of the Internet and the viability of Internet-based services such as ours and reduce the demand for our products.
 
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.


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If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products similar to our products, which could decrease demand for our solutions. 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 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 do not protect our solutions and intellectual property rights to the same extent as do the laws of the United States.
 
To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality 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.
 
 
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. 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. We expect that the number of infringement claims in our market will increase as the number of solutions and competitors in our industry grows. These claims, whether or not successful, could:
 
  •  divert management’s attention;
 
  •  result in costly and time-consuming litigation;
 
  •  require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or
 
  •  require us to redesign our solutions to avoid infringement.
 
As a result, any third-party intellectual property 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.
 
 
Rapid growth in our headcount and operations may place a significant strain on our management, administrative, operational and financial infrastructure. We anticipate that additional growth will be required to address increases in our customer base, as well as expansion into new geographic areas.
 
Our success will depend in part upon the ability of our senior management to manage growth effectively. To do so, we must continue to hire, train and manage new employees as needed. To date, we have not experienced any significant problems as a result of the rapid growth in our headcount, other than occasional office space constraints.


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However, our anticipated future growth may place greater strains on our resources. For instance, if our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees as needed, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. The additional headcount and capital investments we expect to add will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan.
 
 
Our success depends largely upon the continued services of our executive officers. We are also substantially dependent on the continued service of our existing development personnel because of the complexity of our service and technologies. We do not have employment agreements with any of our development personnel that require them to remain our employees nor do the employment agreements we have with our executive officers require them to remain our employees and, therefore, they could terminate their employment with us at any time without penalty. We do not currently maintain key man life insurance on any of our executives, and such insurance, if obtained in the future, may not be sufficient to cover the costs of recruiting and hiring a replacement or the loss of an executive’s services. The loss of one or more of our key employees could seriously harm our business.
 
 
To execute our business strategy, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for senior sales executives and engineers with high levels of experience in designing and developing software. We may not be successful in attracting and retaining qualified personnel. 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 and awards 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.
 
Because we conduct operations in foreign jurisdictions, which accounted for approximately 9% of our 2009 revenues, and because our business strategy includes expanding our international operations, our business is susceptible to risks associated with international operations.
 
Our business strategy is to continue to expand our international operations. Our recently completed acquisitions of Datapresse and BDL Media extended our international presence in Europe and Asia. Conducting operations in foreign jurisdictions subjects us to risks that we have not generally faced in the United States. These include:
 
  •  compliance with a wide variety of complex foreign laws and regulations, including data privacy requirements, content restrictions, labor laws and U.S. laws including the Foreign Corrupt Practices Act;
 
  •  difficulties caused by distance, language and cultural differences in managing and conducting international operations;
 
  •  potentially adverse tax consequences; and
 
  •  fluctuations in currency exchange rates.
 
The occurrence of any one of these risks could negatively affect our international operations and, consequently, our results of operations generally. In addition, the Internet may not be used as widely in international markets in


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which we expand our international operations and, as a result, we may not be successful in offering our solutions internationally.
 
 
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 solutions or enhance our existing solutions, enhance our operating infrastructure and acquire complementary businesses and technologies. Accordingly, we may need to engage in further equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.
 
 
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 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.
 
 
Many new laws, regulations and standards have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices and have created uncertainty for public companies. These new laws, regulations and standards are subject to interpretations due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by varying regulatory bodies. This may cause continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our implementation of these reforms and enhanced new disclosures may result in increased general and administrative expenses and a significant diversion of management’s time and attention from revenue-generating activities. Any unanticipated difficulties in implementing these reforms could result in material delays in complying with these new laws, regulations and standards or significantly increase our operating costs.
 
 
 
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.


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The market price of our common stock could fluctuate significantly as a result of:
 
  •  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;
 
  •  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;
 
  •  changes in laws and regulations affecting our business;
 
  •  material announcements by us or our competitors;
 
  •  sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur;
 
  •  economic conditions including a slowdown in economic growth and uncertainty in equity and credit markets; and
 
  •  general political conditions such as acts of war or terrorism.
 
 
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:
 
  •  establish a classified board of directors so that not all members of our board of directors are elected at one time;
 
  •  provide that directors may only be removed “for cause” and only with the approval of 662/3 percent of our stockholders;
 
  •  require super-majority voting to amend our bylaws or specified provisions in our amended and restated certificate of incorporation;
 
  •  authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;
 
  •  limit the ability of our stockholders to call special meetings of stockholders;
 
  •  prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
 
  •  provide that the board of directors is expressly authorized to adopt, amend, or repeal our bylaws; and
 
  •  establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
 
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company.


