As filed with the Securities and Exchange Commission on June 29, 2010

Registration No. 333-164568

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT No. 2 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

GLASSHOUSE TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

7373

04-3561337

(State or Other Jurisdiction of Incorporation or Organization)

(Primary Standard Industrial Classification Code Number)

(I.R.S. Employer

Identification Number)

200 Crossing Boulevard

Framingham, Massachusetts 01702

(508) 879-5729

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

Mark A. Shirman

Chairman of the Board of Directors, President and Chief Executive Officer

200 Crossing Boulevard

Framingham, Massachusetts 01702

(508) 879-5729

(Name, address, including zip code and telephone number, including area code, of agent for service)

Copies to:

Marc F. Dupré

Gunderson Dettmer Stough

Villeneuve Franklin & Hachigian, LLP

850 Winter Street

Waltham, Massachusetts 02451

Telephone: (781) 890-8800

Telecopy: (781) 622-1622

Keith F. Higgins

Ropes & Gray LLP

One International Place

Boston, Massachusetts 02110

Telephone: (617) 951-7000

Telecopy: (617) 951-7050

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether 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.


Larger accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x	(Do not check if a smaller reporting company)	Smaller reporting company ¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated June 29, 2010.

LOGO

Common Stock

This is an initial public offering of shares of common stock of GlassHouse Technologies, Inc. All of the shares of common stock are being sold by the company.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We have been cleared to apply to have our common stock listed on the New York Stock Exchange under the symbol “GLAS.”

Please see the section titled “Risk Factors” beginning on page 11 to read about factors you should consider before buying shares of the common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount	$	$
Proceeds, before expenses, to GlassHouse	$	$

To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from GlassHouse at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on , 2010.


Goldman, Sachs & Co.		Credit Suisse

Thomas Weisel Partners LLC	William Blair & Company	Oppenheimer & Co.

Prospectus dated , 2010.

TABLE OF CONTENTS

Prospectus


		Page
Prospectus Summary		1
The Offering		7
Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data		9
Risk Factors		11
Special Note Regarding Forward-Looking Statements		29
Industry and Market Data		30
Use of Proceeds		31
Dividend Policy		32
Capitalization		33
Dilution		35
Selected Consolidated Financial Data		37
Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
Business		75
Management		91
Transactions with Related Persons, Promoters and Certain Control Persons		118
Principal Stockholders		123
Description of Capital Stock		126
Shares Eligible for Future Sale		130
Underwriting		133
Legal Matters		137
Experts		137
Where You Can Find More Information		138
Index to Financial Statements		F-1

Through and including , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This obligation is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

PROSPECTUS SUMMARY

This summary highlights the most important features of this offering and the information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under the heading “Risk Factors” and our consolidated financial statements and related notes included in this prospectus.

Summary

We are a leading, global provider of data center consulting, technology integration and managed services. Our vendor independent services are focused predominantly on helping our clients address inefficiencies in their data center environment, thereby reducing costs, minimizing risk and improving control and visibility in their data centers. We deliver information technology (IT) services through Transom, our unique business model consisting of software tools, methodologies and subject matter expertise, each developed over the course of thousands of client engagements. Transom allows us to standardize our global offerings into high quality services that can be delivered in a consistent manner to our clients.

Our Services

We offer our clients three categories of data center services across six primary areas of their IT infrastructure. A data center is the physical environment that houses IT infrastructure, which typically consists of storage, server and networking hardware and software that supports business functions, such as accounting and payroll, marketing and sales, and customer service. Our strategic infrastructure services and infrastructure optimization services comprise our consulting and integration services offerings. Infrastructure operations services are our managed services offerings.

Strategic Infrastructure Services

Infrastructure Optimization Services

Infrastructure Operations Services

Our infrastructure operations services provide clients visibility into their IT infrastructure through reporting and monitoring services, as well as on-site operations management.

We provide three types of infrastructure operations services:

Optics: These services are delivered through a suite of monitoring and reporting tools offered in a software-as-a-service delivery model. Optics is available for storage, backup, database, virtual servers and parts of the IT security environment.

Managed Services: These services provide operational management of a client’s storage, backup, database, virtual server environments and parts of the IT security environment. Governed by a set of service level agreements, we assume all operational responsibilities on behalf of our clients for day-to-day tasks for these areas of IT infrastructure.

Customer Support Services: These services include global remote technical support, field service, logistics and distribution on a 24 hours per day, seven days per week, 365 days per year basis, and global product implementation for original equipment manufacturers.

Market Overview

The markets in which we provide our data center consulting, technology integration and managed services are large and growing.

Data Center Migrations/Consolidations: According to Bloor Research, the data center migration/consolidation market is expected to grow at a 9.9% compound annual growth rate (CAGR), from $6.1 billion in 2009 to $8.1 billion by 2012. Migrations and consolidations involve the creation of a new architecture for IT hardware and software, relocation of data and the hardware that holds it, technology upgrades and changes to IT management processes. We believe that the continued spending on data center migrations/consolidations will result in increased demand for our services as we help clients plan and execute these projects.

Cloud Computing/IT Services Management: According to Gartner Inc. (Gartner), cloud infrastructure services are expected to grow at a 32.5% CAGR from $2.6 billion in 2008 to $10.6 billion by 2013. Cloud computing is Internet-based computing in which hardware, software and information are provided to the customer as an on-demand service. Cloud infrastructure is the servers, network security and storage that enable cloud computing solutions. IT services management provides clients with tools and processes to improve visibility in their IT environment and prepare to move to a cloud-based infrastructure. We believe that the expected growth in cloud services reflects a shift in business computing that will result in clients utilizing our consulting services as they seek to adopt this new technology.

Virtual Environments: The virtualization services market combines server virtualization infrastructure, server virtualization management and the hosted virtual desktop markets. According to Gartner, this market is expected to grow at a 33.6% CAGR from $1.9 billion in 2008 to $8.1 billion by 2013. Virtualization is the creation of a virtual (rather than actual) version of something, such as an operating system, a server, a storage device or network resources, resulting in higher utilization of actual physical hardware. We believe that this growth in the overall virtualization market will result in increased spending for our services as clients seek external expertise and support as they migrate to virtualized data center environments.

Data Storage/Backup & Recovery: According to Gartner, the data storage services market, which includes consulting and managed services as well as data storage capacity services for backup and recovery operations, is expected to grow at a 3% CAGR from $15.7 billion in 2008 to $17.9 billion by 2013. Although we do not currently provide data storage capacity as part of our service offerings, we believe the growth in the overall data storage services market will lead to increased demand for our consulting, integration and managed services offerings.

IT Security: The IT security services market was valued at $20.1 billion in 2007, based on services revenue, and is expected to increase at a CAGR of 17% to reach $44.1 billion by 2012

according to IDC. We believe that this growth will result in increased demand for our IT security services, as we help clients plan and execute projects to improve their IT security.

Disaster Recovery: The disaster recovery market crosses several domains, including storage, backup, virtualization and security. According to Gartner, 56% of worldwide organizations include disaster recovery in their security budgets.

Drivers of Demand for Our Services

The convergence of new technologies and increased demands on IT infrastructure is creating significant, inter-related challenges for IT executives, including:

Optimizing IT Infrastructure and Deploying New Technologies: To improve efficiency and agility, as well as to manage costs, IT executives are looking to optimize their existing assets and integrate new technologies. We believe these initiatives have inherent challenges and are leading enterprises to augment their internal IT teams with third-party consulting and managed services to ensure best practices are implemented and service levels are met.

Minimizing Costs Within Constrained IT Budgets: Business and technology leaders are expected to address an increasing scope and complexity of IT challenges with fewer resources and usually under rigorous time constraints. These budgetary and time constraints are complex and interrelated, and we believe that IT executives will seek third-party assistance to reduce operational expenses and understand asset utilization and total cost of ownership, in an effort to justify current spending and potential investments.

Managing Risk Efficiently and Cost Effectively: IT executives must address both external and internal threats in order to manage risk. External threats include catastrophic weather events and terrorist attacks that are beyond an IT executive’s control, but still must be addressed through contingency plans. External threats also include computer and network viruses and hackers. Internal risks are associated with complex, multi-vendor IT environments. As new and emerging technologies are introduced into the data center, there is an increasing risk of integration error. Assets may be improperly configured or staff members may not know how to manage the new technology, which could result in enterprises facing interruptions in daily business operations or the loss of data critical to business functions.

Responding to Market Dynamics and Emerging Trends: Data center infrastructure is in a constant state of change as recently evidenced by the ongoing adoption of virtualization technologies. In order to remain competitive on a cost and time-to-market basis, IT executives must ensure that they are adapting to new paradigms of efficiency, speed and application delivery. We believe that IT executives recognize that their in-house teams are more focused on managing day-to-day operations and will therefore turn to third-party consulting firms to help identify and incorporate new and emerging technologies.

Benefits of Our Services

We believe our services provide compelling benefits to our clients, including:

access to leading-edge data center infrastructure strategies and practices;

demonstrable return on investment;

minimized project execution risk;

decreased risk of data loss; and

enhanced visibility into the IT environment.

Our Growth Strategy

Our objective is to enhance our industry position, while continuing to grow our revenues and profitability. Our strategy to achieve these objectives includes the following elements:

Deepen and Expand Relationships with Our Current Client Base: We have historically generated a significant amount of our revenues from new projects with existing clients. Because many of our clients are in the early stages of evolving their IT infrastructures, we expect to continue to sell services to these clients as their needs grow and evolve.

Engage with New Clients: We participate in industry events and direct marketing activities to drive broad awareness of our services to prospective clients. In 2009, we established an inside sales function in the United States and the United Kingdom to pursue and develop these prospects into new clients. Our direct sales team also pursues a target prospect list of Fortune 2500 companies to establish new client relationships.

Leverage Indirect Sales Channels: Our indirect sales channel relationships, which are new channels derived from existing strategic relationships, provide us with access to additional enterprise clients to whom we can ultimately cross-sell a broad range of consulting, technology integration and managed services. This cross-selling may lead to the creation of new service offerings. We plan to continue expanding our indirect sales channels relationships.

Broaden Our Managed Services Offerings: We provide a wide range of managed services to remotely monitor, report, analyze and actively manage our clients’ IT infrastructure environments. We intend to expand our managed services offerings to provide additional services within our current domain areas.

Acquire Complementary Businesses and Technology: We believe that in many cases, the best approach to meeting client demand and adding new skills and services to our service offerings is to acquire resources and expertise that specifically address emerging issues. We evaluate all potential acquisitions using our Transom business model as a filter. We assess potential acquisition targets for software tools, methodologies and domain expertise with the potential to be complementary to our business.

Clients

We have developed relationships with Fortune 1000 companies, including approximately half of the Fortune 100 companies, as well as smaller organizations. We market and provide our services primarily to companies in North America, Europe and the Middle East. We believe that our regular, direct interaction with our clients, the breadth of our client relationships and our reputation among these clients as an independent advisor differentiate us from our competitors.

For the three months ended March 31, 2009 and 2010, we had no direct client that represented 10% or more of our total revenues. For the three months ended March 31, 2009, one of our indirect channel relationships accounted for 14% of our total revenues. For the three months ended March 31, 2010, none of our indirect channel relationships accounted for 10% or more of our total revenues.

As of March 31, 2010, we had 533 employees, including approximately 47 direct sales people. Our sales effort is further bolstered by our strategic relationships with technology companies such as Dell Products L.P. (Dell), International Business Machines Corp. (IBM), Cisco Systems, Inc. (Cisco), Unisys Corporation (Unisys), Bull SAS (Bull) and Hewlett-Packard Company (HP).

Our revenues consist of services and product revenues. Our focus is on growing services revenues. Our services revenues have grown from $35.2 million in 2006 to $87.5 million in 2009, reflecting a total compounded annual growth rate of 35%, including acquisitions. Our services revenues have decreased from $22.1 million for the three months ended March 31, 2009 to $21.3 million for the three months ended March 31, 2010. For 2007, 2008, 2009 and for the three months ended March 31, 2009 and 2010 we had net losses to common stockholders of $(18.2) million, $(28.1) million, $(12.8) million, $(3.7) million and $(10.2) million. At March 31, 2010, we had an accumulated deficit of $125.1 million.

Recent Developments

We have entered into a non-binding letter of intent to acquire an IT services company based in the Netherlands that specializes in virtual desktop technologies. The terms of the letter of intent include an initial purchase price of approximately $10.2 million in cash and approximately 1.6 million shares of our common stock. In addition, the sellers may over time earn additional consideration of up to $2 million, payable in cash, based on achievement by the acquired business of agreed upon revenue goals. The target company’s unaudited 2009 financial information, as reported by the target company, included revenue of approximately €12.8 million with a net loss of approximately €560,000, each as calculated in accordance with Dutch generally accepted accounting principles. We have not yet completed our due diligence nor entered into any definitive acquisition agreements and therefore cannot be sure if the acquisition will be completed or, if completed, whether the final terms will be as described in the letter of intent.

On June 28, 2010, we entered into a note purchase agreement (the Note Agreement) with entities affiliated with our existing investors Sigma Partners, GrandBanks Capital, Greenspring Associates, Inc. and Kodiak Venture Partners (the Investors). Under the terms of the Note Agreement we issued unsecured convertible promissory notes (the Notes) for $3.0 million and we may issue an additional $5.0 million during the period commencing October 1, 2010 and ending October 31, 2010. The Notes we issued bear and any additional Notes issued will bear interest at a fixed rate of 8.00% and are and will be junior to our existing secured indebtedness and junior to our convertible promissory note with Dell. We may not prepay the Notes and the Investors may demand repayment of all outstanding principal and accrued interest on any issued Notes under certain circumstances, including

the occurrence of the offering contemplated in this prospectus. At any time prior to the offering contemplated by this prospectus, the Investors may elect to convert all outstanding principal and accrued interest on any issued Notes into shares of our Series F Preferred Stock. In connection with entering into the Note Agreement, we issued warrants to purchase up to 900,000 shares of our common stock at an exercise price of $3.00 per share. In addition, in the event any additional Notes are issued, we will issue additional warrants to each Investor purchasing a Note in amounts equal to 10% of the principal amount of the Note purchased by any such Investor divided by $3.00. The warrants issued and any additional warrants to be issued have or will have a term of three years and net exercise provisions.

Risks That We Face

You should carefully consider the risks described under the section titled “Risk Factors” and elsewhere in this prospectus. These risks could materially and adversely impact our business, financial condition, operating results and cash flow, which could cause the trading price of our common stock to decline and could result in a partial or total loss of your investment.

Our Corporate Information

We were incorporated in Delaware in 2001. Our principal executive offices are located at 200 Crossing Boulevard, Framingham, Massachusetts 01702 and our telephone number is (508) 879-5729. Our Web site address is www.glasshouse.com. The information on, or that can be accessed through, our Web site is not part of this prospectus.

Transom^SM is our service mark.

THE OFFERING

Total common stock offered by us

Option to purchase additional shares offered to underwriters by us

Total common stock to be outstanding after this offering

Use of proceeds

We expect to use the net proceeds of this offering for working capital, repayment of our outstanding loan from Dell Products L.P. and general corporate purposes, and we intend to use a portion of the net proceeds to repay, from time to time, acquisition-related loans. Please see the section titled “Use of Proceeds.”

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our common stock.

Proposed New York Stock Exchange symbol

GLAS

The number of shares of our common stock to be outstanding after the offering is based on 66,535,140 shares of common stock issued and outstanding as of March 31, 2010, including the assumed conversion of 50,536,588 shares of preferred stock issued and outstanding on March 31, 2010 into 50,536,588 shares of common stock in connection with the closing of this offering. Except where stated otherwise herein, the number of shares of common stock to be outstanding after this offering does not take into account:

11,074,141 shares of our common stock issuable upon exercise of options outstanding as of March 31, 2010 at a weighted average exercise price of $0.94 per share;

1,325,509 shares of our common stock reserved as of March 31, 2010 for future issuance under our stock-based compensation plans;

5,547,875 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $2.44 per share;

698,186 unvested restricted shares of our common stock issued in conjunction with our acquisitions;

shares of our common stock issuable to Dell upon the exercise by Dell of a warrant to purchase shares of our common stock or preferred stock which is exercisable in connection with a qualifying financing or sale of our company and which expires upon the consummation of a qualified public offering;

shares of our common stock representing 5% of our fully diluted common stock issuable to Dell upon exercise of an option to purchase such shares as early as ten months after a qualified public offering;

up to 1,565,108 shares of common stock issuable upon the assumed closing of the acquisition of the IT services company based in the Netherlands. See the section titled “Summary—Recent Developments”; and

shares issuable upon conversion of the unsecured promissory notes issued on June 28, 2010 and warrants issued or issuable in connection therewith.

Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Warrants and Other Equity Rights Issued in Conjunction with Borrowings” for more information regarding the convertible note, option and warrant issued to Dell.

Unless otherwise indicated, the information we present in this prospectus assumes and reflects the following:

the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon the closing of this offering;

the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws to be effective upon the closing of this offering;

no exercise by the underwriters of their option to purchase additional shares; and

a 1-for- reverse split of our common stock to be effected prior to this offering.

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA

CONSOLIDATED FINANCIAL AND OTHER DATA

The tables below summarize our consolidated financial data. The following summary financial data should be read together with our consolidated financial statements and related notes, “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.


	Year Ended December 31,									Three Months Ended March 31,
	2007			2008			2009			2009			2010
										(unaudited)
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	61,241		$	85,058		$	89,545		$	22,156		$	22,941
Cost of revenues		45,140			65,346			63,934			16,470			18,865

Gross profit		16,101			19,712			25,611			5,686			4,076
Research and development expenses		146			1,050			667			132			257
Selling and marketing expenses		15,313			19,056			15,299			3,437			4,984
General and administrative expenses		9,421			15,419			9,951			2,226			3,584
Amortization of intangible assets		2,260			2,771			2,535			602			733

Loss from operations		(11,039	)		(18,584	)		(2,841	)		(711	)		(5,482	)
Interest and other income (expense), net		(3,298	)		(4,481	)		(4,473	)		(1,852	)		(3,408	)

Loss before income taxes		(14,337	)		(23,065	)		(7,314	)		(2,563	)		(8,890	)
Provision for (benefit from) income taxes		(485	)		240			78			(228	)		(12	)

Net loss		(13,852	)		(23,305	)		(7,392	)		(2,335	)		(8,878	)

Dividends and accretion on preferred stock		(4,310	)		(4,821	)		(5,360	)		(1,321	)		(1,315	)

Net loss to common stockholders	$	(18,162	)	$	(28,126	)	$	(12,752	)	$	(3,656	)	$	(10,193	)

Net loss per share, basic and diluted	$	(1.79	)	$	(2.13	)	$	(0.95	)	$	(0.28	)	$	(0.63	)

Other unaudited financial data: EBITDA(1)	$	(7,043	)	$	(16,395	)	$	1,580		$	(308	)	$	(5,108	)


	As of March 31, 2010
	Actual			Pro Forma As Adjusted(2)
	Unaudited
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	7,469
Total assets		87,928
Total long term debt, including current portion		40,201
Redeemable convertible preferred stock warrant liability		4,224
Total redeemable convertible preferred stock		95,808
Total stockholders’ deficit		(104,756	)

(1) EBITDA represents net loss before deductions for interest expense, income taxes, depreciation and amortization of tangible and intangible assets, and adjustments for non-cash changes in fair value of warrant liability. EBITDA is a supplemental financial measure, which is not based on United States generally accepted accounting principles (GAAP), used by management and industry analysts to evaluate operations.

(2) The Unaudited Pro Forma As Adjusted column in the balance sheet data table above reflects the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 50,536,588 shares of common stock upon completion of this offering and our sale of shares of common stock in this offering, at an assumed initial public offering price of $ per share (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

The following is a reconciliation of net loss to EBITDA (in thousands, unaudited):


	Year Ended December 31,									Three Months Ended March 31,
	2007			2008			2009			2009			2010
EBITDA Calculation:
Net loss	$	(13,852	)	$	(23,305	)	$	(7,392	)	$	(2,335	)	$	(8,878	)
Depreciation		698			495			669			141			198
Interest expense		2,124			4,693			5,509			1,258			2,686
Warrant revaluation		2,107			(1,607	)		(102	)		190			65
Taxes		(485	)		240			78			(228	)		(12	)
Amortization of intangible assets (including amounts in cost of revenues)		2,365			3,089			2,818			666			833

EBITDA	$	(7,043	)	$	(16,395	)	$	1,580		$	(308	)	$	(5,108	)

In addition to providing financial measurements based on GAAP, we present additional historical financial metrics that are not prepared in accordance with GAAP (non-GAAP). We believe that the inclusion of this non-GAAP financial measure, together with our GAAP financial measures, helps investors to gain a meaningful understanding of our past performance and future results. This approach is consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses this non-GAAP measure, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. This non-GAAP measure is also used by management in its financial, operational and strategic decision-making and in developing incentive compensation plans.

We consider EBITDA to be an important indicator of our operational strength and performance of our core business and a valuable measure of our historical operating trends.

There are limitations associated with reliance on EBITDA because it is specific to our operations and financial performance, which makes comparisons with other companies’ financial results imprecise. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to acquire businesses and expand operations. EBITDA also excludes depreciation, amortization expenses and gains and losses on non-cash changes in fair value of warrant liability. The exclusion of these items, in light of their recurring nature, is a material limitation of EBITDA. To manage these limitations, we have policies and procedures in place to identify expenses that qualify as interest, taxes, depreciation and amortization to approve and segregate these expenses from other expenses to ensure that our EBITDA is consistently reflected from period to period.

