Part I.	Financial Information		3
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of December 31, 2005 and June 30, 2006		3
	Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2005 and 2006		4
	Condensed Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 2006		5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2006		6
	Notes to Unaudited Condensed Consolidated Financial Statements		7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.	Controls and Procedures		25
Part II.	Other Information		27
Item 1A.	Risk Factors		27
Item 5.	Other Information		27
Item 6.	Exhibits		27
Signatures			28

 

2

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Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets

(unaudited)

		December 31,  2005			June 30,  2006
ASSETS
Current assets:
Cash and cash equivalents		$	5,096,409		$	1,595,470
Accounts receivable, net			23,250,679			33,867,428
Other current assets			2,416,782			1,752,614
Total current assets			30,763,870			37,215,512
Property and equipment, net			960,136			1,344,497
Goodwill			46,263,346			63,866,917
Intangible assets, net			5,768,479			9,752,610
Other non-current assets			1,179,070			1,026,441
Total assets		$	84,934,901		$	113,205,977
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	3,773,614		$	2,746,630
Note payable and current portion of long-term debt			1,337,514			1,385,242
Other current liabilities			8,330,809			13,469,308
Current portion of note payable to related parties			243,847			—
Total current liabilities			13,685,784			17,601,180
Long-term borrowings, net of current portion			5,338,501			6,633,739
Deferred taxes			—			1,544,411
Total liabilities			19,024,285			25,779,330
Stockholders' equity:
Common stock			23,295			25,010
Additional paid-in capital			115,120,099			132,681,610
Accumulated other comprehensive loss			(87,496	)		(94,347	)
Accumulated deficit			(49,145,282	)		(45,185,626	)
Total stockholders' equity			65,910,616			87,426,647
Total liabilities and stockholders' equity		$	84,934,901		$	113,205,977

See accompanying notes to interim unaudited condensed consolidated financial statements.

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Perficient, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2005			2006			2005			2006
Revenue
Services		$	19,233,997		$	32,751,387		$	36,891,098		$	58,357,730
Software			1,393,302			2,586,688			2,800,158			5,268,740
Reimbursable expenses			1,033,485			2,172,049			1,693,678			3,527,647
Total revenue			21,660,784			37,510,124			41,384,934			67,154,117
Cost of revenue (exclusive of depreciation shown separately below)
Project personnel costs			11,626,782			19,455,802			22,547,278			35,721,392
Software costs			1,198,393			2,137,582			2,377,933			4,425,626
Reimbursable expenses			1,033,485			2,172,049			1,693,678			3,527,647
Other project related expenses			519,010			566,983			762,683			1,014,126
Total cost of revenue			14,377,670			24,332,416			27,381,572			44,688,791
Gross margin			7,283,114			13,177,708			14,003,362			22,465,326
Selling, general and administrative			4,090,638			8,236,838			7,824,821			13,874,786
Depreciation			132,885			215,393			310,221			383,110
Amortization of intangibles			303,763			698,657			580,639			1,123,548
Total operating expense			4,527,286			9,150,888			8,715,681			15,381,444
Income from operations			2,755,828			4,026,820			5,287,681			7,083,882
Interest income			6,256			29,497			7,919			31,093
Interest expense			(121,264	)		(161,910	)		(233,768	)		(246,170	)
Other			9,292			5,557			8,129			64,717
Income before income taxes			2,650,112			3,899,964			5,069,961			6,933,522
Provision for income taxes			1,023,301			1,644,951			1,954,847			2,973,866
Net income		$	1,626,811		$	2,255,013		$	3,115,114		$	3,959,656
Basic net income per share		$	0.08		$	0.09		$	0.15		$	0.17
Diluted net income per share		$	0.07		$	0.08		$	0.13		$	0.15
Shares used in computing basic net income per share			21,529,502			24,418,305			21,345,581			23,977,919
Shares used in computing diluted net income per share			24,794,723			27,227,450			24,799,587			26,705,422

 

See accompanying notes to interim unaudited condensed consolidated financial statements.

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Perficient, Inc.

Condensed Consolidated Statement of Stockholders' Equity

Six Months Ended June 30, 2006

(unaudited)

 

														Accumulated
		Common			Common			Common			Additional			Other						Total
		Stock			Stock			Stock			Paid-in			Comprehensive			Accumulated			Stockholders'
		Shares			Amount			Warrants			Capital			Loss			Deficit			Equity
Balance at December 31, 2005			23,294,509		$	23,295		$	363,357		$	114,756,742		$	(87,496	)	$	(49,145,282	)	$	65,910,616
Warrants exercised			10,000			10			(24,300	)		70,690			—			—			46,400
Stock options exercised			369,296			369			—			646,365			—			—			646,734
Purchases of stock from Employee Stock Purchase Plan			1,713			2			—			18,892						—			18,894
Tax benefit of stock option exercises			—			—			—			894,919			—			—			894,919
Stock compensation			—			—			—			724,070			—			—			724,070
Foreign currency translation adjustment			—			—			—			—			(10,443	)		—			(10,443	)
Net income			—			—			—			—			—			1,704,643			1,704,643
Total comprehensive income																					1,694,200
Balance at March 31, 2006			23,675,518		$	23,676		$	339,057		$	117,111,678		$	(97,939	)	$	(47,440,639	)	$	69,935,833
Bay Street acquisition			464,569			465			—			5,655,577			—			—			5,656,042
Insolexen acquisition			522,944			523			—			7,174,282			—			—			7,174,805
Warrants exercised			84,756			85			(311,040	)		310,956			—			—			1
Stock options exercised			258,324			258			—			971,459			—			—			971,717
Purchases of stock from Employee Stock Purchase Plan			1,230			1			—			14,442			—			—			14,443
Tax benefit of stock option exercises			—			—			—			669,753			—			—			669,753
Stock compensation			—			—			—			745,448			—			—			745,448
Vested stock compensation			2,544			2			—			(2	)		—			—			—
Foreign currency translation adjustment			—			—			—			—			3,592			—			3,592
Net income			—			—			—			—			—			2,255,013			2,255,013
Total comprehensive income			—			—			—			—			—			—			2,258,605
Balance at June 30, 2006			25,009,885		$	25,010		$	28,017		$	132,653,593		$	(94,347	)	$	(45,185,626	)	$	87,426,647