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Our directors and officers hold shares of our common stock that they generally are currently able to sell in the public market. We have also registered shares of our common stock that are subject to outstanding stock options, or reserved for issuance under our stock option plan, which shares can generally be freely sold in the public market upon issuance. Moreover, from time to time, our executive officers and directors have established trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, for the purpose of effecting sales of our common stock. Sales of substantial amounts of our common stock in the public market 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.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
Sale of Unregistered Securities
 
None.
 
 
In connection with our initial public offering of our common stock, the SEC declared our Registration Statement on Form S-1 (No. 333-125834), filed under the Securities Act of 1933, effective on December 6, 2005. On December 12, 2005, we closed the sale of 5,000,000 shares of our common stock registered under the Registration Statement. On January 6, 2006, certain selling stockholders sold 750,000 shares of our common stock pursuant to the exercise in full of the underwriters’ over-allotment option. Thomas Weisel Partners LLC, RBC Capital Markets, Wachovia Securities and William Blair & Company served as the managing underwriters.
 
The initial public offering price was $9.00 per share. The aggregate sale price for all of the shares sold by us was $45.0 million, resulting in net proceeds to us of approximately $40.0 million after payment of underwriting discounts and commissions and legal, accounting and other fees incurred in connection with the offering of approximately $5.0 million. The aggregate sales price for all of the shares sold by the selling stockholders was approximately $6.8 million. We did not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.
 
In December 2005, we used approximately $6.8 million from the net proceeds received from our initial public offering to repay certain indebtedness.
 
In August 2006, we used approximately $20.9 million of the offering proceeds for the acquisition of PRWeb International, Inc. In the three months ended June 30, 2010, we used $11.8 million of the offering proceeds for the acquisitions of Datapresse, BDL Media and HARO. We have invested the remainder of the proceeds from the initial public offering in short-term, interest-bearing, investment-grade securities and money market funds. We anticipate that we will use the remaining proceeds to fund working capital and for general corporate purposes, which may include the expansion of our content and service offerings and potential acquisitions of complementary businesses, products and technologies. We cannot specify with certainty all of the particular uses for the proceeds. The amounts we actually spend for these purposes may vary significantly and will depend on a number of factors. Accordingly, our management will retain broad discretion in the allocation of the proceeds.


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The following table sets forth a summary of our purchases of our common stock during the three months ended June 30, 2010, of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended:
 
                                 
                Maximum
            Total Number of
  Dollar Value of
            Shares
  Shares
    Total Number
  Average Price
  Purchased as
  That May Yet be
    of Shares
  Paid per
  Part of Publicly
  Purchased
    Purchased   Share   Announced Plan   Under the Plan
 
April 1 — April 30
                               
Share repurchase program(1)
                       
Employee transactions(2)
                      N/A  
May 1 — May 31
                               
Share repurchase program(1)
                       
Employee transactions(2)
                      N/A  
June 1 — June 30
                               
Share repurchase program(1)
                       
Employee transactions(2)
    200                   N/A  
 
 
(1) All shares were purchased though our publicly announced share repurchase program. On November 25, 2008, our Board of Directors authorized us to purchase up to $30,000,000 shares of our common stock. There is no expiration date specified for the program.
 
(2) All shares were delivered to us by employees to satisfy the minimum statutory tax withholding obligations with respect to the taxable income recognized by these employees upon the vesting of their stock awards.
 
Item 6.   Exhibits
 
         
Exhibit
   
Number
 
Exhibit
 
  3 .1   Fifth Amended and Restated Certificate of Incorporation.(1)
  3 .2   Amended and Restated Bylaws.(1)
  31 .1*   Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
  31 .2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
  32 .1*   Certification of Chairman and 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.
 
 
Filed herewith
 
(1) Incorporated by reference to an exhibit to the Registration Statement on Form S-8 of Vocus, Inc. (Registration No. 333-132206) filed with the Securities and Exchange Commission on March 3, 2006.


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Pursuant to the requirements 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.
 
VOCUS, INC.
 
  By: 
/s/  Richard Rudman
Richard Rudman
Chief Executive Officer,
President and Chairman
 
  By: 
/s/  Stephen Vintz
Stephen Vintz
Chief Financial Officer,
Treasurer and Secretary
 
Date: August 9, 2010


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Exhibit
   
Number
 
Exhibit
 
  3 .1   Fifth Amended and Restated Certificate of Incorporation.(1)
  3 .2   Amended and Restated Bylaws.(1)
  31 .1*   Certification of Chairman and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
  31 .2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Act of 1934, as amended.
  32 .1*   Certification of Chairman and 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.
 
 
Filed herewith
 
(1) Incorporated by reference to an exhibit to the Registration Statement on Form S-8 of Vocus, Inc. (Registration No. 333-132206) filed with the Securities and Exchange Commission on March 3, 2006.

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