EBITDA excludes some items that affect net loss and may vary among companies. The EBITDA we present may not be comparable to similarly titled measures of other companies. EBITDA does not give effect to the cash that we must use to service our debt or pay income taxes and thus does not reflect the funds generated from operations or actually available for capital investments. By providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies while also gaining a better understanding of our operating performance as evaluated by management.

RISK FACTORS

Investing in our common stock involves a high degree of risk. Before investing in our common stock, you should carefully consider each of the following risk factors and all of the other information set forth in this prospectus (including our financial statements and the related notes appearing at the end of this prospectus). If any of the events contemplated by the following discussion of risks should occur, our business, financial condition, results of operations and future prospects would likely be materially and adversely affected. As a result, the market price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Industry

We have a history of losses and we may not achieve or sustain profitability in the future.

We have not yet achieved profitability for any fiscal year. We had a net loss to common shareholders of $10.2 million for the three months ended March 31, 2010 and as of March 31, 2010 our accumulated deficit was $125.1 million. We expect to continue to incur losses, and we may not become profitable in the foreseeable future, if ever. We expect to make significant expenditures to further develop our business. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will have to generate and sustain increased revenues to achieve profitability. Our revenue growth trends in prior periods may not be sustainable, and we may not generate sufficient revenues to achieve or maintain profitability. We may incur significant losses in the future for a number of reasons, including those discussed in other risk factors and factors that we cannot foresee.

We operate in a rapidly evolving industry, which makes our future operating results difficult to predict.

Since the founding of our company in May 2001, we have operated in an industry characterized by rapid technological innovation, changing client needs, evolving industry standards and frequent introductions of new products and services. Our success depends on our ability to implement data center consulting, technology integration and managed services that anticipate and respond to rapid and continuing changes in technology, industry developments and client needs. As we encounter new client requirements and increasing competitive pressures, we will likely be required to modify, enhance, reposition or introduce new solutions and service offerings. We may not be successful in doing so in a timely, cost-effective and appropriately responsive manner, or at all. All of these factors make it difficult to predict our future operating results, which may impair our ability to manage our business and our investors’ ability to assess our prospects.

We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. If our revenues or operating results fall below the expectations of investors or securities analysts, or below any guidance we may provide to the market, the price of our common stock could decline substantially.

In addition to other risk factors listed in this “Risk Factors” section, factors that may affect our quarterly operating results include:

fluctuations in demand for our data center consulting, technology integration and managed services;

fluctuations in sales cycles and prices for our services and solutions;

reductions in clients’ budgets for information technology (IT) purchases and delays in their purchasing cycles;

the timing of recognizing revenues in any given quarter as a result of revenue recognition rules;

our ability to develop, introduce and provide new services and solutions that meet client requirements in a timely manner;

our ability to hire additional technical and sales personnel and the length of time required for any such additional personnel to generate significant revenues;

any significant changes in the competitive dynamics of our markets, including new entrants or substantial discounting of services or solutions;

our ability to control costs, including our operating expenses; and

general economic conditions in our domestic and international markets.

The amount of our outstanding debt may prevent us from taking actions we would otherwise consider in our best interest.

We had approximately $49.4 million in outstanding principal, accrued interest and final balloon payments under existing debt obligations as of March 31, 2010. Of this amount, approximately $30.2 million represented convertible debt. In addition, on June 28, 2010, we entered into a note purchase agreement under which we may issue up to $8.0 million of unsecured convertible promissory notes. Dell Products L.P. (Dell) has indicated that it intends to allow us to repay approximately $30.2 million of convertible debt outstanding under a promissory note with Dell (the Dell Note) in connection with this offering, in which case it will not be converting any of such debt. In the event any convertible debt is converted into shares of our common stock following this offering, the holders of shares of our common stock, including investors purchasing shares of our common stock in this offering, will incur immediate and substantial dilution as of the date of the debt conversion.

Debt that remains outstanding following this offering and the limitations contained in the loan agreements governing the terms of such debt (the Loan Agreements) could have material consequences on our business, including:

it may be difficult to generate sufficient capital to satisfy our obligations under the Loan Agreements;

the amounts outstanding under the Loan Agreements may make it more difficult to obtain other debt financing in the future;

the debt obligations represented by the Loan Agreements could make us more vulnerable to general adverse economic and industry conditions; and

we could be at a competitive disadvantage to competitors with less debt.

Our failure to promptly satisfy our obligations under the Loan Agreements may limit our ability to implement our business plan which may have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity. In the event that we cannot satisfy our obligations under the Loan Agreements, we would be forced to drastically curtail operations, dispose of assets or cease operations altogether. Further, if we are unable to come to an agreement with Dell allowing us to repay the Dell Note, we will be obligated under the terms of the Dell Note to repay principal and interest of approximately $32.5 million by March 6, 2011 regardless of whether the offering contemplated by this prospectus is completed. In addition, under the terms of the note purchase agreement entered into on June 28, 2010, up to $8.0 million will be payable on January 31, 2011. Please

see the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Warrants and Other Equity Rights Issued in Conjunction with Borrowings” and “Prospectus Summary—Recent Developments” for more information regarding our outstanding debt and equity rights granted to our lenders in connection with the incurrence of such debt.

Our business could be materially and adversely affected as a result of the risks associated with our acquisitions.

As part of our business strategy, we have acquired and will continue seeking to acquire businesses that provide us with additional intellectual property, client relationships, geographic coverage and domain expertise. We can provide no assurances that we will be able to find and identify desirable acquisition targets in the future or that we will be successful in entering into a definitive agreement with any one target. In addition, even if we reach a definitive agreement with a target with respect to an acquisition, there can be no assurance that we will consummate such acquisition.

Our acquisitions have been and will be accompanied by risks commonly encountered in the acquisition of a business, which include, among other risks:

the effect of the acquisition on our financial and strategic position and reputation;

the failure of an acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, cost savings, operating efficiencies and other synergies;

the difficulty and cost of integrating the acquired businesses, including costs and delays in implementing common systems and procedures, costs and delays caused by communication difficulties and costs and delays caused by integration of target company financials;

the assumption of liabilities of the acquired business, including litigation-related liabilities;

the potential impairment of acquired assets, including goodwill;

the reduction of our cash available for operations and other uses, the increase in amortization expenses related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt;

the lack of experience in new markets, products or technologies or the initial dependence on unfamiliar distribution partners;

the diversion of our management’s attention from other business concerns;

the impairment of relationships with clients or suppliers of the acquired business or our existing clients;

the potential loss of key employees of the acquired company; and

the potential incompatibility of business cultures.

If one or more of the above risks is realized, our business, results of operations or financial condition could be materially adversely affected. To the extent that we issue shares of our common stock or other rights to purchase our common stock or other equity securities in connection with any future acquisition, existing shareholders may experience dilution and our earnings per share may decrease.

In addition to the risks commonly encountered in the acquisition of a business, we may also experience risks relating to the challenges and costs of closing an acquisition transaction. These risks may be exacerbated as a result of managing multiple acquisitions at the same time.

We rely on indirect sales channels to refer clients to us and disruptions to, or our failure to establish new and maintain existing relationships with companies in, our indirect sales channels would harm our business.

Our future success is dependent upon establishing and maintaining successful relationships in our indirect sales channels, which are new channels derived from our existing strategic relationships. A significant portion of our revenues is generated by sales through our indirect sales channels and we expect indirect sales to continue to make up a significant portion of our total revenues in the future. For the three months ended March 31, 2010, approximately 27% of our revenues were generated by sales through our indirect sales channels. Accordingly, our revenues depend in large part on the referral and effective sales and lead generation activities of these indirect sales channels.

Establishing and maintaining our indirect sales channels and providing training in our service offerings and solutions to companies in our indirect sales channels requires significant time and resources. In order to develop and expand our indirect sales channels, we must continue to scale and improve our processes and procedures that support these channels, including investment in systems and training. Those processes and procedures may become increasingly complex and difficult to manage as we grow our organization. Our indirect sales channels contracts do not typically prohibit the offering of products or services that compete with ours. Our competitors may provide incentives to companies in our indirect sales channels that favor our competitors’ services and solutions or that prevent or reduce sales of our services and solutions. Companies in our indirect sales channels may choose not to offer our services and solutions exclusively or at all. Establishing relationships with companies in our indirect sales channels that have a history of selling our competitors’ services and solutions may also prove to be difficult. In addition, some companies in our indirect sales channels are also competitors. Our failure to establish and maintain successful relationships within our indirect sales channels would seriously harm our business and operating results.

We depend on a limited number of clients for a substantial portion of our revenues in any fiscal period and the loss of, or a significant shortfall in demand from, these clients could significantly harm our results of operations.

During any given fiscal period, a relatively small number of clients typically accounts for a significant percentage of our revenues. For example, for the three months ended March 31, 2010, revenues generated by sales to our top 20 clients accounted for approximately 44% of our total revenues and sales to one company in our indirect sales channels accounted for approximately 6% of our total revenues. In the past, the clients that comprised our top 20 clients have continually changed and we also have experienced significant fluctuations in individual clients’ usage of our services. In addition, our operating costs are relatively fixed in the near term. As a consequence, we may not be able to adjust our expenses in the short term to address the unanticipated loss of a large client during any particular period. As such, we may experience significant, unanticipated fluctuations in our operating results which may cause us to not meet our expectations or those of stock market analysts, which could cause our stock price to decline.

Our clients have unexpectedly terminated and in the future could unexpectedly terminate their contracts for our services.

Some of our client contracts have been, and in the future could be, cancelled by the client with limited advance notice and without significant monetary penalty. In the three months ended March 31, 2010, we had 2 customers cancel contracts before the term of the contract had expired, representing approximately $23,000 of future revenues. In 2009 and 2008, we had twelve and nine customers, respectively, cancel contracts before the term of the contracts had expired representing approximately

$314,000 and $2.7 million, respectively, of future revenues. A client’s unexpected termination of a contract for our services could result in a loss of expected revenues and additional expenses for staff that were allocated to that client’s project. We could be required to maintain underutilized employees who were assigned to the terminated contract, thereby reducing the overall utilization rate of our professionals. The unexpected cancellation or significant reduction in the scope of any of our large projects, or client termination of one or more recurring revenues contracts, could have a material adverse effect on our overall profitability, business, financial condition and results of operations.

Our financial results would suffer if the market for IT services and solutions does not continue to grow.

Our services and solutions are designed to address the growing markets for (i) data center consulting (including migrations, consolidations and disaster recovery), (ii) technology integration services (including storage and data protection services and the implementation of virtualization solutions) and (iii) managed services (including operational support and client support). These markets are still evolving. A reduction in the demand for our services and solutions could be caused by, among other things, lack of client acceptance, weakening economic conditions, competing technologies and services or reductions in corporate spending. Our future financial results would suffer if the market for our IT services and solutions does not continue to grow.

Our financial results may be adversely impacted if we are unable to maintain favorable pricing and utilization rates and control our costs.

Our profitability is primarily based on three factors:

the prices for our services;

the utilization rate of our IT professionals; and

our costs.

Our gross profit margin, and therefore our profitability, is dependent on the rates we are able to recover for our services. If we are not able to maintain favorable pricing for our services, our gross profit margin and profitability may suffer. The rates we are able to recover for our services are affected by a number of factors, including:

our clients’ perceptions of our ability to add value through our services and solutions;

our competitors’ pricing policies;

our ability to estimate accurately, attain and sustain contract revenues, margins and cash flows over increasingly long contract periods;

the use by our competitors and our clients of offshore resources to provide lower-cost services;

the necessity of using subcontractors to the extent we are unable to hire service professionals when, and as needed, and at commercially reasonable rates; and

general economic conditions, including the level of corporate spending for our services.

If we are not able to maintain an appropriate utilization rate for our professionals, our profit margin and profitability may suffer. Our utilization rates are affected by a number of factors, including:

our ability to transition professionals from completed projects to new assignments and to hire and assimilate new employees;

our ability to forecast demand for our services and thereby maintain an appropriate level of headcount in each of our geographies and workforces;

our ability to manage attrition; and

our need to devote time and resources to training, professional development and other non-chargeable activities.

We expect our costs to increase as a public company, based in part on an increase in legal, accounting and other expenses that we have not incurred as a private company. In addition, we expect our costs to increase as we expand our sales and marketing activities. These increased costs, considered independently or in the context of any failure to maintain our pricing and utilization rates with respect to the services we provide, could have a material adverse effect on our overall profitability, business, financial condition and results of operations.

We may lose money if we do not accurately estimate costs of fixed-price engagements.

Most of our projects are based on fixed-price, fixed-time contracts, rather than contracts in which payment to us is determined on a time and materials basis. Our pricing on these projects is highly dependent on our internal forecasts and predictions about the projects and the marketplace, which might be based on limited data and could be inaccurate. There is a risk that we will underprice our contracts or fail to estimate accurately the costs of performing the work. Our failure to estimate accurately the resources and schedule required for a project, or our failure to complete our contractual obligations in a manner consistent with the project plan upon which our fixed-price, fixed-time contract was based, could make these projects less profitable or unprofitable and could have a material adverse effect on our overall profitability, business, financial condition and results of operations. We are increasingly entering into contracts for large projects that magnify this risk.

If we are unable to further penetrate our existing markets, our business prospects may be limited.

We expect that our future success will depend, in part, upon our ability to further penetrate the existing markets for data center consulting, technology integration and managed services. To date, we have penetrated these markets in varying degrees. Part of our strategy for expanding our share of each market involves “cross-selling” our services in one market to our existing clients and partners in a different market. Our sales strategies may not be effective in further penetrating our existing markets and such failure could limit our business prospects and results of operations.

Our international sales and operations subject us to additional risks that may adversely affect our operating results.

For the three months ended March 31, 2009 and 2010, approximately 53% and 64% of our revenues were generated by our subsidiaries located outside the United States. We have facilities and sales personnel located in the United Kingdom (U.K.), Switzerland, Israel and Turkey. We expect to continue to add personnel in additional countries. Our international operations subject us to a variety of risks, including:

the difficulty of managing and staffing international offices and the increased travel, infrastructure and legal compliance costs associated with multiple international locations;

the management of our relationships with channel partners outside the United States, whose sales and lead generation activities are very important to our international operations;

difficulties in enforcing contracts and longer payment cycles, especially in emerging markets;

tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets;

increased exposure to foreign currency exchange rate risk;

reduced protection for intellectual property rights in some countries; and

political and economic instability.

As we continue to expand our business internationally, our success will depend, in part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Our failure to manage any of these risks successfully could harm our international operations, reduce our international sales and negatively impact our results of operations.

If we are unable to manage our growth effectively, our revenues and profits could be adversely affected.

We have expanded our operations significantly over the past several years, increasing our total number of employees from approximately 217 at March 31, 2007 to 533 at March 31, 2010, and acquiring eleven companies in diverse geographic areas over that same time period. In addition, we have entered into a non-binding letter of intent to acquire an IT services company based in the Netherlands. We anticipate that further significant increases in employee headcount and geographic expansion will be required as we continue to grow our business. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Sustaining our growth will place significant demands on our management as well as on our administrative, operational and financial resources. For us to continue to manage our growth, we must continue to improve our operational, financial and management information systems and expand, motivate and manage our workforce as well as successfully integrate our acquisitions. If we are unable to manage our growth successfully without compromising our quality of service and our profit margins, or if new systems that we implement to assist in managing our growth do not produce the expected benefits, our revenues and profits could be adversely affected. Risks that we face in undertaking future expansion include:

training new personnel to become productive and generate revenues;

controlling expenses and investments in anticipation of expanded operations;

implementing and enhancing our administrative infrastructure, systems and processes;

addressing new markets; and

expanding international operations.

A failure to manage our growth effectively could materially adversely affect our ability to market and sell our services and solutions.

We may not be able to respond to rapid technological changes with new solutions and service offerings, which could have a material adverse effect on our sales and profitability.

The markets for our services and solutions are characterized by rapid technological changes, evolving client needs, frequent new service, software and product introductions and changing industry standards. The introduction of services and solutions by competitors embodying new technologies and the emergence of new industry standards could make our existing and future services and solutions obsolete and unmarketable. As a result, we may not be able to accurately predict the lifecycle of our services and solutions, and our offerings may become obsolete before we receive the amount of

revenues that we anticipate from them. If any of the foregoing events occurs, our ability to retain or increase our position in the relevant markets could be adversely affected.

To be successful, we need to develop and introduce new services and solutions on a timely and cost-effective basis that keep pace with technological developments and emerging industry standards and address the increasingly sophisticated needs of our clients. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of services and solutions that respond to technological changes or evolving industry standards, or fail to develop services and solutions that adequately meet the requirements of the marketplace or achieve market acceptance. Our failure to develop and market such services and solutions on a timely basis, or at all, could have a material adverse effect on our sales and profitability.

We partner with third parties on certain complex engagements in which our performance depends upon, and may be adversely impacted by, the performance of such third parties.

Our partners frequently engage us to perform discrete IT infrastructure services within the context of broader, sophisticated projects. If our partners fail to perform their portions of the projects in a timely or satisfactory manner, the relevant client may elect to terminate the project. A termination of this type would result in our recognition of lower-than-expected future revenues, but would not impact revenues recognized to date. Additionally, we may realize lower profits if we incur additional costs due to delays or because we must assign additional personnel to complete the project and are unable to charge these additional costs to our partner. Furthermore, our relationships with our clients and our reputation generally may suffer as a result of our partners’ unsatisfactory performance.

If we do not attract and retain qualified professional staff, we may be unable to adequately perform our client projects and could be limited in accepting new client engagements.

Our business is labor intensive and our success depends on our ability to attract, retain, train and motivate highly skilled employees, including employees that become part of our organization in connection with our acquisitions. The increase in demand for data center consulting, technology integration and managed services has further increased the need for employees with specialized skills or significant experience in these areas. Our ability to expand our operations will be highly dependent on our ability to attract a sufficient number of highly skilled employees and to retain our employees and the employees of companies that we have acquired. We may not be successful in attracting and retaining enough employees to achieve our desired expansion or staffing plans. Furthermore, the industry turnover rates for these types of employees are high and we may not be successful in retaining, training or motivating our employees. Any inability to attract, retain, train and motivate employees could impair our ability to adequately manage and complete existing projects and to accept new client engagements. Such inability may also force us to increase our hiring of independent contractors, which may increase our costs and reduce our profitability on client engagements. We must also devote substantial managerial and financial resources to monitoring and managing our workforce. Our future success will depend on our ability to manage the levels and related costs of our workforce.

If we fail to meet our service level obligations under our service level agreements, we would be subject to penalties and could lose clients.

We have service level agreements with many of our clients under which we guarantee specified levels of service availability. These arrangements involve the risk that we may not have adequately estimated the level of service we will in fact be able to provide. If we fail to meet our service level obligations under these agreements, we would be subject to penalties, which could result in higher than expected costs, decreased revenues and decreased gross and operating margins. We could also

lose clients by failing to meet our service level obligations under these agreements and our reputation generally may suffer as a result.

If we fail to offer high quality client support and services, our business would suffer.

Once our solutions and methodologies are deployed within our clients’ IT infrastructure environments, our clients rely on our support services to resolve any related issues. A high level of client support and service is important for the successful marketing and sale of our services and solutions. High quality client support and service will be of increasing importance. If we do not help our clients quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell our solutions and methodologies to existing clients would suffer and our reputation with potential clients would be harmed. As we expand our sales, we will be required to hire and train additional support personnel. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. If we fail to maintain high quality client support or grow our support organization to match any future sales growth, our business will suffer.

Our executive officers and senior management are important to our client relationships and the loss of one or more senior managers could have a negative impact on our business.

We believe that our success depends in part on the continued contributions of our president and chief executive officer, Mark Shirman, and other executive officers and members of our senior management. We rely on our executive officers and senior management to generate business and execute our strategies successfully. In addition, the relationships and reputation that members of our management team have established and maintain with our clients contribute to our ability to operate a robust business. The loss of Mr. Shirman or any other executive officer or member of senior management could impair our ability to identify and secure new clients, new engagements from existing clients and otherwise manage our business.

Economic conditions, including prolonged economic downturns, could materially harm our business.

Negative trends in the general economy could cause a decrease in corporate spending on IT services and solutions in general and negatively affect the rate of growth of our business. Any reduction in corporate confidence or corporate spending in general may adversely affect demand for our services and solutions.

We face intense competition that could prevent us from increasing our revenues or could reduce our gross profit margin.

The data center consulting, technology integration and managed services markets are competitive, and, due in part to the forecasted growth rates in each market, we expect competition in all markets to intensify in the future. Other companies may introduce new services and solutions in the same markets we have entered or intend to enter. This competition could result in increased pricing pressure, reduced gross profit margins, increased sales and marketing expenses and stagnant or reduced market share.

Many of our current or potential competitors have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical, sales, marketing and other resources than we have. In addition, our competitors may be able to bundle services that we do not offer together with other products or services at a combined price that is more attractive than the prices we charge for our services alone. As competitive services are introduced or new competitors enter our

markets, we expect increased pricing pressure, which could have a negative impact on our revenues and on the gross margins for our services and solutions.

As our markets continue to develop and expand, we expect increased competition from both established and emerging companies, including offshore companies that benefit from lower labor costs. We also expect that some of our competitors may make acquisitions or enter into partnerships or other strategic relationships with one another in order to offer more comprehensive product and service offerings than they are able to offer individually. We believe these types of transactions will continue to occur in the future as companies attempt to strengthen or maintain their market positions in an evolving industry. The companies resulting from these transactions could significantly change the competitive landscape and adversely affect our ability to compete effectively and maintain indirect sales channels.

Our sales cycles can be long and unpredictable, and our sales efforts require considerable time and expense. As a result, our sales are difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate significantly.