See accompanying notes to interim unaudited condensed consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Six Months Ended June 30,
		2005			2006
OPERATING ACTIVITIES
Net income		$	3,115,114		$	3,959,656
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation			310,221			383,110
Amortization of intangibles			580,639			1,123,548
Non-cash stock compensation			118,312			1,469,518
Non-cash interest expense			14,773			6,153
Tax benefit on stock options			—			232,086
Changes in operating assets and liabilities:
Accounts receivable			(729,463	)		(4,611,850	)
Other assets			(356,783	)		1,715,567
Accounts payable			(5,312,236	)		(1,030,188	)
Other liabilities			(792,841	)		(2,734,866	)
Net cash provided by (used in) operating activities			(3,052,264	)		512,734
INVESTING ACTIVITIES
Purchase of property and equipment			(335,000	)		(697,727	)
Purchase of businesses, net of cash acquired			(4,779,641	)		(7,427,517	)
Payments on Javelin Notes			(250,000	)		(250,000	)
Net cash used in investing activities			(5,364,641	)		(8,375,244	)
FINANCING ACTIVITIES
Proceeds from long-term borrowings			8,000,000			10,000,000
Payments on long-term borrowings			(2,000,000	)		(8,000,000	)
Payments on long-term debt			(500,918	)		(657,034	)
Deferred offering costs			(792,170	)		—
Tax benefit on stock options			850,096			1,332,586
Proceeds from exercise of stock options			902,166			1,618,451
Proceeds from exercise of warrants			107,143			46,401
Proceeds from stock sales under the Employee Stock Purchase Plan			—			33,337
Net cash provided by financing activities			6,566,317			4,373,741
Effect of exchange rate on cash and cash equivalents			(25,361	)		(12,170	)
Change in cash and cash equivalents			(1,875,949	)		(3,500,939	)
Cash and cash equivalents at beginning of period			3,905,460			5,096,409
Cash and cash equivalents at end of period		$	2,029,511		$	1,595,470
Supplemental disclosures:
Interest paid		$	191,548		$	214,982
Cash paid for income taxes		$	869,575		$	1,572,448
Non cash activities:
Stock issued for Purchase of Business		$	4,516,334		$	12,830,847
Change in goodwill		$	661,131		$	576,562

See accompanying notes to interim unaudited condensed consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

 

     The accompanying unaudited interim condensed consolidated financial statements of Perficient, Inc. (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States and are presented in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Accordingly, certain footnote disclosures have been condensed or omitted. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Company's annual report on Form 10-K for the year ended December 31, 2005, as amended. Operating results for the three months and six months ended June 30, 2006 may not be indicative of the results for the full fiscal year ending December 31, 2006. Certain prior year balances have been reclassified to conform to current period presentation.

 

2. Summary of Significant Accounting Policies

 

Stock-Based Compensation

 

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment, (“SFAS No. 123R”). This Statement requires, effective January 1, 2006, that the costs of employee share-based payments be measured at fair value on the awards' grant date and recognized in the financial statements over the requisite service period.

 

Prior to January 1, 2006, the Company accounted for share-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations and elected the disclosure option of SFAS No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure. SFAS No. 123 required that companies either recognize compensation expense for grants of stock, stock options and other equity instruments based on fair value, or provide pro forma disclosure of net income and earnings per share in the notes to the financial statements. Accordingly, the Company measured compensation expense for stock options as the excess, if any, of the estimated fair market value of the Company's stock at the date of grant over the exercise price. The Company has elected to provide pro forma effects of this measurement in a footnote to its financial statements. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective application transition method (see Note 3).

 

Revenue Recognition

 

Revenues are primarily derived from professional services provided on a time and materials basis. For time and material contracts, revenue is recognized and billed by multiplying the number of hours expended in the performance of the contract by the established billing rates. For fixed fee projects, revenue is generally recognized using the proportionate performance method based on the ratio of hours expended to total estimated hours. Provisions for estimated losses on uncompleted contracts are made on a contract-by-contract basis and are recognized in the period in which such losses are determined. Billings in excess of costs plus earnings are classified as deferred revenues. On many projects the Company is also reimbursed for out-of-pocket expenses such as airfare, lodging and meals. These reimbursements are included as a component of revenue in accordance with the Financial Accounting Standards Board's Emerging Issues Task Force (“EITF”) 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred. In accordance with EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, revenue from software sales is recorded on a gross basis based on the Company's role as principal in the transaction. Under EITF 99-19, the Company will be considered a “principal”, if the Company is the primary obligor and bears the associated credit risk in the transaction. In the event the Company does not meet the requirements to be considered a principal in the software sale transaction and acts as an agent, the revenue would be recorded on a net basis.

 

We also recognize revenue in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 101, Revenue Recognition in Financial Statements as revised by SAB 104. Revenue is recognized when the following criteria are met: (1) persuasive evidence of the customer arrangement exists, (2) fees are fixed and determinable, (3) acceptance has occurred, and (4) collectibility is deemed probable. We determine the fair value of each element in the arrangement based on vendor-specific objective evidence (“VSOE”) of fair value. VSOE of fair value is based upon the normal pricing and discounting practices for those products and services when sold separately. We follow very specific and detailed guidelines, discussed above, in determining revenues; however, certain judgments and estimates are made and used to determine revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized for any period if different conditions were to prevail. For example, in determining whether collection is probable, we assess our customers' ability and intent to pay. Our actual experience with respect to collections could differ from our initial assessment if, for instance, unforeseen declines in the overall economy occur and negatively impact our customers' financial condition.

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Revenue from internally developed software which is allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).

 

Revenue allocated to training and consulting service elements is recognized as the services are performed. Our consulting services are not essential to the functionality of our products as such services are available from other vendors.

 

Intangible Assets

 

In a business combination, goodwill represents the excess purchase price over the fair value of net assets acquired, or net liabilities assumed. On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, and no longer amortizes its goodwill. In accordance with SFAS No. 142, the Company performs an annual impairment test of goodwill. The Company evaluates goodwill at the enterprise level as of October 1 each year or more frequently if events or changes in circumstances indicate that goodwill might be impaired. As required by SFAS No.142, the impairment test is accomplished using a two-stepped approach. The first step screens for impairment and, when impairment is indicated, a second step is employed to measure the impairment. The Company also reviews other factors to determine the likelihood of impairment. No impairment was indicated using data as of October 1, 2005, and as of June 30, 2006, there were no events or changes in circumstances which would indicate that goodwill might be impaired.

 

Other intangible assets, including amounts allocated to customer relationships, customer backlog, non-compete arrangements and internally developed software, are being amortized over the assets' estimated useful lives using the straight-line method. Estimated useful lives range from four months to eight years. Amortization of customer relationships, customer backlog, non-compete arrangements and internally developed software are considered operating expenses and are included in “Amortization of intangible assets” in the accompanying condensed consolidated statements of operations. The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a lack of recoverability or revised useful life.

 

Use of Estimates

 

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

 

3. Stock-Based Compensation

 

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

 

Total share-based compensation cost recognized for the three months ended June 30, 2006 and 2005 was approximately $746,000 and $59,000, and the associated current and future income tax benefits recognized for the three months ended June 30, 2006 and 2005 were approximately $187,000 and $23,000. For the six months ended June 30, 2006 and 2005, total share-based compensation cost recognized was approximately $1.5 million and $118,000, and the associated current and future income tax benefits recognized were approximately $329,000 and $46,000. As of June 30, 2006, there was $8.8 million of total unrecognized compensation cost related to non-vested share-based awards. This cost is expected to be recognized over a weighted-average period of 2.5 years.

 

The following table details the effect on net income and earnings per share for the three months and six months ended June 30, 2005 had compensation expense for the stock plans been recorded based on the fair value method under SFAS No. 123.

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		Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net income — as reported		$	1,626,811		$	3,115,114
Total stock-based compensation costs, net of tax, included in the determination of net income as reported			36,322			72,704
The stock-based employee compensation cost, net of tax, that would have been included in the determination of net income if the fair value based method had been applied to all awards			(576,780	)		(1,055,067	)
Pro forma net income available to common stockholders		$	1,086,353		$	2,132,751
Earnings per share:
Basic — as reported		$	0.08		$	0.15
Basic — pro forma		$	0.05		$	0.10
Diluted — as reported		$	0.07		$	0.13
Diluted — pro forma		$	0.05		$	0.09

   

Equity Incentive Plans

The Company did not grant any stock option awards during the six months ended June 30, 2006. The fair value of options granted during the six months ended June 30, 2005 was calculated at the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions: risk free interest rate of 3.61%; dividend yield of 0%; weighted-average expected life of options of 5 years; and a volatility factor of 1.384.