The timing of our revenues is difficult to predict. Our sales efforts involve educating our clients about the use and benefit of our services and solutions, including their technical capabilities and potential cost savings to an organization. Clients typically undertake a significant evaluation process that has in the past resulted in a lengthy sales cycle, which typically lasts several months, and may last a year or longer. We spend substantial time, effort and money on our sales efforts without any assurance that our efforts will produce any sales. In addition, client purchases of our services and solutions are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing and other delays. If sales expected from a specific client for a particular quarter are not realized in that quarter or at all, our results could fall short of public expectations and our business, operating results and financial condition could be materially adversely affected.

If we are unable to expand our sales capabilities, we may not be able to generate increased revenues.

We must expand our sales force to generate increased revenues from clients. As of March 31, 2010 we had a team of 47 dedicated sales professionals. Our services and solutions require a sophisticated sales effort targeted at the senior management of our prospective clients. New hires require training and will take time to achieve full productivity. We cannot be certain that new hires will become as productive as necessary or that we will be able to hire enough qualified individuals in the future. Failure to hire qualified sales personnel will preclude us from expanding our business and growing our revenues.

Our services and solutions involve storing and replicating mission-critical data for our clients and are highly technical in nature. If client data is lost or corrupted, our reputation and business could be harmed.

Our data center consulting and technology integration services involve storing and replicating mission-critical data for our clients within their data centers. The process of storing and replicating that data within their data centers is highly technical and complex. If any data is lost or corrupted in connection with the use of our services and solutions, our reputation could be seriously harmed and market acceptance of our solutions and services could suffer. In addition, our solutions have contained, and may in the future contain, undetected errors, defects or security vulnerabilities. Some errors in our solutions may only be discovered after a solution has been in use by clients. Any errors, defects or security vulnerabilities discovered in our solutions after commercial release could result in loss of

revenues, loss of clients, increased service and warranty cost and diversion of attention of our management and technical personnel, any of which could significantly harm our business. In addition, we could face claims for product liability, tort or breach of warranty. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of us and our service offerings.

Failures or interruptions of our services could materially harm our revenues, impair our ability to conduct our operations and damage relationships with our clients.

Our success depends in part on our ability to provide reliable data center consulting, technology integration and managed services to our clients. Our network operations are currently located in Cary, North Carolina and Weybridge, England, and are susceptible to damage or interruption from human error, fire, flood, power loss, telecommunications failure, terrorist attacks and similar events. We could also experience failures or interruptions of our systems and services, or other problems in connection with our operations, as a result of:

damage to or failure of our computer software or hardware or our connections;

errors in the processing of data by our system;

computer viruses or software defects;

physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events;

increased capacity demands or changes in systems requirements of our clients; and

errors by our employees or third-party service providers.

In addition, our business interruption insurance may be insufficient to compensate us for losses that may occur. Any interruptions in our systems or services could damage our reputation and substantially harm our business and results of operations.

We may need additional capital in the future and it may not be available on acceptable terms.

We have historically relied on outside financing and cash flow from operations to fund our operations, capital expenditures and expansion. However, we may require additional capital in the future to fund our operations and acquisitions, finance investments in equipment or personnel, or respond to competitive pressures. We cannot assure you that additional financing will be available on terms acceptable to us. In addition, the terms of available financing may place limits on our financial and operational flexibility. If we are unable to obtain sufficient capital in the future, we may not be able to continue to meet client demand for service quality, availability and competitive pricing. We also may be forced to reduce our operations or may not be able to expand or acquire complementary businesses or be able to develop new services or otherwise respond to changing business conditions or competitive pressures.

Present economic conditions and the recent economic downturn have made the business climate more volatile and more costly. If economic conditions deteriorate further, or do not improve, it may make any necessary debt or equity financing more difficult or costly to obtain, and more dilutive to our stockholders. While we believe we have adequate capital resources and cash flows from operations to meet current working capital and capital expenditure requirements, a further economic downturn or significant increase in our expenses could require additional financing on less than attractive rates or on terms that are excessively dilutive to existing stockholders. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our stock price and our future operating results.

We have a large amount of goodwill as a result of our acquisitions. Our earnings will be harmed if we suffer an impairment of our goodwill.

As of March 31, 2010, we had goodwill of $21.5 million. Goodwill represents the excess of the amount we paid in our various acquisitions over the fair value of their net assets at the date of the acquisition. We do not amortize acquired goodwill but instead we test it for impairment on an annual basis based upon a fair value approach. Testing for impairment of goodwill involves an estimation of the fair value of our net assets and involves a high degree of judgment and subjectivity. If we have an impairment to our goodwill, the amount of any impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken and could result in a decrease in the market price of our common stock.

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

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission and the New York Stock Exchange (NYSE), have imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time consuming and costly. We expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. We estimate that the increase in these costs will total approximately $750,000 to $1.5 million on an annual basis. Our future financial statements will reflect the impact of these expenses, whereas our historical annual financial statements do not reflect these expenses.

We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.

The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. As a global services company, we conduct business in North America, Europe and the Middle East, including with governments and government agencies in these regions. Prior to the completion of this offering, we will adopt policies and procedures designed to enforce compliance with these regulations. However, we cannot assure you that we will not be subject to liability under anti-bribery laws for acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could lead to civil and criminal penalties or other sanctions that could have a material adverse effect on our overall profitability, business, financial condition and results of operations.

If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report, commencing in our annual report on Form 10-K for the year ending December 31, 2011, on the effectiveness of our

internal controls over financial reporting. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expenses and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the NYSE, the Securities and Exchange Commission or other regulatory authorities, which would require additional financial and management resources. We expect the one-time costs of meeting the legal and regulatory requirements of Section 404 of the Sarbanes-Oxley Act to reach $750,000 and the ongoing annual costs of maintaining such requirements to be approximately $500,000.

Our investment portfolio may become impaired by further deterioration of the capital markets.

Our investments are intended to preserve principal while providing liquidity adequate to meet projected cash requirements. Risks of principal loss are intended to be minimized through investing primarily in money market funds, but these investments are not, in every case, guaranteed or fully insured. In light of recent changes in the credit market, some high quality short-term investment securities, similar to the types of securities that we invest in, have suffered investment losses. From time to time, we may suffer losses on our investments, which could have a material adverse impact on our operations.

The recent disruptions in the credit and financial markets have negatively affected investments generally, including money market funds. The recent global economic crisis may have a negative impact on the market values of the investments in our investment portfolio. We cannot predict future market conditions or market liquidity and there can be no assurance that the markets for these securities will not deteriorate or that the institutions that these investments are with will be able to meet their debt obligations at the time we may need to liquidate such investments or until such time as the investments mature.

Our methodologies and software solutions may infringe the intellectual property rights of third parties and may create liability for us as well as harm our reputation and client relationships.

The methodologies and software solutions we offer to clients may infringe upon the intellectual property rights of third parties and result in legal claims against our clients and us. These claims may damage our reputation, adversely impact our client relationships and create liability for us. Moreover, we generally agree in our client contracts to indemnify clients for expenses or liabilities they incur as a result of third party intellectual property infringement claims associated with our services and the resolution of these claims, irrespective of whether a court determines that our methodologies and software solutions infringed another party’s intellectual property rights, may be time-consuming, disruptive to our business and extraordinarily costly. Finally, in connection with an intellectual property infringement dispute, we may be required to cease using or developing certain intellectual property that we offer to our clients. These circumstances could adversely affect our ability to generate revenues as well as require us to incur significant expenses to develop alternative or modified services for our clients.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

Our success depends to a significant degree upon the protection of our proprietary technology rights, particularly the proprietary tools associated with our Transom business model. We rely on trade secret, copyright and trademark laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. The steps we have taken to protect our intellectual property may not prevent misappropriation of our proprietary rights or the reverse engineering of our solutions. Additionally, our business often involves the development of services and solutions for specific client engagements. While we generally retain ownership of these service methodologies and solutions, issues relating to the ownership of and rights to intellectual property developed in client engagements can be complicated and there can be no assurance that disputes will not arise that affect our ability to continue to engage in the commercial use of such intellectual property. Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in other countries are uncertain and may afford little or no effective protection of our services, software, methodology and other proprietary rights. Consequently, we may be unable to prevent our services, software, methodologies and other proprietary rights from being exploited abroad and efforts to prevent such exploitation could be costly. Policing the unauthorized use of our services, software, methodologies and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

In connection with our strategic relationships with Dell, Cisco and Bull, we granted a perpetual license to Dell for all of our intellectual property (IP), excluding IP acquired or newly developed after the date of the agreement, and perpetual licenses for certain software and other proprietary tools to both Cisco and Bull. Such licenses do not restrict Dell, Cisco or Bull from exploiting our intellectual property in a way that is competitive with our business, products and/or services. While we believe that our personnel and experience in the industry are essential to commercial exploitation of our intellectual property, we cannot guarantee that such companies will not create competitive services offerings that leverage our intellectual property. Further, Dell and Cisco are permitted to sublicense the rights granted to our intellectual property to other companies that might compete with our business, products and/or services. Our ability to control the use of and protect our intellectual property may be affected by any sublicenses granted by Dell and/or Cisco.

Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to developing and protecting their technology or intellectual property rights than we do. In addition, our attempts to protect our proprietary technology and intellectual property rights may be further limited due to the fact that our employees are attractive to other market participants and may leave our company with significant knowledge of our proprietary information. Consequently, others may develop services and methodologies that are similar or superior to our services and methodologies or design around our intellectual property.

Our use of open source software could impose limitations on our ability to commercialize our solutions.

We incorporate open source software into certain of our solutions. Although we monitor our use of open source closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions

or restrictions on our ability to commercialize our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our business, operating results and financial condition.

Risks Related to this Offering and Ownership of Our Common Stock

Our existing stockholders will have the ability to control the outcome of matters submitted for stockholder approval and may have interests that differ from those of our other stockholders.

After this offering, our existing stockholders, which will include certain executive officers, key employees and directors and their affiliates, will beneficially own approximately % of our outstanding common stock (approximately % if the underwriters’ option to purchase additional shares is exercised in full) and will have the ability to control all matters requiring stockholder approval, including the election of directors. As a result, our existing stockholders would have the power to prevent a change of control in our company. The interests of our existing stockholders may differ from the interests of our stockholders who purchased their shares of our common stock in this offering, and this concentration of voting power may have the effect of delaying or impeding actions that could be beneficial to you, including actions that may be supported by our board of directors. As part of the purchase agreement we executed with Dell (the Dell Purchase Agreement), we granted Dell an option to purchase 5% of our common stock calculated on a fully-diluted basis (the Dell Option) which may be exercised by Dell as soon as ten months following this offering, if the offering satisfies the contractual definition of a qualified public offering. We also issued Dell a warrant (the Dell Warrant) to purchase shares of our common stock or preferred stock which is exercisable in connection with a qualifying financing or a sale of our company and which expires upon the consummation of a qualified public offering. Either the Dell Option or the Dell Warrant but not both the Dell Option and the Dell Warrant may be exercised because the Dell Option may only be exercised upon the occurrence of a qualified public offering and the Dell Warrant would terminate upon the occurrence of such an offering. If Dell exercises its rights under the Dell Option or Dell Warrant, voting power will be further concentrated among existing stockholders. Further, Dell and Cisco have rights of first refusal with respect to certain issuances of our new securities and notice and information rights with respect to a proposed sale of our company. Please see the section titled “Principal Stockholders” for additional information regarding the ownership of our outstanding stock by our executive officers, directors and their affiliates and the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Warrants and Other Equity Rights Issued in Conjunction with Borrowings” for additional information related to the Dell Purchase Agreement, Dell Option and Dell Warrant.

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. Although we anticipate that our common stock will be approved for listing on the NYSE, an active trading market for our shares may never develop or be sustained following this offering. If the market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you or at all. In addition, an inactive market may impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration, which, in turn, could materially adversely affect our business.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for investors purchasing shares in this offering.

The initial public offering price for the shares of our common stock sold in this offering will be determined by negotiation between the representatives of the underwriters and us. This price may not

reflect the market price of our common stock following this offering. In addition, the market price of our common stock is likely to be highly volatile and may fluctuate substantially due to the following factors (in addition to the other risk factors described in this section):

actual or anticipated fluctuations in our results of operations;

variance in our financial performance from the expectations of equity research analysts;

conditions and trends in the markets we serve;

announcements of significant new services or solutions by us or our competitors;

additions or changes to key personnel;

the commencement or outcome of litigation;

changes in market valuation or earnings of our competitors;

the trading volume of our common stock;

future sale of our equity securities;

changes in the estimation of the future size and growth rate of our markets;

legislation or regulatory policies, practices or actions; and

general economic conditions.

In addition, the stock markets in general have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. These broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. As a result of these factors, you might be unable to resell your shares at or above the initial public offering price after this offering. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against the affected company. This type of litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

Following the completion of this offering, we do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, if you purchase shares in this offering, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may never occur. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. Please see the section titled “Dividend Policy” for additional information.

Upon expiration of lock-up agreements between the underwriters and our officers, directors and holders of substantially all of our common stock, a substantial number of shares of our common stock could be sold into the public market shortly after this offering, which could depress our stock price.

Our officers, directors and the holders of substantially all of our common stock and securities convertible into our common stock have entered into lock-up agreements with our underwriters which

prohibit the disposal or pledge of, or the hedging against, any of their common stock or securities convertible into or exchangeable for shares of common stock for a period through the date 180 days after the date of this prospectus. The market price of our common stock could decline as a result of sales by our existing stockholders in the market after this offering and after the expiration of the lock-up period, or the perception that these sales could occur. Once a trading market develops for our common stock, and after the lock-up period expires, many of our stockholders will have an opportunity to sell their stock for the first time. These factors could also make it difficult for us to raise additional capital by selling stock. Please see the section titled “Shares Eligible for Future Sale” for additional information regarding these factors.

As a new investor, you will incur immediate and substantial dilution as a result of this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma as adjusted net tangible book value per share of our outstanding common stock. Accordingly, if you purchase shares of our common stock at the assumed initial public offering price (the midpoint of the range set forth on the cover page of this prospectus), you will incur immediate and substantial dilution of $ per share. If the holders of outstanding options or warrants exercise those options or warrants, you will suffer further dilution. Please see the section titled “Dilution” for additional information.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. They might not apply the net proceeds of this offering in ways that increase the value of your investment. We expect to use the net proceeds from this offering for general corporate purposes, including working capital, capital expenditures, acquisitions and further development of our services and solutions, and for debt repayment from time to time. We have not allocated these net proceeds for any specific purposes. Our management might not be able to yield any return on the investment and use of these net proceeds. You will not have the opportunity to influence our decisions on how to use the proceeds.

Anti-takeover provisions in our certificate of incorporation and bylaws and in Delaware law could prevent or delay a change in control of our company.

We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. For more information, please see the section titled “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation, Bylaws and Delaware Law.” In addition, our amended and restated certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our amended and restated certificate of incorporation and bylaws, which will be in effect as of the closing of this offering:

authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

do not provide for cumulative voting in the election of directors, which would allow holders of less than a majority of the stock to elect some directors;

establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from the time of election and qualification until the third annual meeting following their election;

require that directors only be removed from office for cause;

provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office;

limit who may call special meetings of stockholders;

prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and

establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

For information regarding these and other provisions, please see the section titled “Description of Capital Stock.”

We have contractual obligations that could prevent or delay a change in control of our company.

In November 2008, we entered into a securities purchase agreement with Dell and Cisco and an amendment to the Dell Purchase Agreement which together contain provisions requiring us to notify Cisco and Dell in the event that we receive a bona fide proposal for a merger, sale of substantially all of our assets, sale or redemption of our shares or similar transaction that results in a change of control of our company. For a period of ten days following receipt of our notification, each of Cisco and Dell has the right to submit a proposal to acquire us or to enter into a similar change of control transaction and, if requested, we are required to provide them with information regarding the proposed change of control transaction. Until the expiration of the ten day period, we are required to refrain from entering into any action or arrangement which would limit or restrict our ability to provide information to, negotiate with, receive, accept or approve a proposal from, or otherwise complete an acquisition or change of control transaction with Cisco or Dell. By limiting our ability to negotiate and complete transactions with potential acquirers or purchasers other than Cisco or Dell, these restrictions may discourage, delay or prevent a change in control. In addition, most of our debt obligations include repayment or default provisions that are triggered upon a change of control, which could prevent or delay a change in control of our company.

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

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

Completion of this offering may limit our ability to use our net operating loss carryforwards.

As of March 31, 2010, we had substantial federal and state net operating loss carryforwards along with certain foreign net operating loss carryforwards. Under the provisions of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of our net operating loss carryforwards that can be utilized annually in the future to offset taxable income. We believe that, as a result of this offering, it is possible that a change in our ownership might be deemed to have occurred. If such a change in our ownership occurs, our ability to use our net operating loss carryforwards in any fiscal year will be significantly limited under these provisions.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, we identify forward-looking statements by terms such as “may,” “will,” “likely,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “would,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not occur and actual results could differ materially from those projected in our forward-looking statements. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

INDUSTRY AND MARKET DATA

The industry and market data and other statistical information used throughout this prospectus are based on independent industry publications. While we believe that each of these publications is reliable, we have not independently verified market data and other statistical information from third-party sources. Some data are also based on our good faith estimates, which are derived from our review of internal surveys, as well as independent industry publications, government publications, reports by market research firms or other published independent sources. None of the independent industry publications referred to in this prospectus were prepared on our behalf or at our expense. Some of the independent industry publications referred to in this prospectus are copyrighted and, in such circumstances, we have obtained permission from the copyright owners to refer to such information in this prospectus.

In particular, the reports (the Gartner Reports) issued by Gartner Inc. (Gartner) described in this prospectus represent data, research, opinions or viewpoints published, as part of a syndicated subscription service available only to clients, by Gartner, and are not representations of fact. We have been advised by Gartner that each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice.

The discussion above does not, in any manner, disclaim our responsibilities with respect to the disclosures contained in this prospectus.

Please see the endnotes set forth in the section titled “Business” for a reference to the sources for the industry and market data and other statistical information used throughout this prospectus.

USE OF PROCEEDS

We estimate that the net proceeds to us of the sale of the common stock that we are offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses that we must pay. A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of the prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use these net proceeds for working capital and other general corporate purposes, including the expansion of our current business through acquisitions of complementary or strategic businesses, products or technologies, the enhancement of our existing services and solutions and the hiring of additional personnel to increase our development, sales and marketing activities. The amount and timing of the use of the net proceeds for the enumerated purposes will depend on market conditions and opportunities. We also intend to use approximately $30.2 million of the net proceeds from this offering to repay our loan from Dell Products L.P. (Dell) along with related accrued interest. The Dell loan does not require or permit accelerated payments prior to maturity. However, Dell has agreed in principle to allow us to repay the Dell loan in full in connection with this offering. A description of the Dell loan is included in Note 9 to our Consolidated Financial Statements. The Dell loan has the following terms:


Ÿ Principal at December 31, 2009:		$25.0 million (due in full March 2011).

Ÿ Interest Rate:		10% per annum March 2008 – February 2011 (no payments until maturity); $5.2 million accrued interest at March 31, 2010.

Ÿ Maturity Date:		March 2011.

The amount and timing of our debt repayment will depend on numerous factors, including the cash used or generated in our operations and the cash on hand or used for acquisitions. As a result, except as described above, we cannot estimate the amount of the net proceeds that will be used for debt repayment and we have not otherwise allocated any minimum portion or specific amount of the proceeds to possible debt repayment.

As discussed below in the section titled “Summary—Recent Developments,” we have entered into a non-binding letter of intent to acquire an IT services company based in the Netherlands. If we complete the transaction according to the terms contained in the letter of intent, we would use approximately $10.2 million of the net proceeds of this offering to pay the cash portion of the consideration for the acquisition.

Pending use of proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short and medium-term, investment-grade, interest-bearing instruments.

DIVIDEND POLICY

We have never declared or paid any cash dividends on capital stock. We currently intend to retain all available funds and any future earnings for use in financing the growth of our business and do not anticipate paying any cash dividends after the offering and for the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of our board of directors, subject to compliance with certain covenants under our loans, which restrict or limit our ability to declare or pay dividends, and will depend on our future earnings, financial condition, results of operations, capital requirements, general business conditions, future prospects, applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits, and other factors that our board of directors may deem relevant.

CAPITALIZATION

The following table sets forth the following information:

our actual capitalization, including our debt and preferred stock warrant liability, as of March 31, 2010;

our pro forma capitalization after giving effect to the conversion, upon completion of this offering, of all outstanding shares of preferred stock into common stock and all outstanding warrants to purchase preferred stock into warrants to purchase common stock; and

our pro forma capitalization as adjusted to reflect the receipt of the estimated net proceeds from our sale of shares of common stock in this offering, after deducting the underwriting discounts and commissions and estimated offering expenses, the filing of an amended and restated certificate of incorporation after the closing of this offering.