 

Stock option activity for the six months ended June 30, 2006 was as follows:

  

		Shares			Range of Exercise Prices			Weighted-Average Exercise Price
Options outstanding at January 1, 2006			5,268,310			$0.02 - $ 16.94		$	3.53
Options granted			—			—			—
Options exercised			(627,620	)		$0.03 - $ 11.25		$	2.58
Options canceled			(19,983	)		$1.01 - $ 7.48		$	6.68
Options outstanding at June 30, 2006			4,620,707			$0.02 - $ 16.94		$	3.64
Options vested at June 30, 2006			3,026,440			$0.02 - $ 16.94		$	3.09

Restricted stock activity for the six months ended June 30, 2006 was as follows:

  

		Shares			Weighted-Average Grant Date Fair Value
Restricted stock awards outstanding at January 1, 2006			613,627		$	7.69
Awards granted			9,500		$	10.18
Awards released			(2,544	)	$	6.83
Awards canceled			(12,546	)	$	8.01
Restricted stock awards outstanding at June 30, 2006			608,037		$	7.72

 

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4. Warrants

 

The following table summarizes information regarding warrants outstanding and exercisable as of June 30, 2006:

Warrants Outstanding and Exercisable
Exercise Price		Warrants
$1.98			59,075
$1.98			59,075

 

5. Net Income Per Share

      The following table presents the calculation of basic and diluted net income per share:

		Three months ending June 30,						Six months ending June 30,
		2005			2006			2005			2006
Net income		$	1,626,811		$	2,255,013		$	3,115,114		$	3,959,656
Basic:
Weighted-average shares of common stock outstanding			20,279,460			23,168,263			20,223,632			22,727,877
Weighted-average shares of common stock outstanding subject to contingency (i.e. restricted stock)			1,250,042			1,250,042			1,121,949			1,250,042
Shares used in computing basic net income per share			21,529,502			24,418,305			21,345,581			23,977,919
Effect of dilutive securities:
Stock options			3,125,957			2,533,096			3,305,617			2,501,638
Warrants			139,264			117,468			148,389			121,278
Restricted stock subject to vesting			—			188,049			—			161,815
Tax benefit shares from stock option exercises			—			(29,468	)		—			(57,228	)
Shares used in computing diluted net income per share			24,794,723			27,227,450			24,799,587			26,705,422
Basic net income per share		$	0.08		$	0.09		$	0.15		$	0.17
Diluted net income per share		$	0.07		$	0.08		$	0.13		$	0.15

6. Commitments and Contingencies

 

   The Company leases its office facilities and certain equipment under various operating lease agreements. The Company has the option to extend the term of certain of its office facilities leases. Future minimum commitments under these lease agreements are as follows:

   

		Operating Leases
2006 remaining		$	639,445
2007			1,221,555
2008			1,033,668
2009			935,272
2010			691,651
Thereafter			392,273
Total minimum lease payments		$	4,913,864

The Company is required to maintain a letter of credit for $200,000 with Silicon Valley Bank to serve as collateral for an office space lease. This letter of credit with Silicon Valley Bank reduces the borrowings available under the Company's line of credit with Silicon Valley Bank. This letter of credit will remain in effect through October 2009.

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7. Balance Sheet Components

 

     The components of accounts receivable are as follows:

 

		December 31, 2005			June 30, 2006
Accounts receivable		$	17,013,131		$	21,594,472
Unbilled revenue			6,580,786			12,487,768
Allowance for doubtful accounts			(343,238	)		(214,812	)
Total		$	23,250,679		$	33,867,428

     The components of other current assets are as follows:

 

		December 31, 2005			June 30, 2006
Income tax receivable		$	1,367,246		$	—
Other current assets			1,049,536			1,752,614
Total		$	2,416,782		$	1,752,614

The components of other current liabilities are as follows:

		December 31,			June 30,
		2005			2006
Accrued bonuses		$	3,524,847		$	5,306,040
Accrued subcontractor fees			1,841,955			1,834,567
Deferred revenue			1,084,129			1,053,445
Other payroll liabilities			502,983			655,194
Sales and use taxes			149,442			160,040
Accrued income taxes			25,265			586,048
Accrued acquisition costs			—			1,563,117
Other accrued expenses			1,202,188			2,310,857
Total		$	8,330,809		$	13,469,308

 

     Property and equipment consist of the following:

		December 31, 2005			June 30, 2006
Computer Hardware & Software		$	3,181,823		$	4,227,320
Furniture & Fixtures			781,265			473,714
Leasehold Improvements			149,892			185,687
Gross Property & Equipment			4,112,980			4,886,721
Less: Accumulated Depreciation			(3,152,844	)		(3,542,224	)
Total		$	960,136		$	1,344,497

 

8. Comprehensive Income

 

The components of comprehensive income are as follows:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2005			2006			2005			2006
Net income		$	1,626,811		$	2,255,013		$	3,115,114		$	3,959,656
Foreign currency translation adjustments			(8,735	)		3,592			(29,535	)		(6,851	)
Total comprehensive net income		$	1,618,076		$	2,258,605		$	3,085,579		$	3,952,805

 

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9. Business Combinations

 

Acquisition of iPath Solutions, Ltd.

 

On June 10, 2005, the Company consummated the acquisition of iPath Solutions, Ltd. (“iPath”), a privately held technology consulting company, for total purchase consideration of approximately $9.9 million, representing a net purchase price of approximately $8.2 million net of tangible assets and liabilities acquired. This total purchase consideration consists of $3.9 million in cash, $900,000  of liabilities repaid on behalf of iPath, transaction costs of approximately $600,000, and 623,803 shares of the Company's common stock valued at approximately $7.24 per share (approximately $4.5 million worth of Company's common stock). The total purchase price consideration of $9.9 million, including transaction costs of $600,000, has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such allocation resulted in goodwill of approximately $7.3 million. Goodwill is assigned at the enterprise level and is expected to be deductible for tax purposes. The purchase price was allocated to intangibles based on management's estimate and an independent appraisal. The results of the iPath operations have been included in the Company's consolidated financial statements since June 10, 2005.

The preliminary purchase price allocation is as follows (in millions):

Intangibles:
Customer relationships		$	0.7
Customer backlog			0.2
Non-compete agreements			0.1
Goodwill			7.3
Tangible assets and liabilities acquired:
Accounts receivable			1.6
Property and equipment			0.1
Accrued expenses			(0.1	)
Net assets acquired		$	9.9

The Company believes that the intangible assets acquired have useful lives of six months to five years.

 

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Acquisition of Vivare, Inc.

 

 On September 2, 2005, the Company consummated the acquisition of Vivare, LP (“Vivare”), a privately held technology consulting company, for total purchase consideration of approximately $9.8 million, representing a net purchase price of approximately $8.0 million net of tangible net assets acquired. This total purchase consideration consists of $4.95 million in cash, transaction costs of approximately $500,000, and 618,500 shares of the Company's common stock valued at approximately $7.03 per share (approximately $4.4 million worth of Company's common stock). The total purchase price consideration of $9.8 million, including transaction costs of $500,000, has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such allocation resulted in goodwill of approximately $6.8 million. Goodwill is assigned at the enterprise level and is expected to be deductible for tax purposes. The purchase price was allocated to intangibles based on management's estimate and an independent appraisal. Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of Vivare operations have been included in the Company's consolidated financial statements since September 2, 2005.

 

The preliminary purchase price allocation is as follows (in millions):

 

Intangibles:
Customer relationships		$	1.0
Customer backlog			0.1
Non-compete agreements			0.1
Goodwill			6.8
Tangible assets acquired:
Accounts receivable			1.7
Property and equipment			0.1
Net assets acquired		$	9.8

The Company believes that the intangible assets acquired have useful lives of nine months to six years.

 

Acquisition of Bay Street Solutions, Inc.

 

On April 7, 2006, the Company consummated the acquisition of Bay Street Solutions, Inc. (“Bay Street”), a national customer relationship management consulting firm, for total consideration of approximately $10.4 million.  The total purchase consideration consisted of approximately $4.1 million in cash, transaction costs of approximately $600,000, and 464,569 shares of the Company’s common stock valued at approximately $12.18 per share (approximately $5.7 million worth of the Company's common stock).  The total purchase price consideration of $10.4 million, including transaction costs of $600,000, has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such allocation resulted in goodwill of approximately $6.2 million. Goodwill is assigned at the enterprise level and is expected to be deductible for tax purposes. The purchase price was allocated to intangibles based on management's estimate and an independent appraisal. Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of the Bay Street’s operations have been included in the Company's interim consolidated financial statements since April 7, 2006.

 

The preliminary purchase price allocation is as follows (in millions):

 

Intangibles:
Customer relationships		$	1.6
Customer backlog			0.2
Non-compete agreements			0.1
Goodwill			6.2
Tangible assets acquired:
Accounts receivable			2.4
Other assets			0.7
Property and equipment			0.1
Accrued expenses			(0.9	)
Net assets acquired		$	10.4

The Company believes that the intangible assets acquired have useful lives of four months to six years.

 

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Acquisition of Insolexen, Corp.

On May 31, 2006, the Company consummated the acquisition of Insolexen, Corp. (“Insolexen”), a business integration consulting firm, for total consideration of approximately $15.7 million. The total purchase consideration consisted of approximately $7.8 million in cash, transaction costs of approximately $700,000, and 522,944 shares of the Company’s common stock valued at approximately $13.72 per share (approximately $7.2 million worth of the Company's common stock). The total purchase price consideration of $15.7 million, including transaction costs of $700,000, has been allocated to the assets acquired, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Such allocation resulted in goodwill of approximately $10.8 million. Goodwill is assigned at the enterprise level and is expected to be deductible for tax purposes. The purchase price was allocated to intangibles based on management's estimate and an independent appraisal. Management expects to finalize the purchase price allocation within twelve months of the acquisition date as certain initial accounting estimates are resolved. The results of Insolexen’s operations have been included in the Company's interim consolidated financial statements since May 31, 2006.

The preliminary purchase price allocation is as follows (in millions):

Intangibles:
Customer relationships		$	2.8
Customer backlog			0.4
Non-compete agreements			0.1
Goodwill			10.8
Tangible assets and liabilities acquired:
Accounts receivable			4.0
Other assets			2.1
Accrued expenses			(4.5	)
Net assets acquired		$	15.7

The Company believes that the intangible assets acquired have useful lives of seven months to six years.