	As of March 31, 2010
	Actual			Pro Forma			Pro Forma As Adjusted
	(in thousands, except share and par value data)
Preferred Stock Warrant liability	$	4,224		$	—		$
Long-term debt, including current portion		39,767			39,894
Due to employees and shareholders		434			434

Series A Preferred Stock, $0.001 par value, 3,360,000 shares authorized, 3,360,000 shares issued and outstanding actual; 3,360,000 shares authorized, no shares outstanding pro forma and pro forma as adjusted		2,555			—

Series B Preferred Stock, $0.001 par value, 10,658,017 shares authorized, 10,642,815 shares issued and outstanding actual, 10,658,017 shares authorized, no shares outstanding pro forma and pro forma as adjusted		11,418			—

Series C Preferred Stock, $0.001 par value; 8,717,647 shares authorized, 8,364,707 shares issued and outstanding actual, 8,717,647 shares authorized, no shares outstanding pro forma and pro forma as adjusted		9,911			—

Series D Preferred Stock, $0.001 par value; 17,511,727 shares authorized, 15,626,305 shares issued and outstanding actual, 17,511,727 shares authorized, no shares outstanding pro forma and pro forma as adjusted		48,049			—

Series E Preferred Stock, $0.001 par value, 4,805,815 shares authorized, 4,493,245 shares issued and outstanding actual; 4,805,815 shares authorized, no shares outstanding pro forma and pro forma as adjusted		13,319			—

Series F Preferred Stock, $0.001 par value, 33,591,913 shares authorized, 3,602,940 shares issued and outstanding actual; 33,591,913 shares authorized, no shares outstanding pro forma and pro forma as adjusted		10,556			—


Total redeemable convertible preferred stock		95,808			—

Stockholders’ (deficit) equity:
Series 1 Convertible Preferred Stock, $0.001 par value, 6,000,000 shares authorized, 4,446,576 shares issued; 6,000,000 shares authorized, no shares outstanding pro forma and pro forma as adjusted		370			—
Common stock, $0.001 par value, 125,500,000 shares authorized, 18,453,066 shares issued; 125,500,000 shares authorized, 68,989,654 issued pro forma and 68,989,654 shares outstanding pro forma as adjusted.		19			69
Additional paid-in capital		22,090			122,442
Contingent shares issuable		313			313
Treasury stock, at cost, 2,454,514 shares at December 31, 2009		(4,531	)		(4,531	)
Accumulated other comprehensive income		2,109			2,109
Accumulated deficit		(125,126	)		(125,126	)

Total stockholders’ (deficit) equity		(104,756	)		(4,724	)

Total capitalization	$	35,477		$	35,477		$

This table excludes, as of March 31, 2010, the following:

11,074,041 shares of our common stock issuable upon exercise of stock options outstanding at a weighted average exercise price of $0.94 per share;

1,325,509 shares of our common stock available for future issuance under our stock-based compensation plans;

5,547,875 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $2.44 per share;

698,186 unvested restricted shares of common stock issued in conjunction with our acquisitions;

up to 1,565,108 million shares of common stock issuable upon the assumed closing of the acquisition of the IT services company based in the Netherlands. See the section titled “Summary—Recent Developments”; and

shares issuable upon conversion of the unsecured promissory notes issued on June 28, 2010 and warrants issued or issuable in connection therewith.

Please see “Management—Employee Benefit Plans,” and Note 12 to our consolidated financial statements for a description of our equity plans.

DILUTION

Our pro forma net tangible book value as of March 31, 2010 was approximately $(39.3) million, or approximately $(0.59) per share. Pro forma net tangible book value per share represents the amount of total tangible assets minus our total liabilities, divided by 66,535,140 shares of common stock outstanding, after giving effect to the conversion, upon completion of this offering, of all outstanding preferred stock into common stock and all outstanding warrants to purchase preferred stock into warrants to purchase common stock.

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering. After giving effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, and after deducting the underwriting discounts and commissions and estimated offering expenses, the pro forma net tangible book value as of March 31, 2010 would have been approximately $ million or approximately $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to purchasers of common stock in the offering, as illustrated in the following table:


Assumed initial public offering price per share		$
Pro forma net tangible book value per share before this offering	$
Increase per share attributable to new investors	$

Pro forma net tangible book value per share after this offering		$

Dilution per share to new investors		$

If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the pro forma net tangible book value per share after the offering would be approximately $ per share, the increase in pro forma net tangible book value per share to existing stockholders would be approximately $ per share and the dilution to new investors purchasing shares in this offering would be approximately $ per share.

The table below presents on a pro forma basis as of March 31, 2010, after giving effect to the conversion of all outstanding shares of preferred stock into common stock upon completion of this offering and all outstanding warrants to purchase preferred stock into warrants to purchase common stock the differences between the existing stockholders and the purchasers of shares in the offering with respect to the number of shares purchased from us, the total consideration paid and the average price paid per share:


	Shares Purchased			Total Consideration				Average Price Per Share
	Number	Percent		Amount		Percent		Average Price Per Share
Existing stockholders	66,535,140		%	$	90,619,884		%	$	1.36
New stockholders
Totals			%			100.0	%

The table above does not include shares issuable to Dell Products L.P. (Dell) upon the exercise by Dell of a warrant to purchase shares of our common stock or preferred stock (the Dell Warrant) which is exercisable in connection with a qualifying financing or sale of our company and which expires upon the consummation of a qualified public offering. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Warrants and Other Equity Rights Issued in Conjunction with Borrowings” for more information regarding the Dell Warrant.

As of March 31, 2010, there were options outstanding to purchase a total of 11,074,041 shares of our common stock at a weighted average exercise price of $0.94 per share. In addition, as of March 31, 2010, there were warrants outstanding to purchase 2,548,876 shares of common stock at a weighted average exercise price of $2.60 per share, and warrants outstanding to purchase 2,998,999 shares of preferred stock at a weighted average exercise price of $2.31 per share which will convert into the right to purchase 2,998,999 shares of common stock upon the completion of the offering. The number of shares subject to outstanding warrants and the average warrant exercise price do not include the Dell Warrant. To the extent outstanding options or warrants are exercised, there will be further dilution to new investors. For a description of our equity plans, please see Note 12 of the notes to our consolidated financial statements.

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated statements of operations data for 2007, 2008 and 2009, and the consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statements of operations data for the years 2005 and 2006, and the consolidated balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from our audited consolidated financial statements and related notes not included in this prospectus. The consolidated statements of operations data for the three months ended March 31, 2009 and 2010 and the consolidated balance sheet data as of March 31, 2009 and 2010 have been derived from our unaudited financial statements and related notes which are included elsewhere in this prospectus. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments necessary for the fair presentation of our financial position and results of operations for these periods. The following selected financial data should be read together with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.


	Year Ended December 31,															Three Months Ended March 31,
	2005			2006			2007			2008			2009			2009			2010
																(unaudited)
Consolidated Statements of Operations Data:
Revenues	$	45,677		$	37,808		$	61,241		$	85,058		$	89,545		$	22,156		$	22,941
Cost of revenues		39,047			29,279			45,140			65,346			63,934			16,470			18,865

Gross profit		6,630			8,529			16,101			19,712			25,611			5,686			4,076
Research and development expenses		—			—			146			1,050			667			132			257
Selling and marketing expenses		15,682			10,906			15,313			19,056			15,299			3,437			4,984
General and administrative expenses		8,840			7,058			9,421			15,419			9,951			2,226			3,584
Amortization of intangible assets		1,351			1,165			2,260			2,771			2,535			602			733

Loss from operations		(19,243	)		(10,600	)		(11,039	)		(18,584	)		(2,841	)		(711	)		(5,482	)
Interest and other income (expense), net		(2,248	)		393			(3,298	)		(4,481	)		(4,473	)		(1,852	)		(3,408	)

Loss before income taxes and cumulative effect of change in accounting principle		(21,491	)		(10,207	)		(14,337	)		(23,065	)		(7,314	)		(2,563	)		(8,890	)
Provision (benefit) for income taxes		—			—			(485	)		240			78			(228	)		(12	)

Loss before cumulative effect of change in accounting principle		(21,491	)		(10,207	)		(13,852	)		(23,305	)		(7,392	)		(2,335	)		(8,878	)
Cumulative effect of change in accounting principle		—			558			—			—			—			—			—

Net loss		(21,491	)		(9,649	)		(13,852	)		(23,305	)		(7,392	)		(2,335	)		(8,878	)

Dividends and accretion on preferred stock		(2,420	)		(3,482	)		(4,310	)		(4,821	)		(5,360	)		(1,321	)		(1,315	)

Net loss to common stockholders	$	(23,911	)	$	(13,131	)	$	(18,162	)	$	(28,126	)	$	(12,752	)	$	(3,656	)	$	(10,193	)

Net loss per share to common stockholders	$	(4.62	)	$	(2.21	)	$	(1.79	)	$	(2.13	)	$	(0.95	)	$	(0.28	)	$	(0.63	)

Weighted average number of shares outstanding (basic and diluted)		5,170			5,955			10,160			13,193			13,399			13,044			16,211


	As of December 31,															As of March 31,
	2005			2006			2007			2008			2009			2009			2010
																(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	4,948		$	3,735		$	5,948		$	12,509		$	7,587		$	13,401		$	7,469
Total assets		18,756			18,072			69,492			79,330			86,199			73,811			87,928
Total long term debt, including current portion		4,898			5,695			19,305			37,168			36,297			35,888			40,201
Redeemable convertible preferred stock warrant liability		—			993			4,483			3,706			3,558			3,896			4,224
Total redeemable convertible preferred stock		43,924			54,680			74,617			89,087			94,493			90,409			95,808
Total stockholders’ deficit		(41,279	)		(54,523	)		(62,511	)		(88,765	)		(95,987	)		(92,602	)		(104,756	)

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 “Selected Consolidated Financial Data” and our consolidated financial statements and related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this prospectus, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Overview

We deliver a differentiated and comprehensive set of information technology (IT) services through Transom, our unique business model consisting of software tools, methodologies and subject matter expertise, each developed over the course of thousands of client engagements. Transom allows us to standardize our global offerings into high quality services that can be delivered in a consistent manner to our clients.

Founded in 2001, we initially focused on storage and data protection consulting services. In response to client demand, we expanded our breadth of services to include managed services and added expertise and services in cloud enablement, virtual environments, disaster recovery and security. From our inception through 2005, we have made six key acquisitions. These acquisitions accelerated our expansion into international markets, our tool development and our entrance into the managed services arena.

In 2007, 2008 and 2009 we grew our revenues, capabilities, service offerings and international presence through additional strategic acquisitions and partnerships. These acquisitions have added data center consolidation and migration expertise, virtualization technology skills and supplementary managed services to our capabilities. New partnerships have expanded our market opportunities in existing and new geographies. In addition, both acquisitions and partnerships have expanded our presence in Europe and the United States, as well as facilitated expansion into Israel and Turkey to serve the Middle East markets.

We have identified several key trends in our business that have contributed to our revenues and margin growth:

increased growth in our managed services offerings;

integration of our tools and intellectual property (IP) into our service offerings;

growth in the size and scope of our projects;

expansion of services provided in our global accounts; and

increased volume of opportunities from indirect sales channels.

Our business and growth strategies are dependent on our ability to reach sustained profitability while continuing to develop or acquire new capabilities, hire and retain high quality employees, expand our direct and indirect sales channels and integrate our strategic acquisitions. Historically we have been able to manage these dependencies through the expertise of our executive team and subject matter experts who are able to forecast emerging market opportunities and develop new service

offerings to address those needs. We intend to continue to expand our service offerings, organically and through acquisitions, thus expanding our customer revenue base. In addition, we intend to add new partners appropriate for new and expanded service offerings, thus increasing our indirect sales. Through this strategy we anticipate reaching sustained profitability while being able to strategically expand. Although our goal is to reach sustained profitability, we will continue to make strategic acquisitions that expand both our global reach and service offerings that may have a short term negative impact on our profitability, but a long term increase to our shareholder value.

We have focused on taking new services to the market. New services are developed both internally, through our customer experiences and identification of market opportunities, as well as through our acquisitions, which have also expanded our geographical reach. Over the past three years, we have expanded our managed services offerings to include database, virtual server and security services, and we have grown our consulting service offerings to include virtualization (server and desktop), security and archiving. In addition, we have extended our ability to service customers globally by adding offices in Israel, Turkey, Switzerland and Germany through acquisitions. The expansion of our services as well as our extended geographies has allowed us to sell more services into our existing customer base, which deepens those customer relationships and also optimizes our cost of sales with those accounts. We anticipate continuing to expand our service offerings into new and growing service areas, such as cloud computing and virtualization, as well as continuing to expand into new geographical markets through acquisition.

By expanding our managed services offerings, we are able to sell a broader range of managed services into new and existing customer accounts. The growth in managed services allows us to realize the investments made in people, process and intellectual property. We anticipate continued growth in this recurring revenue model as we develop additional service offerings and look to acquire businesses that bring more intellectual property as well as a new geographical market into our portfolio.

Our services are scalable and cost efficient because of our IP. Over the past three years, we have focused on internally cultivating as well as adding through acquisition software tools and proprietary methodologies to our services. Our tools and methodologies are an intrinsic part of our service offerings and provide our customers with predictability and visibility into their IT environments through reports and monitoring, self-service portals and modeling capabilities. We gain efficiency and cost savings by deploying tools and processes that decrease the need for our consultants to spend extra man-hours creating and delivering reports and models. We will continue to grow our breadth of software tools and proprietary methodologies by encouraging and supporting our consultants in pursuing new ideas and through future acquisitions. We look for companies to acquire that already have IP that is complementary to our services and our customers’ needs.

The leverage we get with our IP is a significant differentiator in the market. This is evidenced by the licensing agreements we have with Dell, Cisco and Bull. Our IP not only drives revenue growth but also drives standardization of delivery and efficiency as it becomes more robust.

In the past three years, we have focused on optimizing our go-to-market strategies by installing a new inside sales team in our U.S. and U.K. offices to support lead generation, increasing sales training globally for our direct sales team and growing our indirect channel opportunities through strategic relationships. These relationships increase sales opportunities, particularly into markets in which we do not actively pursue sales opportunities directly. By working with companies such as Dell, Cisco and Bull, we reach new customers who have not had prior experience with our Company and new geographical markets. These partners not only leverage our IP, but also sell our services as part of their own services portfolio, thereby bringing our tools, methodologies and consultants into their customer accounts. We anticipate establishing more indirect sales relationships with other technology vendors over the next few years.

Impact of foreign currency translation on reported results and use of the constant currency method

We have significant operations outside of the U.S. and generate revenues and incur expenses in currencies other than the U.S. dollar. During 2009, the exchange rates between our foreign subsidiaries’ functional currencies and the U.S. dollar fluctuated significantly and had a significant impact on our consolidated financial results reported in U.S. dollars. For purposes of comparability with 2008 results, we have included a Constant Currency Method analysis in which we have translated the results of operations for 2009 at the same exchange rates used to translate the reported operating results for 2008 (i.e., the average exchange rates for 2008). We have included this analysis and related commentary because we believe that it provides a more meaningful analysis of our underlying business trends during periods of significant exchange rate fluctuations. However, the Constant Currency Method is not meant to replace or supersede the comparison of our operating results translated using actual exchange rates in accordance with U.S. GAAP. The table below sets forth the reconciliation of our reported results of operations and the results of operations calculated using the Constant Currency Method for 2009 (in thousands):


	Year Ended December 31, 2009
	As Reported			Constant Currency			Impact of Currency
Revenues
Services	$	87,489		$	93,766		$	6,277
Product		2,056			2,269			213

Total Revenue	$	89,545		$	96,035		$	6,490

Gross profit
Services		24,823			26,614			1,791
Product		788			897			109

Total gross profit	$	25,611		$	27,511		$	1,900

Operating expenses:
Research and development expenses		667			863			196
Selling and marketing expenses		15,299			17,510			2,211
General and administrative expenses		9,951			10,473			522
Amortization of intangible assets		2,535			2,728			193

Total operating expenses	$	28,452		$	31,574		$	3,122

Interest expense	$	(5,509	)	$	(5,528	)	$	(19	)

Other income (expense), net	$	1,036		$	1,133		$	97

Provision for income taxes	$	78		$	78		$	—

Results of Operations

Revenues


	Year Ended December 31,						Year Ended December 31,						Three Months Ended March 31,
	2007		2008		% Change		2008		2009		% Change		2009		2010		% Change
	(dollars in thousands)
Revenues
Services	$	60,436	$	82,998	37	%	$	82,998	$	87,489	5	%	$	22,084	$	21,256	-4	%
Product		805		2,060	156	%		2,060		2,056	—			72		1,685	2240	%

Total revenues	$	61,241	$	85,058	39	%	$	85,058	$	89,545	5	%	$	22,156	$	22,941	4	%

Our revenues consist of services and product revenues. Services revenues consist of consulting services and managed services. Managed services consist of infrastructure operations services (IOS) and multi-element contracts. Consulting services typically have a delivery cycle of less than a year and

managed services typically have a delivery cycle of one to three years. Consulting services contracts can be fixed fee or time and materials-based and managed services contracts are fixed fee. We sell consulting services and managed services in all of the geographies in which we operate. Multi-element contracts contain the resale of third-party software and/or hardware with consulting services, IOS services or both. The consulting services included in the multi-element arrangements can be fixed fee or time and material. Our Israeli, Turkish, German and Swiss subsidiaries sell multi-element service contracts in the geographies in which they operate. Only our Swiss subsidiary sells maintenance contracts on our software in the geographies in which it operates. Product revenues consist of the sale of perpetual license of our intellectual property (IP) and our own software products, and the resale of third party software and/or hardware. We have licensed our IP in the U.S. and where our U.K. subsidiary operates. Our Israeli, Turkish, German and Swiss subsidiaries resell third party software and/or hardware. We are primarily focused on generating services revenues.

Vendor independence is one of our key business differentiators. After we make an acquisition, part of our integration plan is to transition product sales resulting from the resale of third party equipment and/or software out to a partner. Product sales resulting from the resale of third party equipment in 2007, 2008, and 2009 were a result of revenues generated from our Israeli and Swiss subsidiaries. After becoming part of our organization in March 2007, our Israeli subsidiary has seen an increase in services work performed without a product component.

Services revenue decreased by $828,000 or 4% to $21.3 million for the three months ended March 31, 2010 from $22.1 million for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, services revenue decreased by $2.6 million or 12% to $19.5 million for the three months ended March 31, 2010 from $22.1 million for the three months ended March 31, 2009. Consulting services revenues increased by $1.7 million or 18% to $11.4 million for the three months ended March 31, 2010 from $9.7 million for the three months ended March 31, 2009 and managed services revenue decreased by $2.6 million or 21% to $9.8 million for the three months ended March 31, 2010 from $12.4 million for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our subsidiary in Switzerland and Germany, consulting services revenues increased by $948,000 or 10% to $10.6 million for the three months ended March 31, 2010 from $9.7 million for the three months ended March 31, 2009 and managed services revenue decreased by $3.5 million or 28% to $8.9 million for the three months ended March 31, 2010 from $12.4 million for the three months ended March 31, 2009. In the three months ended March 31, 2010, we had no client that represented 10% or more of our total revenues.

Product revenues increased by $1.6 million or 2240% to $1.7 million for the three months ended March 31, 2010 from $72,000 for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, product revenue increased by $28,000 or 40% to $100,000 for the three months ended March 31, 2010 from $72,000 for the three months ended March 31, 2009. We did not have product sales in the U.S.

Services revenues increased by $4.5 million or 5% to $87.5 million for 2009 from $83.0 million for 2008. Consulting services revenues decreased by $2.5 million or 7% to $34.5 million for 2009 from $37.0 million for 2008 and managed services revenues increased $7.0 million or 15% to $53.0 million for 2009 from $46.0 million for 2008. In the fourth quarter of 2009, we recognized approximately $1.4 million of deferred managed services revenue related to the early termination of one of our managed services customers. In 2009, we had one client that represented 17% of our total revenues. Our 2009 acquisitions did not have a significant impact on our services revenues. Using the Constant Currency Method, services revenues increased by $10.8 million or 13% to $93.8 million for 2009 from $83.0 million for 2008. Consulting services revenues increased by $1.2 million or 3% to $38.2 million for 2009 from $37.0 million for 2008 and managed services revenues increased $9.6 million or 21% to $55.6 million for 2009 from $46.0 million for 2008.

Product revenues decreased by $4,000 or 0% to $2.1 million for 2009 from $2.1 million for 2008. We did not have product sales in the U.S. In 2009, we started transitioning our Israeli and Turkish entities away from product sales. Using the Constant Currency Method, product revenues increased by $200,000 or 10% to $2.3 million for 2009 from $2.1 million for 2008.

Services revenues increased by $22.6 million or 37% to $83.0 million for 2008 from $60.4 million for 2007. Consulting services revenues increased by $1.3 million or 3% to $37.0 million for 2008 from $35.7 million for 2007 and managed services revenues increased $21.3 million or 86% to $46 million for 2008 from $24.7 million in 2007. In 2008, we did not have any client that represented more than 10% of our total revenues. Our 2008 acquisitions did not have a significant impact on our service revenues.

Product revenues increased by $1.3 million or 156% to $2.1 million for 2008 from $805,000 for 2007. The increase is a result of our 2007 acquisitions in Israel and Turkey. We did not have product sales in the U.S.

Cost of Revenues and Gross Profit

Cost of revenues includes all costs related to the delivery of our services and consists primarily of salaries and benefits of our consultants, billable and non-billable travel and entertainment, third party contractors, third party products and services and facility related expenses. Our managed services business is performed onsite and offsite, but using client-owned assets. Our investments in this area are primarily staff, our software tools and basic monitoring equipment.


	Year Ended December 31,								Year Ended December 31,								Three Months Ended March 31,
	2007			2008			% Change		2008			2009			% Change		2009			2010			% Change
Gross profit
Services	$	15,727		$	19,283		23	%	$	19,283		$	24,823		29	%	$	5,666		$	3,589		-37	%
Product		374			429		15	%		429			788		84	%		20			487		2335	%

Total gross profit	$	16,101		$	19,712		22	%	$	19,712		$	25,611		30	%	$	5,686		$	4,076		-28	%

Gross margin
Services		26	%		23	%				23	%		28	%				26	%		17	%
Product		46	%		21	%				21	%		38	%				28	%		29	%

Total gross margin		26	%		23	%				23	%		29	%				26	%		18	%

Total gross margin decreased $1.6 million or 28% to $4.1 million for the three months ended March 31, 2010 from $5.7 million for the three months ended March 31, 2009. Services gross margin decreased $2.1 million or 37% to $3.6 million for the three months ended March 31, 2010 from $5.7 million for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, total gross margin decreased by $2.2 million or 38% to $3.5 million for the three months ended March 31, 2010 from $5.7 million for the three months ended March 31, 2009 while services gross margin decreased $2.2 million or 38% to $3.5 million for the three months ended March 31, 2010 from $5.7 million for the three months ended March 31, 2009. Product gross margin increased $467,000 or 2335% to $487,000 for the three months ended March 31, 2010 from $20,000 for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, product gross margin decreased by $13,000 or 65% to $33,000 for the three months ended March 31, 2010 from $20,000 for the three months ended March 31, 2009.