 

Pro-forma Results of Operations

 

The following presents the unaudited pro-forma combined results of operations of the Company with Insolexen, Bay Street, iPath and Vivare for the three months and six months ended June 30, 2005 and 2006, after giving effect to certain pro forma adjustments related to the amortization of acquired intangible assets. These unaudited pro-forma results are not necessarily indicative of the actual consolidated results of operations had the acquisitions actually occurred on January 1, 2005 and January 1, 2006 or of future results of operations of the consolidated entities:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2005			2006			2005			2006
Revenues		$	31,258,331		$	40,639,767		$	60,054,312		$	77,404,239
Net Income			2,330,082			1,827,609			4,238,053			950,643
Basic Income per Share			0.10			0.07			0.18			0.04
Diluted Income per Share			0.09			0.07			0.16			0.03

 

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10. Intangible Assets

 

     Intangible Assets with Indefinite Lives

 

          The changes in the carrying amount of Goodwill for the six months ended June 30, 2006 are as follows:

 

Balance at December 31, 2005		$	46.3 million
Bay Street Acquisition			6.2 million
Insolexen Acquisition			10.8 million
Adjustment to Goodwill related to deferred taxes associated with acquisitions			0.6 million
Balance at June 30, 2006		$	63.9 million

 

     Intangible Assets with Definite Lives

     Following is a summary of Company's intangible assets (in thousands) that are subject to amortization:

		December 31, 2005									June 30, 2006
		Gross Carrying Amounts			Accumulated Amortization			Net Carrying Amounts			Gross Carrying Amounts			Accumulated Amortization			Net Carrying Amounts
Customer relationships		$	4,820		$	(1,122	)	$	3,698		$	9,170		$	(1,685	)	$	7,485
Non-compete			2,073			(621	)		1,452			2,153			(841	)		1,312
Customer backlog			130			(57	)		73			620			(196	)		424
Internally developed software			599			(54	)		545			676			(144	)		532
Total		$	7,622		$	(1,854	)	$	5,768		$	12,619		$	(2,866	)	$	9,753

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

 

Customer relationships	5 - 8 years
Non-compete agreements	3 - 5 years
Customer backlog	4 months to 1 year
Internally developed software	5 years

 

11. Line of Credit and Long Term Debt

 

On June 29, 2006, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank and KeyBank National Association. The amended agreement increased the total size of the Company's senior bank credit facilities from $28.5 million to $52 million by increasing the accounts receivable line of credit from $15 million to $25 million and increasing the acquisition term line of credit from $13.5 million to $27 million.

 

The accounts receivable line of credit, which expires in June 2009, provides for a borrowing capacity equal to all eligible accounts receivable, including 80% of unbilled revenue, subject to certain borrowing base calculations as defined in the agreement, but in no event more than $25 million. Borrowings under this line of credit bear interest at the bank's prime rate (8.25% at June 30, 2006). As of June 30, 2006, there was $6 million outstanding under the accounts receivable line of credit and approximately $19 million of available borrowing capacity, excluding approximately $200,000 reserved for an outstanding letter of credit to secure a facility lease.  

 

The Company's $27 million term acquisition line of credit provides an additional source of financing for certain qualified acquisitions. As of June 30, 2006 the balance outstanding under this acquisition line of credit was approximately $2.0 million. Borrowings after June 29, 2006 under this acquisition line of credit bear interest equal to the four year U.S. Treasury note yield plus 3% based on the spot rate on the day the draw is processed (8.088% at June 30, 2006). Borrowings after June 29, 2006 under this acquisition line are repayable in thirty-six equal monthly installments after the initial interest only period which continues through June 29, 2007. Draws under this acquisition line may be made through June 29, 2008. The initial $2.5 million draw, of which $1.1 million remains outstanding, bears interest of 7.1% at June 30, 2006 and the subsequent $1.5 million draw, of which $900,000 remains outstanding, bears interest of 6.9% at June 30, 2006. Both of these initial draws before June 29, 2006 under the acquisition line are repayable in thirty-six equal monthly installments, after the first three months which require payment of accrued interest only, beginning October 21, 2004 and April 20, 2005, respectively. The Company currently has $25 million of available borrowing capacity under this acquisition line of credit.

 

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The Company is required to comply with various financial covenants under the $52 million credit facility. Specifically, the Company is required to maintain a ratio of after tax earnings before interest, depreciation and amortization, and other non-cash charges, including but not limited to stock and stock option compensation expense on trailing three months annualized, to current maturities of long-term debt and capital leases plus interest of at least 1.50 to 1.00, a ratio of cash plus eligible accounts receivable including 80% of unbilled revenue less principal amount of all outstanding advances on accounts receivable line of credit to advances under the term acquisition line of credit of at least 0.75 to 1.00, and a maximum ratio of all outstanding advances under the entire credit facility to earnings before taxes, interest, depreciation, amortization and other non-cash charges, including but not limited to, stock and stock option compensation expense including pro forma adjustments for acquisitions on a trailing twelve month basis of no more than 2.50 to 1.00. As of June 30, 2006, the Company was in compliance with all covenants under this facility. This credit facility is secured by substantially all assets of the Company.

 

Notes payable to related party at December 31, 2005 consisted of non interest-bearing notes issued to the shareholders of Javelin Solutions, Inc. (“Javelin”) in April 2002 in connection with the Company's acquisition of Javelin. The notes provided for payments totaling $1,500,000, of which none remained outstanding on June 30, 2006. The Company made payments totaling $62,500 in January 2004, $312,500 in April 2004, $250,000 in April 2005, and $250,000 in April 2006. For financial reporting purposes, an imputed interest rate of 7.5% was used to compute the net present value of the note payments. These notes were subordinate to the Company's senior credit facility.