Total gross margin increased 6% to 29% for 2009 from 23% for 2008. Services gross margin increased 5% to 28% for 2009 from 23% in 2008. The increase in our service gross margins in 2009 as compared to 2008 is a result of (i) our increased utilization rates in 2009; (ii) increased managed service revenues and (iii) the consolidation of our two service operation centers into one in the U.S. The increased managed services revenues allows us to spread our fixed delivery cost structure over a larger revenue base. The change in the exchange rates for 2009 from 2008 did not have a material impact on our 2009 gross profit.

Total gross margin decreased 3% to 23% for 2008 from 26% for 2007. Services gross profit decreased 3% from 26% to 23%. The decrease in our organic services margin is a result of our investment in our managed services delivery. In 2008, we invested in our managed services organization by creating a larger service operation center for future growth. The nature of this investment creates unutilized capacity to allow for future growth.

Operating Expenses


	Year Ended December 31,						Year Ended December 31,						Three Months Ended March 31,
	2007		2008		% Change		2008		2009		% Change		2009		2010		% Change
Operating expenses:
Research and development expenses	$	146	$	1,050	619	%	$	1,050	$	667	-36	%	$	132	$	257	95	%
Selling and marketing expenses		15,313		19,056	24	%		19,056		15,299	-20	%		3,437		4,984	45	%
General and administrative expenses		9,421		15,419	64	%		15,419		9,951	-35	%		2,226		3,584	61	%
Amortization of intangible assets		2,260		2,771	23	%		2,771		2,535	-9	%		602		733	22	%

Total operating expenses	$	27,140	$	38,296	41	%	$	38,296	$	28,452	-26	%	$	6,397	$	9,558	49	%

Research and Development

Research and development expenses are attributable to our 2007 acquisition of Integrity Systems Ltd. and starting in 2008, to a newly formed research and development group in our U.K. subsidiary. The research and development efforts relate to the integration of newly acquired tools into our standard services offerings and continued development of the software and proprietary methodologies used in the delivery of our consulting and managed services. These expenses consist primarily of salaries and benefits of our development personnel, third party consultants and third party software and equipment.

Research and development expenses increased $125,000 or 95% to $257,000 for the three months ended March 31, 2010 from $132,000 for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, research and development expenses decreased $6,000 or 5% to $126,000 for the three months ended March 31, 2010 from $132,000 for the three months ended March 31, 2009. This decrease consists of a $17,000 decrease in subcontractors expenses offset by a $9,000 increase in salaries, bonuses, benefits and stock-based compensation expenses. We expect our research and development expenses, net of the impact of any future acquisitions, to increase modestly in absolute dollar value, but decrease as a percentage of revenue.

Research and development expenses decreased $383,000 or 36% to $667,000 for 2009 from $1.1 million for 2008 and remained flat as a percentages of revenues at approximately 1%. This decrease is due to the consolidation of our research and development functions resulting from the

completion of the initial integration and upgrade of acquired tools and IP. The decrease consists of a $184,000 decrease in salaries, bonuses, benefits and stock-based compensation expenses, a $117,000 decrease in subcontractors expenses, a $51,000 decrease in facilities expenses, a $15,000 decrease in travel and entertainment expenses and a $16,000 decrease in miscellaneous expenses. Using the Constant Currency Method, research and development expenses decreased $187,000 or 17% to $863,000 for 2009 from $1.1 million for 2008.

Research and development expenses increased $904,000 or 619% to $1.1 million for 2008 from $146,000 for 2007, and increased as a percentage of revenues from 0% to 1%. The increase is related to the addition of our U.K. research and development group. The increase consists of a $488,000 increase related to salaries, bonuses, benefits and stock-based compensation expenses, a $265,000 increase in subcontractors expenses, a $79,000 increase in facility expenses, a $40,000 increase in software and IT costs and a $32,000 increase in miscellaneous expenses.

Selling and Marketing

Selling and marketing expenses consist primarily of salaries with related benefits, commissions and marketing expenses such as advertising, product literature and trade show costs.

Selling and marketing consist of three key components:

Direct Sales—regionally based sales representatives who call primarily on named accounts in their region;

Indirect Sales—sales representatives who focus on creating channel relationships in specific geographies and domain competencies; and

Marketing—personnel who manage lead generation, collateral material development, and press and analyst relations.

Sales commissions are paid regardless of whether the opportunity is closed directly or through a channel partner. As our offerings have become more robust and project sizes have grown, sales representatives have become more productive with respect to the revenues they can produce.

Sales and marketing expenses increased $1.6 million or 45% to $5.0 million for the three months ended March 31, 2010 from $3.4 million for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, sales and marketing expenses increased $809,000 or 24% to $4.2 million for the three months ended March 31, 2010 from $3.4 million for the three months ended March 31, 2009. This increase consists of a $487,000 increase in salaries, bonuses, benefits and stock-based compensation expenses, a $75,000 increase in travel and entertainment expenses, a $40,000 increase in facility charges, a $40,000 increase in outside consultant expenses and a $85,000 increase in miscellaneous expenses partially offset by a $80,000 decrease in commissions and a $58,000 decrease in marketing events and collateral expenses. The increase in our sales and marketing expenses from the three months ended March 31, 2009 to the same period in 2010 is the result of our investment in additional sales headcounts related to new service offerings and our expansion into additional geographies. We expect sales and marketing to increase in absolute dollar value, but decrease or remain constant as a percentage of revenue.

Sales and marketing expenses decreased $3.8 million or 20% to $15.3 million for 2009 from $19.1 million for 2008 and decreased as a percentage of revenues to 17% for 2009 from 22% in 2008. This decrease consists of a $2.0 million decrease in salaries, bonuses, and benefits, a $853,000 decrease in stock-based compensation expenses, a $482,000 decrease in commission expenses, a $374,000 decrease in marketing events and collateral expenses, a $315,000 decrease in travel and entertainment expenses, $205,000 decrease in recruiting expenses and a $203,000 decrease in facility charges offset by a $702,000 increase in miscellaneous expenses. Using the Constant Currency

Method, sales and marketing expenses decreased $1.6 million or 8% to $17.5 million for 2009 from $19.1 million for 2008. The change in marketing expenses in 2009 as compared to the same period in 2008 is attributed to a restructuring of the sales teams. Due to our acquisitions made in 2007 and 2008, we had an ‘overlay’ of sales management responsible for training and supporting our sales force in the new services and capabilities of our acquisitions. As our sales teams’ understanding of the services improved and their reliance on the overlay sales managers decreased, the overlay roles were eliminated, thus reducing the number of senior managers across the sales teams.

Sales and marketing expenses increased $3.7 million or 24% to $19.1 million for 2008 from $15.3 million for 2007 and decreased as a percentage of revenues to 22% for 2008 from 25% for 2007. This increase consists of a $1.6 million increase in salaries, bonuses and benefits expenses, a $980,000 increase in stock-based compensation expenses, a $492,000 increase in commission expenses, a $347,000 increase in marketing events and collateral expenses, a $156,000 increase in recruiting expenses, a $118,000 increase in travel and entertainment expenses and an $81,000 increase in facility expenses offset by a decrease of $80,000 in miscellaneous expenses. The decrease of selling and marketing expenses as a percentage of revenues is a result of efficiencies of a more experienced sales force, increased quotas, improved performance management and being able to attract higher-quality and more experienced sales representatives.

General and Administrative

General and administrative expenses include the costs of financial, human resources, IT and administrative personnel, professional services and corporate overhead.

General and administrative expenses increased $1.4 million or 61% to $3.6 million for the three months ended March 31, 2010 from $2.2 million for the three months ended March 31, 2009. Excluding the December 2009 acquisition of our Swiss subsidiary, general and administrative expenses increased $838,000 or 38% to $3.0 million for the three months ended March 31, 2010 from $2.2 million for the three months ended March 31, 2009. This increase consists of a $386,000 increase in outside consultant expenses, a $221,000 increase in miscellaneous expenses, a $166,000 increase in salaries, bonuses, benefits and stock-based compensation expenses and a $124,000 increase in facility expenses partially offset by a $121,000 decrease in IT expenses and a $62,000 increase in travel and entertainment expenses. The increase in our general and administrative expense from the three months ended March 31, 2009 to the same period in 2010 is the result of both our investment in administrative and accounting functions as a result of our growth and international expansion and costs related to evaluating potential acquisitions. We expect that upon completion of initial public offering our general and administrative expenses will increase as a result of our public reporting requirements.

General and administrative expenses decreased $5.5 million or 35% to $9.9 million for 2009 from $15.4 million for 2008 and decreased as a percentage of revenues to 11% for 2009 from 18% for 2008. The decrease reflects the write-off of $4.0 million of deferred initial public offering costs in 2008, a $1.3 million decrease in salaries, bonuses and benefits expenses, a $756,000 decrease in stock-based compensation expenses, a $140,000 decrease in travel and entertainment expenses, a $101,000 decrease in recruiting expenses, a $33,000 decrease in IT expenses offset by a $242,000 increase in facility expenses, a $48,000 increase in outside accounting and legal costs, a $145,000 increase in depreciation expense and a $435,000 decrease in miscellaneous expenses. Using the Constant Currency Method, general and administrative expenses decreased $4.9 million or 32% to $10.5 million for 2009 from $15.4 million for 2008.

General and administrative expenses increased $6.0 million or 64% to $15.4 million for 2008 from $9.4 million for 2007 and increased as a percentage of revenues to 18% for 2008 from 15% for 2007. The increase consists of $4.0 million of expenses related to the write-off of deferred initial public offering costs in 2008, a $1.5 million increase in salaries, bonuses and benefits expenses, a $980,000 increase stock-based compensation expenses, a $715,000 increase in outside accounting and legal

costs, a $196,000 increase in IT costs, a $150,000 increase in recruiting costs, offset by a $910,000 decrease in leasehold improvement write-off expense, a $241,000 decrease in depreciation expense, a $47,000 decrease in facilities costs and a $278,000 decrease in miscellaneous expenses.

Amortization

We have purchased intangible assets as part of our acquisitions. We have amortized these intangible assets over the estimated useful life of each such asset.

Amortization expense increased $167,000 or 25% to $833,000 for the three months ended March 31, 2010 from $666,000 for the three months ended March 31, 2009, reflecting the impact of our acquisitions in the fourth quarter of 2009.

Amortization expense decreased $236,000 or 9% to $2.5 million for 2009 from $2.8 million for 2008, reflecting the impact of the fully amortized intangible assets. The change in exchange rates for 2009 from 2008 did not have a material impact on our 2009 amortization expense.

Amortization expense increased $511,000 or 23% to $2.8 million for 2008 from $2.3 million in 2007, reflecting the impact of our 2008 acquisitions and a full year of amortization of our 2007 acquisitions.

Interest Expense

Interest expense increased $1.4 million or 108% to $2.7 million for the three months ended March 31, 2010 from $1.3 million for the three months ended March 31, 2009. This increase was due to a non-cash charge related to our debt refinancing in March 2010. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings” for a description of the debt refinancing in March 2010.

Interest expense increased $816,000 or 17% to $5.5 million for 2009 from $4.7 million for 2008. The increase was due to the full period impact of 2008 and 2009 debt refinancings. The change in exchange rates in 2009 from 2008 did not have a material impact on our 2009 interest expense.

Interest expense increased $2.6 million or 121% to $4.7 million for 2008 from $2.1 million for 2007. The increase was due to the additional $25.0 million of senior subordinated debt used to finance acquisitions made in 2008, finance operations and pay earnouts for 2007 acquisitions, combined with the full year impact of 2007 debt financings.

Other Income (Expense), Net

Other income (expense), net consists of the impact of foreign currency exchange gains/losses, the net impact of changes in fair value of the preferred stock warrant liability, interest income and the receipts for services that are not considered to be our core business.

Other expense, net increased $128,000 or 22% to $722,000 for the three months ended March 31, 2010 from $594,000 for the three months ended March 31, 2009.

Other income (expense), net increased $825,000 or 389% to $1.0 million for 2009 from $212,000 in 2008. The increase was due to a $101,000 gain on the change in the fair value of the preferred stock warrants in 2009 compared to a $1.6 million gain in 2008 and a $1.9 million decrease in other income offset by a $386,000 foreign currency exchange gain in 2009 as compared to a $2.5 million loss in 2008.

Other income (expense), net increased $1.4 million to $212,000 for 2008 from ($1.2 million) for 2007. The improvement is due to a $1.6 million gain on changes in fair value of the preferred stock warrant in 2008 compared to a $2.1 million expense in 2007 combined with a $2.4 million increase in foreign currency exchange loss in 2008 as compared to 2007.

Provision (Benefit) for Income Taxes

We have incurred losses since inception and therefore do not pay significant income taxes, except in certain foreign jurisdictions where we are profitable. We have net operating loss carryforwards that may be available to offset future taxable income. We have applied a full valuation allowance against the benefits of a majority of our deferred tax assets.

Our income tax expense (benefit) includes current income taxes in jurisdictions where we are profitable, non-cash deferred tax expense from amortization of goodwill for tax but not book purposes and the impact of other book-tax differences.

Income tax benefit decreased $216,000 or 95% to a benefit of $12,000 for the three months ended March 31, 2010 from a $228,000 benefit for the three months ended March 31, 2009. We do not record a tax benefit for the majority of our net losses because of the uncertainty regarding our ability to utilize those losses to offset future taxable income. The tax benefit of $12,000 is primarily due to an increase in deferred tax expense of (i) $57,000 from goodwill amortization deductible for tax but not book purposes and (ii) $69,000 from the reduction of the deferred tax benefit recognized from the offsetting net operating losses and other timing differences against existing deferred tax liabilities.

Income tax provision decreased $162,000 or 68% to a $78,000 expense in 2009 from a $240,000 expense for 2008. We do not record a tax benefit for the majority of our net losses because of the uncertainty regarding our ability to utilize those losses to offset future taxable income. The tax expense of $78,000 is primarily due to an increase in deferred tax expense of (i) $211,000 from goodwill amortization deductible for tax but not book purposes and (ii) $133,000 from the reduction of the deferred tax benefit recognized from the offsetting net operating losses and other timing differences against existing deferred tax liabilities.

Income tax provision increased in $725,000 or 150% to $240,000 in 2008 from a benefit of $485,000 for 2007 primarily due to an increase in deferred tax expense of (i) $239,000 from goodwill amortization deductible for tax but not book purposes, and (ii) $468,000 from the reduction of the deferred tax benefit recognized from the offsetting of net operating losses and other timing differences against existing deferred tax liabilities. Current tax expense increased $18,000 from 2007 to 2008 due to an increase in taxable income in our profitable jurisdictions.

Unaudited Quarterly Results of Operations


	Quarter Ended in 2009												Quarter Ended in 2010
	March 31			June 30			September 30			December 31			March 31
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues	$	22,156		$	21,649		$	21,867		$	23,873		$	22,941
Cost of revenues		16,470			16,037			15,436			15,991			18,865

Gross profit		5,686			5,612			6,431			7,882			4,076
Research and development expenses		132			118			199			218			257
Selling and marketing expenses		3,437			3,317			3,484			5,061			4,984
General and administrative expenses		2,226			2,164			2,709			2,852			3,584
Amortization of intangible assets		602			608			634			691			733

Loss from operations		(711	)		(595	)		(595	)		(940	)		(5,482	)
Interest and other income (expense), net		(1,852	)		655			(1,612	)		(1,664	)		(3,408	)

Loss before income taxes		(2,563	)		60			(2,207	)		(2,604	)		(8,890	)
Provision for (benefit from) income taxes		(228	)		102			135			69			(12	)

Net loss		(2,335	)		(42	)		(2,342	)		(2,673	)		(8,878	)

Dividends and accretion on preferred stock		(1,321	)		(1,335	)		(1,350	)		(1,354	)		(1,315	)

Net loss to common stockholders	$	(3,656	)	$	(1,377	)	$	(3,692	)	$	(4,027	)	$	(10,193	)

Net loss per share, basic and diluted	$	(0.28	)	$	(0.10	)	$	(0.28	)	$	(0.28	)	$	(0.63	)

Other unaudited financial data: EBITDA (1)	$	(308	)	$	1,932		$	117		$	(161	)	$	(5,108	)

Weighted average shares outstanding		13,044			13,174			13,225			14,159			16,211


Consolidated Statements of Operations Data:
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		74.3	%		74.1	%		70.6	%		67.0	%		82.2	%

Gross profit		25.7	%		25.9	%		29.4	%		33.0	%		17.8	%
Research and development expenses		0.6	%		0.5	%		0.9	%		0.9	%		1.1	%
Selling and marketing expenses		15.5	%		15.3	%		15.9	%		21.2	%		21.7	%
General and administrative expenses		10.0	%		10.0	%		12.4	%		11.9	%		15.6	%
Amortization of intangible assets		2.7	%		2.8	%		2.9	%		2.9	%		3.2	%

Loss from operations		-3.2	%		-2.7	%		-2.7	%		-3.9	%		-23.9	%
Interest and other income (expense), net		-8.4	%		3.0	%		-7.4	%		-7.0	%		-14.9	%

Loss before income taxes		-11.6	%		0.3	%		-10.1	%		-10.9	%		-38.8	%
Provision (benefit) for income taxes		-1.0	%		0.5	%		0.6	%		0.3	%		-0.1	%

Net loss		-10.6	%		-0.2	%		-10.7	%		-11.2	%		-38.7	%

(1)

EBITDA represents net loss before deductions for interest expense, income taxes, depreciation and amortization of tangible and intangible assets and adjustments for non-cash changes in fair value of warrant liability. EBITDA is a supplemental financial measure, which is not based on United States generally accepted accounting principles (GAAP), used by management and industry analysts to evaluate operations.

The following is a reconciliation of net income (loss) to EBITDA:


	Quarter Ended in 2009												Quarter Ended in 2010
	March 31			June 30			September 30			December 31			March 31
	(in thousands, except per share data)
EBITDA Calculation:
Net loss	$	(2,335	)	$	(42	)	$	(2,342	)	$	(2,673	)	$	(8,878	)
Depreciation		141			150			156			222			198
Interest expense		1,258			1,450			1,334			1,467			2,686
Warrant Revaluation		190			(402	)		129			(19	)		65
Taxes		(228	)		102			135			69			(12	)
Amortization of intangible assets (including amounts in cost of revenues)		666			674			705			773			833

EBITDA	$	(308	)	$	1,932		$	117		$	(161	)	$	(5,108	)

In addition to providing financial measurements based on GAAP, we present additional historical financial metrics that are not prepared in accordance with GAAP (non-GAAP). Legislative and regulatory changes discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. We believe that the inclusion of these non-GAAP financial measures, together with our GAAP financial measures, helps investors to gain a meaningful understanding of our past performance and future results. This approach is consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. These measures are also used by management in its financial, operational and strategic decision-making and in developing incentive compensation plans.

Our non-GAAP financial measures consist of EBITDA. We define EBITDA as net income, before interest expense, income taxes, depreciation and amortization of tangible and intangible assets, adjustments for non-cash changes in fair value of warrant liability. We consider EBITDA to be an important indicator of our operational strength and performance of our core business and a valuable measure of our historical operating trends.

There are limitations associated with reliance on these non-GAAP financial metrics because they are specific to our operations and financial performance, which makes comparisons with other companies’ financial results imprecise. We recognize that the non-GAAP measure EBITDA does have certain limitations. It does not include interest expense, which is a necessary and ongoing part of our cost structure resulting from debt incurred to expand operations. EBITDA also excludes depreciation, amortization expense, adjustments for non-cash changes in fair value of warrant liability. The exclusion of these items, in light of their recurring nature, is a material limitation of EBITDA. To manage these limitations, we have policies and procedures in place to identify expenses that qualify as interest, taxes, depreciation and amortization to approve and segregate these expenses from other expenses to ensure that our EBITDA is consistently reflected from period to period.

EBITDA excludes some items that affect net income (loss) and may vary among companies. The EBITDA we present may not be comparable to similarly titled measures of other companies. EBITDA does not give effect to the cash that we must use to service its debt or pay income taxes and thus does not reflect the funds generated from operations or actually available for capital investments. By providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies while also gaining an understanding of our operating performance as evaluated by management.

Liquidity and Capital Resources

Overview

Since our inception in 2001, we have primarily funded our operations through the issuance of an aggregate of $76.0 million in preferred stock and $60.0 million in borrowings under our loan and security agreements described below. We used these proceeds to fund our operations, invest in property and equipment and acquire other companies.

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2007, 2008 and 2009 and the three months ended March 31, 2009 and 2010:


	Year Ended December 31,									Three Months Ended March 31,
	2007			2008			2009			2009			2010

Net cash provided by (used in) operating activities	$	(8,888	)	$	(9,151	)	$	(685	)	$	2,280		$	(4,343	)
Net cash used in investing activities		(19,149	)		(8,209	)		(1,070	)		(251	)		(49	)
Net cash provided by (used in) financing activities		30,251			23,776			(3,157	)		(1,208	)		4,295
Effect of foreign currency on cash and cash equivalents		(1	)		145			(10	)		71			(21	)

Net increase (decrease) in cash and cash equivalents	$	2,213		$	6,561		$	(4,922	)	$	892		$	(118	)

Cash Flows from Operating Activities

Cash used in operating activities primarily consists of net losses adjusted for certain non-cash items including depreciation and amortization, non-cash interest expense, stock-based compensation expenses, the non-cash change in warrant liabilities and the effect of changes in working capital and other activities.

Cash used in operating activities for the three months ended March 31, 2010 was $4.7 million and consisted of an $8.9 million net loss, partially offset by $4.2 million in non-cash items and $56,000 of cash provided by working capital items. Non-cash items consisted of $787,000 in non-cash debt refinancing charges, $1.1 million in non-cash interest expense, $1.0 million in depreciation and amortization of intangibles, $663,000 of non-cash foreign currency impact on intercompany accounts and $439,000 of non-cash stock compensation expense. The cash provided from working capital items consisted of a $5.2 million increase in deferred revenue, a $1.7 million increase in accounts payable and a $1.3 million decrease in accounts receivable, offset by a $3.6 million increase in prepaids and other assets, a $3.3 million decrease in accrued expenses and a $1.9 million increase in other assets.

The $5.2 million provided by the increase in deferred revenue is a result of the timing of renewals, signing of new long-term contracts and revenue recognition. The future cash flows from deferred revenue is highly dependent on these factors and we expect the cash flows to fluctuate in future periods. The changes in accounts payable and accrued expenses are driven by the payment terms of our liabilities. We expect the cash used or provided by these accounts to fluctuate during the year. The

increase in prepaids and other current assets results from the deferral of third party expenses related to our multi-element deals. We expect the cash flows from prepaids and other assets to fluctuate, but to a lesser extent in future periods.

Cash used in operating activities for the three months ended March 31, 2009 was $2.3 million and consisted of a $2.3 million net loss, partially offset by $2.2 million in non-cash items and $2.4 million provided by working capital items. Non-cash items consisted of $1.1 million of non-cash interest expense, $807,000 of depreciation and amortization of intangible assets, $210,000 of warrant revaluation expense, $207,000 of non-cash foreign currency impact on intercompany accounts and $157,000 of non-cash stock based compensation expense. The cash provided by working capital items consisted of a $3.3 million decrease in prepaids and other current assets and a $644,000 decrease in accounts receivable, offset by a $919,000 decrease in accounts payable, a $520,000 decrease in deferred revenue and a $184,000 decrease in accrued expenses.

Cash used in operating activities for 2009 was $685,000 and consisted of a $7.3 million net loss and $2.1 million used for working capital purposes and other activities offset by $8.8 million in non-cash items. Non-cash items consisted primarily of $4.4 million in non-cash interest, $3.5 million of depreciation and amortization, $1.1 million in stock-based compensation expenses and a $292,000 debt extinguishment charge, partially offset by a $527,000 non-cash foreign currency loss on intercompany expenses and a $101,000 non-cash reduction in the fair value of warrant liability. Cash used for working capital purposes and other activities consisted primarily of a $2.6 million decrease in accounts payable, a $2.6 million decrease in deferred revenue, a $1.6 million increase in other assets, partially offset by a $2.9 million increase in accrued expenses and a $1.7 million decrease in accounts receivable.

The decrease in deferred revenue, which resulted in an increase in cash used in operations, was the result of the timing of invoicing and delivery of our managed services. Deferred revenue will fluctuate in future periods based on the timing of new contracts, renewals and delivery of services. The cash used for other assets is the result of our capitalization of $875,000 of initial public offering costs and other recurring events. Cash provided by or used in working capital is a function of our growth rate and in high growth periods, we will have temporary working capital needs.

Cash used in operating activities for 2008 was $9.2 million and consisted of a $23.3 million net loss offset by $11.3 million of non-cash items and $2.9 million in cash provided from working capital purposes and other activities. Non-cash items consisted primarily of $4.1 in non-cash interest, $3.6 million in depreciation and amortization, $2.7 million in stock-based compensation expense and a $2.5 million non-cash foreign currency loss on intercompany expenses, partially offset by a $1.6 million decrease in the fair value of warrants. Cash provided by working capital and other activities consisted primarily of a $6.9 million increase in deferred revenue, a $1.5 million decrease in unbilled revenue, partially offset by a $3.0 million decrease in accrued expenses, a $1.8 million increase in accounts receivable and a $1.3 million decrease in accounts payable.

Cash used in operating activities for 2007 was $8.9 million and consisted of a $13.8 million net loss and $792,000 of cash used for working capital purposes and other activities largely off-set by $5.7 million of non-cash items. Non-cash items consisted primarily of $3.1 million of depreciation and amortization, $2.1 million non-cash change in the warrant liability, $788,000 of non-cash interest expenses and $353,000 of stock-based compensation expenses, partially offset by a $555,000 non-cash tax benefit. Cash used for working capital purposes and other activities consisted primarily of a $7.4 million increase in prepaids and other assets, a $2.4 million increase in accounts receivable and a $740,000 decrease in accounts payable, offset by a $5.9 million decrease in deferred revenues and a $4.0 million increase in accrued expenses.

Accounts Receivable and Days Sales Outstanding

Our days sales outstanding for 2007, 2008, 2009 and the three months ended March 31, 2009 and 2010 and our accounts receivable balance at December 31, 2007, 2008, and 2009 and March 31, 2009 and 2010 were as follows:


	December 31,						March 31,
	2007		2008		2009		2009		2010
Days sales outstanding		103		79		86		69		77
Revenue	$	61,241	$	85,058	$	89,545	$	22,156	$	22,941
Accounts receivable	$	17,249	$	18,310	$	21,054	$	16,961	$	19,651

The increase in days sales outstanding for the three months ended March 31, 2010 as compared to March 31, 2009 is due to the impact of the accounts receivable of fourth quarter 2009 acquisitions. Our increase in days sales outstanding at December 31, 2009 as compared to our days sales outstanding at December 31, 2008 is due to the impact of accounts receivable of our fourth quarter of 2009 acquisitions. We expect our days sales outstanding to remain in the 75 to 90 day range.

Cash Flows from Investing Activities

Cash used in investing activities was $19.1 million, $8.2 million and $1.1 million for 2007, 2008 and 2009, respectively, and $251,000 and $49,000 for the three months ended March 31, 2009 and 2010, respectively. Our principal cash investments have related to acquisitions and the purchase of property and equipment.

During the three months ended March 31, 2010, cash used in investing activities consisted primarily of $48,000 of purchases of property and equipment.

During the three months ended March 31, 2009, cash used in investing activities consisted primarily of $253,000 of purchases of property and equipment.

During 2009, cash used in investing activities consisted primarily of $539,000 of earnouts paid related to prior acquisitions and cash paid for acquisitions, net of cash acquired, $565,000 of purchases of property and equipment and a $34,000 decrease in restricted cash.

During 2008, cash used in investing activities consisted primarily of $5.0 million for cash paid for acquisitions, net of cash acquired, a $2.1 million increase in restricted cash and $1.1 million of purchases of property and equipment.

During 2007, cash used in investing activities consisted primarily of $18.8 million used for cash paid for acquisitions, net of cash acquired in the acquisitions, and $388,000 of purchases of property and equipment.

Cash Flows From Financing Activities

Cash flows provided by (used in) financing activities were $30.3 million, $23.8 million and $(3.2) million for 2007, 2008 and 2009, respectively, and $(1.2) million and $4.3 million for the three months ended March 31, 2009 and 2010, respectively.

Stock Repurchase

In June 2008, we purchased approximately 1,766,000 shares of our common stock and 238,000 shares of our series 1 convertible preferred stock for $4.0 million and $537,000, respectively, from certain of our officers and employees. The shares were purchased at $2.26 per share, the fair value at the time of the purchase.

Equity Financing Activities

In April 2007, we raised net proceeds of $5.0 million through the sale of additional Series D preferred stock and in May and August of 2007 we raised approximately $11.4 million of net proceeds through the sale of Series E preferred stock. In November 2008, we raised net proceeds of approximately $9.6 million through the sale of Series F preferred stock.

Borrowings

As of March 31, 2010 we had outstanding debt in the amount of $49.4 million, including principal, accrued interest and final balloon payments, under loan agreements with our lenders. During 2007, 2008 and 2009, we made principal repayments of $3.5 million, $6.3 million, and $3.2 million. Principal repayments exclude repayments of borrowings made under our Israeli subsidiary credit line.

Bank Leumi and Israel Discount Bank. Our Israeli subsidiary has overdraft and credit lines from Bank Leumi, and a term loan and an on-call loan from Israel Discount Bank. At March 31, 2010, the total credit line from Bank Leumi was 9 million Israeli new shekels (NIS) ($2.4 million), the total amount outstanding under the term loans was NIS 3.0 million ($810,000), and the total amount outstanding under the on-call loan was NIS 5.0 million ($1,319,000) and NIS 6.0 million ($1,621,000) outstanding as an on-call loan at December 31, 2009 and March 31, 2010, respectively which were included in short-term loans from banks.

The interest paid to Bank Leumi for 2009 and the three months ended March 31, 2010 was NIS 258,000 ($68,000) and NIS 67,000 ($18,000). Interest paid to Israel Discount Bank for 2009 and the three months ended March 31, 2010 was NIS 50,000 ($13,000) and NIS 11,000 ($3,000). The interest rate on the term loans was equal to the rate of the Bank of Israel plus 1.5% (Rate) plus 2.2% (unaudited), 2.2% and 2.5% as of March 31, 2010, December 31, 2009 and 2008, respectively. The interest rate on the on-call loans was the Rate plus 2.3% (unaudited) and 2.3% as of March 31, 2010 and December 31, 2009 respectively.

As of December 31, 2007, 2008, 2009 and March 31, 2010 there was $2.1 million, $2.0 million, $2.3 million and $2.4 million, respectively, outstanding under the loans which are included in the current portion of long-term debt. As of December 31, 2009, an additional amount of $74,000 was included in the long-term portion of debt.

The credit lines are secured by all of our Israeli subsidiary’s assets and a $2.0 million fully cash collateralized letter of credit. The lines have certain covenants including minimum balance sheet ratios for the Israeli subsidiary. As of March 31, 2010, our Israeli subsidiary was in compliance with these covenants.

The 2004 Loan Agreement. In June 2004, we entered into a Loan and Security Agreement (the 2004 Loan Agreement) with Lighthouse Capital Partners (Lighthouse). Under the 2004 Loan Agreement, we were allowed to borrow up to $6.0 million before June 2005. The 2004 Loan Agreement is secured by substantially all of our assets. Borrowings under the 2004 Loan Agreement bore interest at a fixed rate of 7.00% per annum and required interest only payments until June 30, 2005, followed by 36 consecutive monthly payments of principal and interest, payable monthly in advance. Interest during the repayment period is 7.5% per annum. In addition, there was a final non-principal balloon payment of $450,000 due at loan maturity. The final non-principal balloon payment was amortized as interest expense through its maturity date of June 2008. For the years ended December 31, 2007, 2008 and 2009, we amortized $119,000, $59,000 and $0, respectively.

In July 2006, we amended the 2004 Loan Agreement (Amendment No. 2) to allow for an additional $3.0 million in borrowings before December 31, 2006. Borrowings under Amendment No. 2 bore interest

at a fixed rate of 7.00% per annum and required interest only payments until October 31, 2007, followed by 36 consecutive monthly payments of principal and interest, payable monthly in advance. The per annum interest rate during the repayment period was equal to the prime rate at the beginning of the repayment period plus 1.75%. Prior to the restructuring in June 2009 as described below, this interest rate was 10% per annum. Subsequent to the restructuring the interest rate was fixed at 13.5% per annum. In addition, there was to be a final non-principal balloon payment of $233,000, due at loan maturity. At December 31, 2009 there was $1.24 million payable under Amendment No. 2, which includes $76,000 of interest and $344,000 of the non-principal balloon payment. The final non-principal balloon payment is being amortized as interest expense through its maturity date of July 2011, of which we amortized $70,000, $72,000 and $18,000 in 2008, 2009 and the three months ended March 31, 2010, respectively.

In March 2007, we amended the 2004 Loan Agreement (Amendment No. 3) to allow for an additional $10.0 million in borrowings before August 31, 2007. Borrowings under Amendment No. 3 bore interest at a fixed rate of 10.00% per annum and required interest only payments until August 1, 2007 with 36 consecutive monthly payments of principal and interest, payable monthly in advance beginning September 1, 2007. In addition, there was to be a final non-principal balloon payment of $625,000 due at loan maturity. At December 31, 2009, there was $5.8 million payable under Amendment No. 3, which includes $421,000 of interest and $894,000 of final payment. The final non-principal balloon payment is being amortized as interest expense through its maturity date of July 2011, of which we amortized $183,000, $216,000 and $60,000 in the years ended December 31, 2008 and 2009 and the three months ended March 31, 2010, respectively.

In June 2009, we modified the terms of the 2004 Loan Agreement such that we will make interest-only payments during the period June 2009 through February 2010 at an annual interest rate of 13.5%. In March 2010, all amounts outstanding under the 2004 Loan Agreement, as amended, will be repaid based on a 15-month amortization schedule of principal and interest payment with a 10% interest rate. In consideration for the restructuring of the 2004 Loan Agreement, we will pay an additional $380,000 of final non-principal balloon payments to the lender upon maturity of the 2004 Loan Agreement, as amended, in July 2011. The payment date of the $1.2 million of final non-principal balloon payments outstanding was modified such that they are now due July 2011.

In connection with entering into the 2004 Loan Agreement along with the two additional amendments, we issued warrants to the lender to purchase shares of our Series C and Series D preferred stock, subject to certain anti-dilution adjustments. The purchase rights represented by the warrants are exercisable immediately and have a term of seven years. The warrants have been collectively valued at $1,039,000 using an option valuation model.

The 2004 Loan Agreement, as amended, does not require us to meet financial ratios, but does have certain affirmative covenants (for example, good standing, maintenance of collateral) and certain negative covenants (for example, payments of cash, cash dividends, restructuring, prohibited transactions).

The 2007 Loan Agreement. In August 2007, we entered into a loan agreement (2007 Loan Agreement) and a series of related secured promissory notes (BayStar Notes) with a syndicate of new lenders led by BayStar Capital III Investment Fund, L.P. (BayStar). Under the agreement, we were able to borrow up to a maximum of $14.0 million in three separate loans totaling $6.0 million, $4.0 million and $4.0 million. The $6.0 million borrowing was drawn in August 2007 and the first and second $4.0 million borrowings expired, without being drawn upon, on December 31, 2007 and March 31, 2008, respectively. Prior to the restructuring in June 2009 as described below, borrowings under this agreement bore interest at 9.75% per annum, which accrued for the lesser of a period of one year or

until the next equity financing event. Subsequent to the restructuring the interest rate was fixed at 14.5% per annum. The BayStar Notes called for principal and interest payments to commence on the first anniversary of the respective BayStar Notes. The payments were scheduled as if it were a 36-month repayment period. On the third anniversary of the BayStar Notes, all unpaid principal and interest were to be due and payable. The aggregate principal amount of the BayStar Notes issued pursuant to the loan agreement, and all accrued but unpaid interest thereunder, were convertible into our common stock at the option of the lender upon the earlier of (1) the consummation of our next equity financing, (2) the date that is 15 months after the date of the respective BayStar Note, or (3) the maturity date of the respective BayStar Note. There were no specific financial covenants related to the BayStar loan agreement. At December 31, 2009 there was $6.2 million in the aggregate due under the BayStar Notes, which includes $689,000 of interest and $360,000 of final payments. The conversion feature of this loan agreement did not give rise to an initial beneficial conversion feature because the discounted conversion rate was contingent upon a future financing, that was not certain. If we were to have had a future financing, such that the conversion rate would be adjusted, the change in the value would have resulted in a beneficial conversion feature and would have been recognized as additional interest expense.

In June 2009, we modified the terms of the agreement such that we were to make interest only payments during the period June 2009 through February 2010 at an annual interest rate of 14.5%. We were to begin making principal and interest payments in March 2010. The payments were scheduled as if it were a 24-month repayment period with a 14.5% interest rate. In January 2011, all unpaid principal and interest would have been due and payable. In consideration for the modification of the agreement, we agreed to pay a $386,000 restructuring fee. Of this amount, $26,000 of the fee was paid at time of modification, $180,000 would have been due and payable January 2011 and $180,000 would have been due and payable upon a change in control of the Company or January 2012, whichever came earlier.

In March 2010, we negotiated a prepayment of the 2007 Loan Agreement. We paid the syndicate of lenders a total of approximately $5.8 million, which included accrued and unpaid interest, interest that would have accrued had the notes remained in place through maturity and the $360,000 restructuring fee. In addition, we issued the syndicate of lenders additional warrants to purchase up to 870,000 and 527,466 shares of our common stock at an exercise price of $2.86 and $2.5594 per share, respectively in consideration of the syndicate foregoing the conversion feature of the BayStar Notes in connection with the prepayment of those notes. These payoff warrants expire five years from the date of issuance.

Dell Note. In March 2008, we entered into a securities purchase agreement (the Dell Purchase Agreement) and related promissory note (the Dell Note) with Dell Products L.P. (Dell) whereby we borrowed $25.0 million, the maximum amount provided for under the Dell Note. Borrowings bear interest at 10% per annum. The Dell Note matures on March 6, 2011, and does not require or permit principal or interest payments until maturity.

At Dell’s option, the outstanding principal, plus all accrued but unpaid interest, under the Dell Note are convertible as follows: (1) at any time after March 6, 2009, into shares of the most recently issued series of our preferred stock at a conversion price equal to the conversion rate of such series of preferred stock as of the date of conversion; (2) at the closing of a qualified public offering (as defined below) after March 6, 2009, into shares of our common stock at a conversion price equal to 90% of the initial public offering price per share; (3) at the closing of a sale of our preferred stock that results in aggregate proceeds of at least $10,000,000 (a qualified financing), at a price per share equal to 90% of the lowest price per share at which such shares of preferred stock were issued and sold in the qualified financing; or (4) at the closing of a corporate transaction involving a change of control or a sale of our assets, into, at Dell’s option, either (a) shares of our preferred stock at a price per share equal to the

conversion price of such series of preferred stock as of the date of conversion or (b) the number of shares of our common stock issuable upon conversion of our preferred stock issuable pursuant to clause (a). Pursuant to the terms of the Dell Purchase Agreement, a qualified public offering means our first firm commitment underwritten offering to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended, provided that such registration statement covers the offer and sale of our common stock of which the aggregate net proceeds exceed $35,000,000, our common stock is listed for trading on the New York Stock Exchange, the Nasdaq Global Market or the Nasdaq Global Select Market and the per share public offering price (net of underwriter discounts and commissions) exceeds $4.8636 (as adjusted for stock splits, stock dividends, recapitalizations and the like). We are unable to determine at this time whether the offering contemplated by this prospectus will satisfy the definition of a qualified public offering under the Dell Purchase Agreement.

Concurrent with the Dell Note, we entered into an agreement (the IP Agreement) to sell Dell Marketing USA L.P. (Dell USA) a perpetual irrevocable license to certain of our intellectual property (IP). The IP Agreement included a three-year support agreement whereby we are required to provide updates to our IP, when and if available, and provide a defined level of support (IP Support). Dell USA will pay us a total of $1.5 million over three years in equal installments of $500,000 in March 2008, 2009 and 2010. The March 2008, 2009 and 2010 payments were received in accordance with the payment schedule. We had not previously licensed our IP or related IP Support prior to the IP Agreement and at that time did not foresee the licensing of our IP and related IP Support being an ongoing or significant part of our business going forward. As such, we were unable to determine the fair value of the IP or the IP Support. As we could not determine the fair value of the IP nor the IP Support, we were unable to treat them as distinct and separate elements from the Dell Note and therefore treat the income from the IP and related IP Support as contra interest expense. We will record the receivable as it is invoiced. We have determined that we should record the amount due under the IP Support contract as we invoice the amounts instead of recording the entire amount due as a receivable upon the execution of the IP Agreement. Our determination was based on the following factors: (1) we earn the amount due over time; (2) we do not have the right or ability to invoice except for annually; (3) the amounts are not due to us upon signing of the IP Agreement; (4) the amount is not deemed to be collectable until invoiced; and (5) Dell USA can cancel the IP Support (under defined circumstances) and not pay for the portion of the IP Support cancelled.

The embedded conversion feature of the Dell Note is considered a beneficial conversion feature. The embedded conversion feature was evaluated under FASB issued guidance now codified within FASB ASC Topic No. 480, Distinguishing Liabilities from Equity. The Dell Note has a mandatory repayment feature, and as such, is classified as a debt instrument with an embedded conversion feature. The embedded conversion feature was valued at $2.5 million and was recorded as additional paid in capital and a debt discount. The debt discount is shown net against the related Dell Note on the Consolidated Balance Sheet and is being amortized as additional interest expense over the life of the Dell Note. The Dell Warrant that was issued in conjunction with the Dell Note represents an additional beneficial conversion feature that is contingent upon the future vesting of the Dell Warrant. As the beneficial conversion feature is contingent, its value will be recorded only upon vesting of the Dell Warrant.

Wellington Debt. We financed the prepayment of the 2007 Loan Agreement through a new loan agreement and related secured promissory note (Wellington Note) with WF Fund III Limited Partnership (c/o/b as Wellington Financial LP and Wellington Financial Fund III). Under the agreement, we borrowed $9.75 million through a single term loan which bears interest at 11.95% per annum. Interest is repaid monthly in arrears and the outstanding principal amount is to be repaid upon maturity of the Wellington Note. The initial term of the loan is two years and can be extended up to two additional years as long as we are not in default under the loan agreement and are in compliance with the leverage ratios included in the loan agreement. The loan agreement contains a financial covenant that provides minimum revenue, EBITDA and liquidity requirements.