 

12.  Recent Accounting Pronouncements

 

In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, treatment of interest and penalties, and disclosure of such positions. FIN 48 will be applied prospectively and will be effective for fiscal years beginning after December 31, 2006. The Company is currently evaluating the effect, if any, of FIN 48 on the Company's condensed consolidated financial statements.

In June 2006, the Emerging Issues Task Force ("EITF") ratified EITF Issue 06-3, How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation). A consensus was reached that entities may adopt a policy of presenting taxes in the income statement on either a gross or net basis. An entity should disclose its policy of presenting taxes and the amount of any taxes presented on a gross basis should be disclosed, if significant. The guidance is effective for periods beginning after December 15, 2006. We present revenues net of taxes. EITF 06-3 will not impact the method for recording these sales taxes in our condensed consolidated financial statements.

In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections -- a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS 154”). SFAS 154 replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 requires restatement of prior period financial statements, unless impracticable, for changes in accounting principle. The retroactive application of a change in accounting principle should be limited to the direct effect of the change. Changes in depreciation, amortization or depletion methods should be accounted for as a change in accounting estimate. Corrections of accounting errors will be accounted for under the guidance contained in APB Opinion No. 20. The effective date of this new pronouncement is for fiscal years beginning after December 15, 2005 and prospective application is required. The adoption of SFAS 154 on January 1, 2006, did not have a material impact on our consolidated financial statements.

 

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R using the modified prospective application transition method (see Note 3).

13. Subsequent Event

On July 21, 2006, the Company consummated the acquisition of the Energy, Government and General Business division of Digital Consulting & Software Services, Inc (“EGG”).  The Company paid approximately $12.9 million consisting of approximately $6.4 million in cash and $6.5 million worth of the Company's common stock, subject to certain post-closing adjustments.  The shares of common stock issued in connection with the merger were ascribed a value of $12.71 per share, which was the average closing price of our common stock for the 30 consecutive trading days immediately preceding the acquisition close per the terms of acquisition agreement.  GAAP accounting will require using the closing price of the Company's common stock at or near the close date in reporting the value of the stock consideration paid in the acquisition. The Company issued 511,382 shares of its common stock in connection with the acquisition.

 

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We have a $52 million credit facility with Silicon Valley Bank and KeyBank National Association comprising a $25 million accounts receivable line of credit and a $27 million acquisition term line of credit. Borrowings under the accounts receivable line of credit bear interest at the bank's prime rate, or 8.25%, as of June 30, 2006. As of June 30, 2006, there was $6 million outstanding under the accounts receivable line of credit and approximately $19 million of available borrowing capacity, excluding approximately $200,000 reserved for an outstanding letter of credit to secure a facility lease. Our interest expense will fluctuate as the interest rate for this accounts receivable line of credit floats based on the bank's prime rate. Based on the $6 million outstanding under the accounts receivable line of credit as of June 30, 2006, an increase in the interest rate of 100 basis points would add approximately $60,000 of interest expense per year, which is not considered material to our financial position or results of operations.

We had unrestricted cash and cash equivalents totaling $1.6 million and $5.1 million at June 30, 2006 and December 31, 2005, respectively. These amounts were invested primarily in money market funds. The unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer of the Company, as appropriate, to allow timely decisions regarding required disclosure. The Company's management, with the participation of the Company's principal executive officer and principal financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this Report on Form 10-Q. As described in our Management's Annual Report on Internal Control Over Financial Reporting in our Annual Report on Form 10-K, the Company identified significant deficiencies related to inadequate staffing levels which aggregated to a material weakness in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) which continued to exist through June 30, 2006. The Company's Chief Executive Officer and Chief Financial Officer have therefore concluded that as a result of the material weakness, as of June 30, 2006, the Company's disclosure controls and procedures were not effective.

 

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Changes in Internal Control Over Financial Reporting

 

As reported in our Annual Report on Form 10-K, as of December 31, 2005, certain significant deficiencies were identified, principally caused by inadequate staffing levels, as described below:

 

	·	Lack of segregation of duties, with certain accounting personnel being assigned inappropriate access to the automated general ledger system, such as in our procure to pay and order to cash processes;
	·	The design of our internal control structure emphasized significant reliance on manual detect controls, primarily performed by a single individual, and limited reliance on application and prevent controls;
	·	Lack of detail review of key financial spreadsheets, including spreadsheets supporting journal entries affecting revenue such as unbilled revenue and deferred revenue.

 

In our assessment, we determined that the aggregation of the significant deficiencies described above constitutes a material weakness as of December 31, 2005 which results in a more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 

During 2005, the Company implemented significant new internal information technology systems and applications including a new general ledger system and a new time and expense reporting system which can be utilized to deliver more automated information technology application controls and reduce the reliance on financial accounting personnel and the need for segregation of duties. In addition, given our significant growth, we understand that our financial accounting group must expand and that we must automate many of our information technology application controls in order to meet the internal control requirements of our rapidly growing organization. By hiring more financial accounting personnel and by leveraging the capabilities of our new internal information systems and accounting systems to automate controls, we believe will remedy the material weakness described in Management's Report on Internal Control Over Financial Reporting in our Annual Report on Form 10-K. While we have begun remediation procedures including recruiting the additional personnel needed and planning additional automation of internal controls through leveraging our existing information technology systems, all of these changes are not in effect as of June 30, 2006, and therefore, we are reporting that a material weakness in internal control continues to exist as of June 30, 2006.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

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Item 1A. Risk Factors

 

In evaluating all forward-looking statements, you should specifically consider various risk factors that may cause actual results to vary from those contained in the forward-looking statements. Our risk factors are included in our Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the U.S. Securities and Exchange Commission on June 30, 2006 and available at www.sec.gov. There have been no material changes to these risk factors since the filing of our Form 10-K.

 

Item 5. Other Information

 

On August 3, 2006, we entered into a new three-year employment agreement with Jeffrey Davis, President and Chief Operating Officer, to be effective as of July 1, 2006, which will expire June 30, 2009. Mr. Davis’s new employment agreement provides for the following compensation.

 

·

an annual salary of $250,000;

 

·

an annual performance bonus of up to 200% of Mr. Davis’s annual salary in the event we achieve certain performance targets approved by our Chief Executive Officer;

 

·

death benefits in the form of a lump-sum payment equal to one year’s annual salary and maximum target bonus;

 

·

disability benefits equal to one year’s annual salary and maximum target bonus to be paid over a twelve month period;

 

·

severance benefits in the form of a lump-sum payment equal to one year’s annual salary and maximum target bonus, option and restricted stock acceleration, and welfare benefits if Mr. Davis is terminated without cause or voluntarily resigns within 30 days after the appointment of a new Chief Executive Officer;

 

·

immediate vesting of 50% of all unvested stock option grants and restricted stock grants previously awarded to Mr. Davis upon the occurrence of a change in control; and

 

·

severance benefits as specified above if Mr. Davis’s employment is terminated without cause at any time following a change in control.

 

Mr. Davis has agreed to refrain from competing with us for a period of five years following the termination of his employment.

 

Item 6. Exhibits

 

The exhibits filed as part of this Report on Form 10-Q are listed in the Exhibit Index immediately preceding the exhibits.

 

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SIGNATURES

     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.

	PERFICIENT, INC.
Dated: August 8, 2006		/s/ John T. McDonald
		John T. McDonald, Chief Executive Officer (Principal Executive Officer)

Dated: August 8, 2006		/s/ Michael D. Hill
		Michael D. Hill, Chief Financial Officer (Principal Financial and Accounting Officer)

 

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EXHIBITS INDEX

 

Exhibit
Number		Description
2.1		Agreement and Plan of Merger, dated as of April 6, 2006, by and among Perficient, Inc., PFT MergeCo, Inc., Bay Street Solutions, Inc. and the other signatories thereto, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on April 12, 2006 and incorporated herein by reference
2.2		Agreement and Plan of Merger, dated as of May 31, 2006, by and among Perficient, Inc., PFT MergeCo II, Inc., Insolexen, Corp., HSU Investors, LLC, Hari Madamalla, Steve Haglund and Uday Yallapragada, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on June 5, 2006 and incorporated herein by reference
2.3		Asset Purchase Agreement, dated as of July 20, 2006, by and among Perficient, Inc., Perficient DCSS, Inc. and Digital Consulting & Software Services, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and incorporated herein by reference
3.1		Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference
3.2		Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Form 8-A filed with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 on February 15, 2005 and incorporated herein by reference
3.3		Certificate of Amendment to Certificate of Incorporation of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on form S-8 (File No. 333-130624) filed on December 22, 2005 and incorporated herein by reference
3.4		Bylaws of Perficient, Inc., previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference
4.1		Specimen Certificate for shares of common stock, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference
4.2		Warrant granted to Gilford Securities Incorporated, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form SB-2 (File No. 333-78337) declared effective on July 28, 1999 by the Securities and Exchange Commission and incorporated herein by reference
4.3		Form of Common Stock Purchase Warrant, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on January 17, 2002 and incorporated herein by reference
4.4		Form of Common Stock Purchase Warrant, previously filed with the Securities and Exchange Commission as an Exhibit to our Registration Statement on Form S-3 (File No. 333-117216) filed on July 8, 2004 and incorporated herein by reference
10.1		Amendment to Amended and Restated Loan and Security Agreement, dated as of June 29, 2006, by and among Silicon Valley Bank, KeyBank National Association, Perficient, Inc., Perficient Genisys, Inc., Perficient Canada Corp,. Perficient Meritage, Inc., Perficient Zettaworks, Inc., Perficient iPath, Inc., Perficient Vivare, Inc., Perficient Bay Street, LLC and Perficient Insolexen, LLC, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 5, 2006 and incorporated herein by reference

 

 

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10.2		Offer Letter, dated July 20, 2006, by and between Perficient, Inc. and Mr. Paul E. Martin, previously filed with the Securities and Exchange Commission as an Exhibit to our Current Report on Form 8-K filed on July 26, 2006 and incorporated herein by reference
10.3*†		Employment Agreement between Perficient, Inc. and Jeffrey Davis dated August 3, 2006, and effective as of July 1, 2006
31.1*		Certification by the Chief Executive Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification by the Chief Financial Officer of Perficient, Inc. as required by Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification by the Chief Executive Officer and Chief Financial Officer of Perficient, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

*		Filed herewith.
**		Included but not to be considered “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section.
†		Identifies an exhibit that consists of or includes a management contract or compensatory plan or arrangement.

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