U.K. Debt. We acquired our U.K. subsidiary, Systems Group Integration Ltd. (SGI), in September 2009 and assumed its existing debt. Under the terms of the acquisition we may factor trade receivables up to a limit of £750,000 ($1.1 million), while advances of up to 80% of the gross invoice values are permitted. At December 31, 2009 and March 31, 2010 there were £43,000 ($68,000) and £0 of factored receivables outstanding, respectively.

In June 2009, SGI entered into a loan agreement which provided for advances up to £120,000 ($191,000), secured by personal guarantees of the directors of SGI at that time. At December 31, 2009 and March 31, 2010 there were unpaid advances totaling £66,000 ($105,000) and £0 outstanding, respectively.

The Company also maintains a third party note with former directors of SGI that do not have formal agreements. The outstanding balance of this note of £17,000 ($27,000) and £17,000 ($26,000) is included on the December 31, 2009 and March 31, 2010 consolidated balance sheets, respectively.

Switzerland Debt. We acquired vcare Infosystems AG (vcare) in November 2009 which had an existing Line of Credit (LOC) agreement including an overdraft facility. Under the LOC agreement vcare may borrow against qualified trade receivables and advances of up to 85% of the gross invoice values are permitted. At December 31, 2009 and March 31, 2010 there were no factored receivables. At March 31, 2010 the overdraft facility had a balance of CHF173,000 ($162,000).

vcare has a loan agreement which provides up to CHF462,000 ($445,000) for advances, secured by personal guarantees of certain officers and former shareholders of vcare. At December 31, 2009 there were unpaid advances totaling CHF435,000 ($409,000) outstanding.

Warrants and Other Equity Rights Issued in Conjunction with Borrowings

In connection with entering into the 2004 Loan Agreement along with the two additional amendments, we issued warrants to the lender to purchase 352,940 shares of our Series C preferred stock and 322,807 shares of our Series D preferred stock at exercise prices ranging from $0.85 to $2.4318 per share, subject to certain antidilution adjustments. The purchase rights represented by the warrants are exercisable immediately and have a term of seven years. The warrants have been collectively valued at $813,000 using an option valuation model. We recorded the fair value of the warrants as an original issue discount on the debt, which was amortized as interest expense through the loan maturity dates ranging from June 2008 to June 2011.

In connection with the 2007 Loan Agreement in August 2007, we issued warrants to the lenders to purchase common stock. Pursuant to these warrants, the purchase price will be equal to 80% of the per share price of the equity securities issued and sold by us in an equity financing in which we receive net proceeds of at least $10.0 million, including an initial public offering, and the number of shares available for purchase will be determined by dividing $450,000 by such purchase price. In the event that a qualifying equity financing does not take place within 15 months of the agreement, the purchase price will be adjusted to $2.5594 per share and the number of shares issuable under the warrant will be adjusted to 527,466 shares. The warrant expires six years from the date of issuance. The warrants were valued at $482,000 using an option valuation model, assuming a weighted-average risk free rate of return of 4.25%, an expected life of six years, 45% volatility, and no dividends. We recorded the fair value of the warrants as an original issue discount on the debt assuming 527,466 shares will be issuable, which was amortized as interest expense through the loan maturity date of June 2009. As the qualifying equity financing did not take place within 15 months of the agreement, the Company cancelled the warrants and issued new warrants for 527,466 shares.

As part of the Dell Purchase Agreement, we granted Dell a warrant to purchase shares of our common stock or preferred stock (the Dell Warrant). Because the Dell Warrant is considered to be issued

as part of the Dell Note, it was recorded at its fair value of $830,000 by recording a debt discount. The debt discount is shown net against the related Dell Note on our Consolidated Balance Sheets. As the Dell Warrant may be exercised for preferred stock and such underlying preferred stock would have a mandatory redemption feature, it is classified as a liability. The Dell Warrant is contingently exercisable and as such will be revalued and “marked to market” for each reporting period after these contingencies are removed. Also as part of the Dell Purchase Agreement, we granted Dell an option to purchase 5% of our common stock calculated on a fully-diluted basis (the Dell Option). Similar to the Dell Warrant, the Dell Option is considered to be issued as part of the Dell Note but is contingent upon a qualified public offering. Once the qualified public offering contingency is removed or met, we will record the fair value as additional debt discount and the offset will be recorded as a component of stockholders’ equity.

As part of the Dell Purchase Agreement, we granted Dell the Dell Option. The Dell Option will become exercisable as early as ten months after the date of a Qualified Public Offering upon which the closing price of our common stock as reported by the market upon which our shares of common stock are publicly traded (the Primary Market) on each trading day during a period of 20 consecutive trading days is not more than 10% higher or lower than the closing price of our common stock as reported on the Primary Market on the first day of such 20-trading day period. The exercise price per share of our common stock subject to the Dell Option will be equal to the average closing price of one share of our common stock as reported on the Primary Market for the 20 consecutive trading days ending on the date that is one trading day immediately preceding the date of exercise of the Dell Option. Also as part of the Dell Purchase Agreement, we granted Dell the Dell Warrant. The Dell Warrant is exercisable in connection with a Qualified Financing or a sale of our company and expires upon the consummation of a Qualified Public Offering. We are unable to determine at this time whether the offering contemplated by this prospectus will satisfy the definition of a Qualified Public Offering under the Dell Purchase Agreement.

Contractual Obligations

Our principal commitments consist of obligations under borrowings, leases for office space, computer equipment and furniture and fixtures. The following table summarizes our long-term contractual obligations as of December 31, 2009 (in thousands):


	Payments Due by Period						4-5 years		More than 5 years
	Total		1 year		2-3 years		4-5 years		More than 5 years
Debt principal, interest and balloon repayments	$	44,609	$	7,554	$	36,636	$	—	$	419
Capital lease obligations		4		4		—		—		—
Operating lease obligations		4,823		2,125		2,533		165		—

Total	$	49,436	$	9,683	$	39,169	$	165	$	419

Debt consists of various debt facilities maintained with Dell, Lighthouse, BayStar, Velocity Financial Group, Inc. and Leader Lending, LLC. On March 29, 2010, we refinanced amounts outstanding on the 2007 Loan Agreement ($5.8 million) with proceeds from a loan from Wellington Financial LP ($9.8 million). On June 28, 2010, we completed the following actions related to our borrowings and financings:

Executed a “loan forebearance” agreement with Lighthouse which deferred principal payments of $1.4 million due between June and September,

Executed a convertible loan agreement with its existing equity investor, and

Revised certain covenants of the loan from Wellington Financial LP.

Of the $39.2 million in debt principal payments that will become due 2-3 years from December 31, 2009, we expect to pay $25.0 million from the proceeds of our initial public offering. All other obligations in the above table are expected to be paid from our operating cash flows.

Capital lease obligations consist primarily of tangible assets under non-cancelable capital leases.

Operating leases consist primarily of leases on facilities with arrangements that expire in various years through March 2012.

We believe our existing cash and cash equivalents of $7.1 million as of March 31, 2010 combined with proceeds from this offering and other anticipated equity or debt financings, including our available borrowings, will be adequate to fund our operations for at least the next 12 months. In particular, if Dell elects not to allow us to redeem the Dell Note, we will need additional financing to be able to pay off the Dell Note at maturity. Our future working capital and financing requirements will depend on many factors, including the rate of our revenue growth, our ability to integrate recent acquisitions and our expansion of sales and marketing and product development activities. To the extent that our cash and cash equivalents, cash flows from operating activities and net proceeds of this offering are insufficient to fund our future activities, we may need to raise additional funds through bank credit arrangements or public or private equity or debt financings. We also may need to raise additional funds in the event we decide to effect one or more acquisitions of companies, technologies or products. In the event additional funding is required, we may not be able to obtain financing on terms acceptable to us or at all. Further, limitations on our ability to incur additional debt under our loan obligations with certain debt and equity holders may limit our ability to obtain additional financing.

Application of Critical Accounting Policies

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). The preparation of these financial statements requires that we 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 period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this prospectus.

We believe that of our significant accounting policies, which are described in Note 1 to our consolidated financial statements included in this prospectus, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

Our revenues consist of both service revenues and product revenues. Service revenues consist of consulting services and managed services. Our contracts have different terms based on the scope, deliverables and complexity of the engagement, the terms of which frequently require us to make judgments and estimates in recognizing revenues. Amounts are considered to be earned once the following has occurred: (i) evidence of an arrangement has been obtained, (ii) services are delivered, (iii) fees are fixed or determinable and (iv) collectibility is reasonably assured.

Revenues recognized in excess of billings are recorded as unbilled revenue. Billings in excess of revenues recognized are recorded as deferred revenues until revenue recognition criteria are met. Client prepayments even if non-refundable are deferred (i.e., classified as a liability) and recognized over future periods as services are delivered or performed.

We also incur out-of-pocket expenses, which are generally reimbursed by the client. These reimbursements are classified as service revenues and cost of services in our consolidated statements of operations, and amounted to $1.6 million, $1.7 million and $1.1 million for the years ended December 31, 2007, 2008 and 2009, respectively and $223,000 and $309,000 for the three months ended March 31, 2009 and 2010, respectively.

Consulting Services. We sell consulting services in all of the geographies in which we operate. Consulting services typically have a delivery cycle of less than a year and can be fixed fee or time and materials.

Consulting service revenues from fixed price contracts are recognized using the proportional performance method pursuant to the SEC’s Staff Accounting Bulletin (SAB) 104. Proportional performance accounting is based on an efforts expended method, based on hours incurred during the reporting period compared with the total estimated hours to be provided over the duration of the contract. This method is followed where reasonably dependable estimates of revenues and effort can be made. In cases where reasonably dependable estimates cannot be made, the completed contract method is used for revenue recognition. As part of our revenue recognition process, we perform monthly reviews of our fixed fee contracts whereby we evaluate the total hours of effort that are expected to be expended under each specific fixed fee project. Such reviews may result in increases or decreases to revenues and income and are reflected in our consolidated statements of operations in the periods in which they are first identified. Historically any changes to total hours of effort expected to be expended under a fixed fee contract have not been significant and have not required a change in revenue recognized in prior periods. Due to the nature of the fixed fee contracts that we enter into and our experience in executing similar contracts in the past, we believe that our estimates are reliable and accurate. If estimates indicate that a contract loss will occur, a loss provision will be recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and indirect costs of the contract exceed the estimated total revenues that will be generated by the contract and are included in cost of services and classified in other accrued liabilities in our consolidated balance sheets. Consulting service revenues from time-and-materials contracts are recognized as services are provided, pursuant to FASB ASC Topic No 605-25.

Managed Services. Managed services consist of infrastructure operations services (IOS) contracts and multi-element contracts. Managed services contracts typically have a term of one to three years.

We sell IOS in all the geographies in which we operate. These contracts are fixed price contracts that have a consistent monthly fee and typically have a term of one to three years. Pursuant to FASB ASC Topic No 605-25, revenues from IOS contracts are recognized on a monthly basis as the monthly service is delivered. Certain of our IOS agreements include specified service levels which, if not achieved, could result in penalties, including refunds for services provided for the period the service level was not met. We monitor and review service-level commitments on a monthly basis for these agreements and through this process identify any service level not met before the related revenue is recognized. If during a period a service level is not met, the amount of the credit due to the client is accrued as a reduction of revenue in that period. We have not historically issued credits as we have met or exceeded contracted service-level agreements.

Our Israeli, Turkish and Swiss subsidiaries sell multi-element contracts. Multi-element contracts are comprised of the resale of either or both third-party hardware or software with related third party maintenance and our (i) consulting services, (ii) IOS or (iii) a combination of consulting and IOS. The consulting services included in the multi-element arrangements can be fixed fee or time-and-materials. The IOS included in the multi-element arrangements are fixed fee. In all multi-element arrangements, we have determined that we are the principal in the transaction and as such we recognize all revenue on a gross basis.

In multi-element service contracts that contain the resale of third-party hardware with related third party maintenance and either or both our consulting services and IOS managed services, we recognize

revenue in accordance with FASB ASC Topic No. 605-25. Under FASB ASC Topic No. 605-25, revenues can be allocated to the different elements of the multi-element arrangement if there is objective and reliable evidence of the fair value of the different elements. In these multi-element service contracts, the fair value of each element cannot be objectively determined. As such, the total value of the arrangement is recognized ratably over the entire service period to the extent that all services were provided at the outset of the period.

We enter into multi-element service contracts that include the resale of licensed third-party software under perpetual license agreements. Such contracts have multiple elements, which could include consulting services, IOS, third-party hardware and related maintenance, or any combination of these elements. Revenue on these contracts can be allocated between the elements based on each element’s relative fair value, provided that each element meets specified criteria as a separate element. If the fair value of each element cannot be objectively determined by having vendor specific objective evidence of fair value, the total value of the arrangement is recognized ratably over the entire service period to the extent that all services were provided at the outset of the period. Under our multiple element arrangements where software products are sold in conjunction with managed services contracts, the fair value of each element has not been objectively determinable. Therefore, all revenues under these types of arrangements are recognized ratably over the estimated service period to the extent that all services have begun to be provided at the outset of the period.

Our Swiss subsidiary, vcare Infosystems AG, sells multi-element contracts that contain perpetual licenses of its software along with related maintenance provided by us. Such contracts may also include either or both our consulting or IOS. The consulting services can be fixed fee or time and material based contracts. Revenues are recognized for these contracts under the provisions of FASB ASC Topic No. 985, Software. Under FASB ASC Topic No. 985, revenues can be allocated between the elements based on each element’s relative fair value, provided that each element meets specified criteria as a separate element. If the fair value of each element cannot be objectively determined by having vendor specific objective evidence of fair value, the total value of the arrangement is recognized ratably over the entire service period to the extent that all services were provided at the outset of the period. Under our multi-element arrangements where our software is licensed in conjunction with managed services contracts, maintenance we provide, or both, the fair value of each element cannot be objectively determined. Therefore, all revenues under these types of arrangements are recognized ratably over the estimated service period to the extent that all services have begun to be provided at the outset of the period.

We incur certain direct costs from third parties in conjunction with our multi-element arrangements. These costs include third-party product costs and third-party, post-contract support costs. The third party post-contract support costs are the costs of the third party maintenance for the third party equipment or software. The third-party maintenance agreements are typically one to three years. We defer the direct and incremental third-party costs associated with our multi-element arrangements and recognize the expense on a straight-line basis over the service period of the arrangement to properly match these costs with the related revenue. We report the revenues from multiple element arrangements as a component of service revenue in our consolidated statements of operations when the fair value of the hardware and software components cannot be reasonably determined. Revenues from multi-element arrangements were $2.9 million, $24.6 million and $19.6 million for 2007, 2008 and 2009 and $5.0 million and $4.8 million for the three months ended March 31, 2009 and 2010, respectively. At December 31, 2008 and 2009 and March 31, 2010, we recorded $7.0 million, $8.5 million and $11.0 million, of deferred third-party costs on our consolidated balance sheets. At December 31, 2008 and 2009 and March 31, 2010, respectively, we recorded $4.8 million, $4.5 million and $7.5 million as deferred third-party costs in current assets, with the remainder of $2.2 million, $2.8 million and $3.5 million in long-term assets.

Product Revenues. Product revenues consist of selling perpetual licenses of our intellectual property (IP) and software products, and the resale of third party software and/or hardware with related third party maintenance. We have licensed our IP in the U.S. and in the U.K. Our Israeli, Turkish and Swiss subsidiaries resell third party software and/or hardware in the geographies in which they operate.

Revenues generated from the licensing of our IP or software products with no other element to the arrangement are recognized upon delivery to the client.

Revenues generated from the resale of hardware and/or software with related maintenance contracts sold without other consulting or managed services are recognized on a net basis upon delivery to the client assuming all provisions of SAB 104 have been met.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review our allowance for doubtful accounts on a regular basis, and all past due balances are reviewed individually for collectibility. Account balances deemed to be uncollectible are either recorded as a reduction of revenues or charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for allowance for doubtful accounts are recorded in general and administrative expenses. To date, we have not incurred any significant write-offs of accounts receivable. As of December 31, 2009 and March 31, 2010, the allowance for doubtful accounts was $255,000 and $276,000.

Impairment of Long-Lived Assets

Property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite-lived intangible assets are reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Intangible assets with determinable lives are amortized over their estimated useful lives, based upon the pattern in which the expected benefits will be realized, or on a straight-line basis, whichever is greater. We use estimates in determining the value of intangible assets, including estimates of useful lives, discounted future cash flows and fair values of the related operations. To date, we have not recorded any impairment charges on these long-lived assets.

Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired in a business combination. When accounting for acquisitions occurring prior to January 1, 2009 with earn-outs or when additional consideration can be earned based on future performance, we did not initially record the additional consideration as part of purchase accounting. Instead, these amounts were recorded as additional purchase consideration when it was deemed probable that the additional consideration would be earned. For acquisitions occurring on or after January 1, 2009, we will record the estimated fair value of any contingent consideration on the acquisition date and subsequent changes in the estimated fair value will be recorded in current earnings.

In accordance with FASB ASC Topic No. 350, Intangibles—Goodwill and Other, we evaluate goodwill for impairment annually, as well as whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. We have evaluated our reporting units in accordance with ASC 350-10 and concluded that we have four components (United States, United Kingdom, Central Europe and Middle East) as defined in ASC Topic 350. We have aggregated these components into one reporting unit for purposes of our goodwill impairment analysis based on the

guidance in ASC Topic 350. We believe aggregation of these components into one reporting unit is appropriate because they all deliver similar products and services using the same methods and technology and have similar economic characteristics. Since we are a private company and a public market for our stock does not exist, we have determined the fair value of our preferred and common stock using the probability weighted-expected return method to allocate the total value of the Company to the various classes of stock. This method requires us to make significant estimates and assumptions about future performance, future liquidity events and dates, and discount rates of future cash flows. The significant assumptions and estimates used in our December 31, 2009 valuation were as follows:

Four possible liquidity events for the Company:

Initial public offering event weighted 60%

Strategic sale event weighted 38%

Continuation as a private company event weighted 1%

Liquidation of the business weighted 1%

Lack of marketability discount 0%

A discount rate of 14% was used to discount the values as of each anticipated event back to the valuation date

Stock-Based Compensation

Through December 31, 2005, we accounted for our stock-based awards to employees using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under the intrinsic value method, stock-based compensation expenses are measured on the date of the grant as the difference between the deemed fair value of our common stock and the exercise price multiplied by the number of stock options or restricted stock awards granted.

Through December 31, 2005, we accounted for stock-based compensation expenses for non-employees using the fair value method prescribed by FASB ASC Topic No. 718 and the Black- Scholes option-pricing model, and recorded the fair value, for financial reporting purposes, of non-employee stock options as an expense over either the vesting term of the option or the service period.

In December 2004, the FASB issued guidance now codified within FASB ASC Topic No. 718, that requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. We adopted FASB ASC Topic No. 718 effective January 1, 2006. FASB ASC Topic No. 718 requires nonpublic companies that used the minimum value method in FASB ASC Topic No. 718 for either recognition or pro forma disclosures to apply FASB ASC Topic No. 718 using the prospective-transition method. As such, we will continue to apply APB Opinion No. 25 in future periods to equity awards outstanding on the date we adopted FASB ASC Topic No. 718 that were measured using the minimum value method. In accordance with FASB ASC Topic No. 718, we will recognize the compensation cost of stock-based awards on a straight-line basis over the vesting period of the award. Effective with our adoption of FASB ASC Topic No. 718, we have elected to use the Black-Scholes option pricing model to determine the weighted-average fair value of stock options granted on and after the date of adoption.

As there was no public market for our common stock prior to this offering, we have determined the volatility for options granted in 2006, 2007, 2008 and 2009 based on an analysis of reported data for a peer group of companies that issued options with substantially similar terms. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies. The expected volatility for options granted during 2006, 2007, 2008 and 2009 was 50%, 43%, 42% and 42%, respectively. The expected life of options granted in 2006 and 2007 was determined to be 6.25 years by utilizing the “simplified” method as prescribed by SAB No. 107, Share-Based Payment. The weighted average expected life of options granted in 2008 and

2009 was 5.92 and 5.10 years, respectively. For 2006, 2007, 2008, 2009 and the three months ended March 31, 2010, the weighted-average risk free interest rate used was 4.82%, 4.61%, 3.02%, 2.30% and 2.6%, respectively. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. We have not paid and do not anticipate paying cash dividends on our shares of common stock; therefore, the expected dividend yield is assumed to be zero. We applied an estimated forfeiture rate of 5.57% in 2006, 2007 and 2008 in determining the expenses recorded in our consolidated statements of operations. We used a forfeiture rate of 6.39% and 5.54% for 2009 and the three months ended March 31, 2010.

In connection with our issuance of stock options, our board of directors, with input from management, determined the fair market value of our common stock. Our board of directors exercised judgment in determining the estimated fair market value of our common stock on the date of grant based on several factors, including the liquidation preferences, dividend rights and voting control attributable to our then-outstanding preferred stock and the likelihood of achieving a liquidity event such as an initial public offering or sale of our company. We believe the methodology used was reasonable.

In connection with the preparation of our financial statements for the year ended 2006, 2007, 2008, 2009 and the three months ended March 31, 2010 and in preparing for the initial public offering of our common stock, we examined the valuations of our common stock during those periods, in light of the Practice Aid of the American Institute of Certified Public Accountants entitled Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Valuation Practice Aid.

Since inception through December 31, 2009, we have granted stock options awards to employees to purchase a total of 24,622,521 shares of common stock at exercise prices ranging from $0.02 to $2.31 per share. On September 2, 2009, our board of directors approved a repricing of outstanding options such that all options for employees who were employed at August 31, 2009 with an exercise price per share above $1.38 would be repriced to have an exercise price per share equal to $1.38.

During 2001, we granted stock options to purchase shares of our common stock at exercise prices ranging from $0.02 to $0.08. Stock options granted to employees were granted with an exercise price equal to the estimated fair market value of our common stock on the date of issuance. Stock options were granted to non-employees at an exercise price greater than the estimated fair value of the common stock. Our board of directors had determined that the estimated fair market value of the common stock was $0.02 per share for all periods during 2001. This estimated fair market value was determined by our board of directors using the market approach, taking into consideration the sale price and associated liquidation preferences and rights of our Series A preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets. Our board of directors also took into consideration that 2001 was our first year of operations and we had $60,000 of revenues, a net loss of $800,000 and cash usage by operations of $700,000. The price of our Series A preferred stock on July 10, 2001 was $0.4464 per share. Each share of the Series A preferred stock is convertible into one share of our common stock and has a liquidation preference of $0.4464. Given the amount of the liquidation preference, the values assigned to stock-based awards at the time of grant time were deemed by our board of directors to be fair value.

In June and July of 2002 we completed two rounds of financing in which we sold Series B preferred stock at a price of $0.652 per share. During 2002, we granted stock options to purchase shares of our common stock at exercise prices ranging from $0.02 to $0.07 per share. Stock options granted to employees were granted with an exercise price equal to the estimated fair market value of our common stock on the date of issuance. Stock options were granted to non-employees at an exercise price greater than the estimated fair market value of the common stock. Our board of directors raised the estimated fair market value of our common stock in May 2002 to $0.04 per share, then to $0.07 per share in July 2002. The estimated fair market value of our common stock was determined by our board of directors using the market approach, taking into consideration the sale price of the Series B preferred stock and associated liquidation preferences and rights of our Series A

and Series B preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets, and the sustainability of our increased revenues levels. Each share of Series B preferred stock is convertible into one share of our common stock and has a liquidation preference of $0.652. In 2002, our first full year of operations, we had $1.4 million of revenues, a net loss of $2.4 million and cash usage by operations of $2.5 million. In 2002, a fully vested option to purchase 150,000 shares of common stock was granted to an employee with an erroneous exercise price of $0.02 per share, instead of the then estimated fair market value of our common stock of $0.04 per share. The grant resulted in a stock-based compensation expenses of $3,000. Given the amount of the combined liquidation preferences of our Series A and Series B preferred stock, the values assigned to all other stock-based awards at the time of grant time were deemed by our board of directors to be fair value.

In September 2003, we completed a round of financing in which we sold Series C preferred stock at a price of $0.850 per share. During 2003, we granted stock options to purchase shares of our common stock at exercise prices ranging from $0.07 to $0.08 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair market value of our common stock on the date of issuance. Our board of directors increased the estimated fair market value of our common stock in September 2003 to $0.08 per share. The estimated fair market value of our common stock was determined by our board of directors using the market approach, taking into consideration the sale price of the Series C preferred stock and associated liquidation preferences and rights of our Series A, Series B and Series C preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets, and the sustainability of our increased revenues levels. Each share of Series C preferred stock is convertible into one share of our common stock and has a liquidation preference of $0.850. In 2003, our revenues increased 421% to $7.3 million, our net loss increased 50% to $3.6 million and cash used by operations increased 36% to $3.4 million. Given the amount of the combined liquidation preferences of our Series A, Series B and Series C preferred stock, the values assigned to the stock-based awards at the time of grant time were deemed by our board of directors to be fair market value.

In December 2004, we completed a round of financing in which we sold Series D preferred stock at a price of $2.432 per share. During 2004, we granted stock options to purchase shares of our common stock at exercise prices ranging from $0.08 to $0.24 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair market value of our common stock on the date of issuance. Our board of directors increased the estimated fair market value of our common stock in December 2004 to $0.24 per share from the previous estimate of $0.08 per share. The estimated fair market value of our common stock was determined by our board of directors using the market approach, taking into consideration the sale price of the Series D preferred stock and associated liquidation preferences and rights of our Series A, Series B, Series C, and Series D preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets, and the sustainability of our increased revenues levels. Each share of Series D preferred stock is convertible into one share of our common stock and has a liquidation preference of $2.432. In 2004, our revenues increased 301% to $29.3 million of revenues, our net loss increased 34% to $9.8 million and cash usage by operations increased 203% to $10.3 million. Given the amount of the combined liquidation preferences of our Series A, Series B, Series C and Series D preferred stock, the values assigned to the stock-based awards at the time of grant were deemed by our board of directors to be fair market value.

In September 2005 we completed another round of financing in which we sold Series D preferred stock at a price of $2.432 per share. During 2005, we granted stock options to purchase shares of our common stock at an exercise price of $0.24 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair market value of our common stock on the date of issuance. In 2005, our revenues increased 56% to $45.7 million, mainly due to our 2004 acquisition, our net loss increased 119% to $21.5 million and our cash usage from operations increased 75% to $18.0 million. Based on our 2005 financial performance and taking into

consideration the sale price of the Series D preferred stock and associated liquidation preferences and rights of our Series A, Series B, Series C and Series D preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets, our board of directors determined that the estimated fair market value of our common stock remained at $0.24 per share for all of 2005. Given the amount of the combined liquidation preferences of our Series A, Series B, Series C and Series D preferred stock, the values assigned to the stock-based awards at the time of grant time were deemed by our board of directors to be fair market value.

The following table details our stock-based awards, consisting of stock options, including exercise price and valuation of our stock at date of grant:


Grants made during the period 1/1/06 through 3/31/10	Valuation Date(1)	Number of Option Granted	Exercise or Purchase Price(2)		Fair Value of Common Stock(3)
1/17/2006	1/1/2006	342,000	$	0.24	$	0.19
3/17/2006	2/28/2006	81,000	$	0.24	$	0.15
5/19/2006	4/30/2006	192,000	$	0.24	$	0.16
7/21/2006	6/30/2006	1,020,062	$	0.24	$	0.16
9/15/2006	8/30/2006	61,000	$	0.24	$	0.15
11/17/2006	10/31/2006	92,000	$	0.24	$	0.11
1/19/2007	12/31/2006	423,500	$	0.24	$	0.12
3/23/2007	2/28/2007	1,641,500	$	1.39	$	0.75
5/25/2007	4/30/2007	788,200	$	1.74	$	1.10
7/20/2007	6/30/2007	270,150	$	1.93	$	1.92
9/21/2007	9/21/2007	770,000	$	2.05	$	2.05
11/14/2007	9/21/2007	354,000	$	2.05	$	2.05
1/18/2008	12/31/2007	326,150	$	2.26	$	2.26
3/11/2008	3/06/2008	46,000	$	2.28	$	2.30
5/16/2008	3/31/2008	92,000	$	2.31	$	2.31
7/15/2008	6/30/2008	112,700	$	2.31	$	1.42
9/17/2008	6/30/2008	112,500	$	2.31	$	1.42
11/14/2008	9/30/2008	33,000	$	1.45	$	1.45
1/21/2009	12/31/2008	186,400	$	1.22	$	1.22
3/4/2009	3/6/2009	369,800	$	1.26	$	1.26
5/19/2009	3/31/2009	208,700	$	1.26	$	1.26
7/8/2009	6/30/2009	277,800	$	1.43	$	1.43
8/31/2009	8/31/2009	3,762,950	$	1.38	$	1.38
9/2/2009	8/31/2009	82,700	$	1.38	$	1.38
11/11/2009	9/30/2009	363,600	$	1.48	$	1.48
11/30/2009	9/30/2009	536,378	$	1.48	$	1.48
12/18/2009	9/30/2009	1,100,000	$	1.48	$	1.48
1/22/2010	12/31/2009	459,200	$	1.91	$	1.91

(1)	In evaluating the fair value of the common stock, we used the last appraisal performed before or at the grant date.

(2)	Exercise price set by our board of directors based on the estimated fair market value of our common stock on the grant date.

(3)	Retrospectively for 2006 and through April 2007 and contemporaneously thereafter calculated in accordance with the Valuation Practice Aid.

In periods prior to January 1, 2006, we believe that the estimated fair market value of our common stock, as determined by our board of directors, was reasonable based on several factors, including the book value per share of our outstanding stock, the liquidation preferences, dividend rights, voting control and other preferential rights attributable to our outstanding preferred stock, and our uncertain prospects. Our board of directors also based its determinations on developments in our

business, such as the status of our sales efforts and revenues growth. In addition, our board of directors took into account the illiquid nature of our common stock and the likelihood of achieving a liquidity event, such as an initial public offering or sale of the company.

In 2006, our valuation methodology became increasingly complex as a result of our increased liquidation preference levels as well as the increased likelihood of achieving a liquidity event. Although our board of directors was consistent in its methodology in calculating the fair market value of our common stock for all periods, we believe that in the periods after December 31, 2005, the retrospective valuation of our common stock fair market value is more representative of the fair market value of our common stock as it was performed in compliance with the Valuation Practice Aid. As a result, we have used the retrospective valuation of the fair market value of our common stock in our calculation of our FAS 123(R) expenses in 2006 and 2007.

In January and October 2006, we completed additional rounds of financing in which we sold Series D preferred stock at a price of $2.432 per share. During 2006, we granted stock options to purchase shares of our common stock at an exercise price of $0.24 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair value of our common stock, as determined by our board of directors. In 2006, our revenues decreased 17.2% to $37.8 million, our net loss decreased 55% to $9.6 million and our cash usage from operations decreased to $11.1 million. The estimated fair value of our common stock was determined by our board of directors using the market approach, taking into consideration the sale price of the Series D preferred stock and associated liquidation preferences and rights of our Series A, Series B, Series C and Series D preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets, and the sustainability of our increased revenues levels.

The fair value of our common stock was retrospectively calculated and was determined to be $0.19 per share as of January 1, 2006. The appraisal of our common stock was performed using the probability weighted-expected return method consistent with the Valuation Practice Aid. For future liquidity events, liquidity dates in December 2008 based on forecasted fiscal year 2009 results were assumed. The most likely liquidity event was determined to be a strategic sale and was assigned a weighted probability of 65%. Continuation as a private company, liquidation and initial public offering were assigned weighted probabilities of 15%, 15% and 5%, respectively. In determining the fair value of our common stock, we applied a 15% discount for lack of marketability to reflect the fact that there is no established trading market for our stock. In determining the discount for lack of marketability, we took into account the following factors: the prospects and timeframe for an initial public offering of our stock or a sale of our company; existing contractual restrictions on the transferability of our common stock; the perceived risk of the enterprise; the concentration of ownership of our stock among our venture capital investors; the difficulty of valuing the enterprise and our common stock; and an absence of dividend payments on our common stock. We used a discount rate applied by an investor to achieve a required rate of return for an investment in a business like ours of 14%.

The retrospective appraisal of the fair value of our common stock at January 1, 2006 of $0.19 per share was below the previously estimated fair value of our common stock of $0.24 per share made by our board of directors. We believe the retrospectively calculated fair value is a better indicator of the fair value of our common stock than the fair value determined by our board of directors for the same period as it was performed in compliance with the Valuation Practice Aid.

The fair value of our common stock was retrospectively calculated and determined to be $0.15 per share, $0.16 per share, $0.16 per share and $0.15 per share as of February 28, 2006, April 30, 2006, June 30, 2006 and August 30, 2006, respectively. We held all assumptions for these valuation appraisals constant with the January 1, 2006 appraisal. The changes in the per share value of our common stock were a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations combined with closing

our September 2005 sale of Series D preferred stock. The closing of this sale of our Series D preferred stock had the impact of diluting the common shares and reducing the value attributable to common stock due to the increase in the preferred stock liquidation preference. The retrospective appraisal of the fair value of our common stock for these dates was below the previously estimated fair value of our common stock made by our board of directors. We believe the retrospectively calculated fair value is a better indicator of the fair value of our common stock than the fair value determined by our board of directors for the same period as it was performed in compliance with the Valuation Practice Aid.

The fair value of our common stock was retrospectively calculated and determined to be $0.11 per share and $0.12 per share as of October 31, 2006 and December 31, 2006, respectively. The changes in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations, the change in weighted event probabilities and our closing of the October 2006 sale of Series D preferred stock. The closing of this sale of our Series D preferred stock had the impact of further diluting the common shares and reducing the value attributable to common stock due to the increase in the preferred stock liquidation preference. Based on our increased financial performance in the first nine months of 2006 and the improvement in the capital markets, we increased the liquidity event probability to 10% for an initial public offering and decreased the liquidation event probability to 10% for liquidation. The liquidity event probabilities of a strategic sale or continuation as a private company were held constant at 65% and 15%, respectively. All other assumptions for October 31, 2006 valuation appraisal were held constant with the January 1, 2006 through August 30, 2006 appraisals. The retrospective appraisal of the fair value of our common stock for these dates was below the previously estimated fair value of our common stock made by our board of directors. We believe the retrospectively calculated fair value is a better indicator of the fair value of our common stock than the fair value determined by our board of directors for the same period as it was performed in compliance with the Valuation Practice Aid.

In April 2007, we completed an additional round of financing in which we sold Series D preferred stock at a price of $2.432 per share. In May 2007 and August 2007, we completed rounds of financing in which we sold Series E preferred stock at a price of $2.5594 per share. During 2007, we granted stock options to purchase shares of our common stock at exercise prices ranging from $0.24 to $2.05 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair value of our common stock, as determined by our board of directors. The estimated fair value of our common stock was determined by our board of directors using the market approach, taking into consideration the sale price of the Series E preferred stock and associated liquidation preferences and rights of our Series A, Series B, Series C, Series D and Series E preferred stock, as well as the high degree of uncertainty surrounding our future prospects and markets, and the sustainability of our increased revenues levels.

The fair value of our common stock was retrospectively calculated and determined to be $0.75 per share as of February 28, 2007. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations, the change in weighted event probabilities and our closing of the October 2006 round of financing in which we sold Series D preferred stock. Based on our increased financial performance in 2006 and the improvement in the capital markets, we increased the liquidity event probability to 30% for an initial public offering and decreased the liquidation event probability for liquidation and strategic sale to 5% and 50%, respectively. The liquidity event probabilities of continuation as a private company was held constant at 15%. All other assumptions for the February 28, 2007 valuation appraisal were held constant with the December 31, 2006 appraisal. The closing of the October 2006 round of financing in which we sold our Series D preferred stock had the impact of further diluting the common shares and reducing the value attributable to common stock due to the increase in the preferred stock liquidation preference. The retrospective appraisal of the fair

value of our common stock for this date was below the previously estimated fair value of our common stock made by our board of directors. We believe the retrospectively calculated fair value is a better indicator of the fair value of our common stock than the fair value determined by our board of directors for the same period as it was performed in compliance with the Valuation Practice Aid.

The fair value of our common stock was retrospectively calculated and determined to be $1.10 per share as of April 30, 2007. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations and the change in weighted event probabilities. Based on our increased financial performance in the first three months of 2007 and the preliminary discussions regarding our initial public offering, we increased the liquidity event probability to 45% for an initial public offering and decreased the liquidation event probabilities of strategic sale and continuation as a private company to 40% and 10%, respectively. The liquidity event probability of a liquidation was held constant at 5%. All other assumptions for April 30, 2007 valuation appraisal were held constant with the February 28, 2007 appraisal. The retrospective appraisal of the fair value of our common stock for this date was below the previously estimated fair value of our common stock made by our board of directors. We believe the retrospectively calculated fair value is a better indicator of the fair value of our common stock than the fair value determined by our board of directors for the same period as it was performed in compliance with the Valuation Practice Aid.

The fair value of our common stock was retrospectively calculated and determined to be $1.92 per share as of June 30, 2007. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations, the change in weighted event probabilities and our closing of the May 2007 round of financing in which we sold Series E preferred stock. Based on our increased financial performance in the first six months of 2007 and the engagement of investment bankers to discuss our initial public offering, we increased the liquidity event probability to 50% for an initial public offering and decreased the liquidation event probability of continuation as a private company to 5%. The liquidity event probabilities of a strategic sale or liquidation were held constant at 40% and 5%, respectively. As a result of the increased probability of an initial public offering or strategic sale, we decreased the discount for lack of marketability from 15% to 0% for the June 30, 2007 valuation. All other assumptions for June 30, 2007 valuation appraisal were held constant with the April 30, 2007 appraisal. The closing of the May 2007 sale of Series E preferred stock had the impact of further diluting the common shares and reducing the value attributable to common stock due to the increase in the preferred stock liquidation preference. The retrospective appraisal of the fair value of our common stock for this date was below the previously estimated fair value of our common stock made by our board of directors. We believe the retrospectively calculated fair value is a better indicator of the fair value of our common stock than the fair value determined by our board of directors for the same period as it was performed in compliance with the Valuation Practice Aid.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid and determined to be $2.05 per share as of September 30, 2007. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale, initial public offering liquidity event valuations, the change in weighted event probabilities and our closing of the August 2007 sale of Series E preferred stock. Based on our increased financial performance in the first nine months of 2007 and the beginning of our initial public offering process, we increased the liquidity event probability to 68% for an initial public offering and decreased the liquidation event probability of a strategic sale to 22%. The liquidity event probabilities of a continuation as a private company or liquidation were held constant at 5% and 5%, respectively. All other assumptions for September 30, 2007 valuation appraisal were held constant with the June 30, 2007 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $2.26 per share as of December 31, 2007. The change in the per share value of

our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations combined with the change in weighted event probabilities and the impact of the Series. Based on our increased financial performance in 2007 and the filing of the registration statement of which this prospectus forms a part, we increased the liquidity event probability to 75% for an initial public offering and decreased the liquidation event probability of a strategic sale to 23%. The liquidity event probabilities of a continuation as a private company or liquidation were lowered to 1% and 1%, respectively. All other assumptions for December 31, 2007 valuation appraisal were held constant with the September 30, 2007 appraisal.

In November 2008, we completed a round of financing in which we sold Series F preferred stock at a price of $2.72 per share. During 2008, we granted stock options to purchase shares of our common stock at exercise prices ranging from $1.45 to $2.31 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair value of our common stock, as determined by our board of directors. The estimated fair value of our common stock was calculated in compliance with the Valuation Practice Aid, taking into consideration our current and forecasted financial performance, the probability of different liquidation events, and our enterprise value driven by public market comparables.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $2.30 per share as of March 6, 2008. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations combined with the dilutive effects of convertible debt issued in March 2008. All other assumptions for March 6, 2008 valuation appraisal were held constant with the December 31, 2007 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $2.31 per share as of March 31, 2008. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations combined with the change in weighted event probabilities. All other assumptions for March 31, 2008 valuation appraisal were held constant with the March 6, 2008 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.42 per share as of June 30, 2008. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations combined with the change in weighted event probabilities. Based on market uncertainty and a weakening market for initial public offerings, we decreased the liquidity event probability to 49% for an initial public offering and increased the liquidation event probability of a strategic sale to 49%. All other assumptions for June 30, 2008 valuation appraisal were held constant with the March 31, 2008 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.45 per share as of September 30, 2008. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations combined with the change in weighted event probabilities. All other assumptions for June 30, 2008 valuation appraisal were held constant with the March 31, 2008 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.22 per share as of December 31, 2008. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations. The closing of the November 2008 round of financing in which we sold our Series F preferred stock had the impact of

further diluting the common shares and reducing the value attributable to common stock due to the increase in the preferred stock liquidation preference. All other assumptions for December 31, 2008 valuation appraisal were held constant with the September 30, 2008 appraisal.

During 2009, we granted stock options to purchase shares of our common stock at exercise prices ranging from $1.22 to $1.48 per share. Stock options granted to employees and consultants were granted with an exercise price equal to the estimated fair value of our common stock, as determined by our board of directors. The estimated fair value of our common stock was calculated in compliance with the Valuation Practice Aid, taking into consideration our current and forecasted financial performance, the probability of different liquidation events, and our enterprise value driven by public market comparables.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.26 per share as of March 31, 2009. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations. All other assumptions for March 31, 2009 valuation appraisal were held constant with the December 31, 2008 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.43 per share as of June 30, 2009. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations. All other assumptions for June 30, 2009 valuation appraisal were held constant with the March 31, 2009 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.38 per share as of August 31, 2009. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations. All other assumptions for August 31, 2009 valuation appraisal were held constant with the June 30, 2009 appraisal.

In reliance on the fair value calculation as of August 31, 2009, our board of directors determined on September 2, 2009, that outstanding options with an exercise price above $1.38 per share would have such strike price reduced to $1.38 per share.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.48 per share as of September 30, 2009. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations. All other assumptions for September 30, 2009 valuation appraisal were held constant with the August 31, 2009 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid, and determined to be $1.91 per share as of December 31, 2009. In calculating our December 31, 2009 common stock valuation, we increased the probability of the initial public offering liquidity event to 60% and decreased the probability of the strategic sale liquidity event to 38%. These changes were made as a result of us re-starting our initial public offering process. The liquidity event probability changes combined with public market changes impacting the strategic sale and initial public offering liquidity event valuations drove the change in our enterprise value. All other assumptions for December 31, 2009 valuation appraisal were held constant with the September 30, 2009 appraisal.

The fair value of our common stock was calculated in compliance with the Valuation Practice Aid and determined to be $2.00 per share at March 31, 2010. The change in the per share value of our common stock was a result of the change in our enterprise value driven by public market changes impacting the strategic sale and initial public offering liquidity event valuations. All other assumptions for March 31, 2010 valuation were held constant with the December 31, 2009 appraisal.

Accounting for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable

We account for our preferred stock warrants in accordance with FASB issued guidance now codified within FASB Topic No. 480, Distinguishing Liabilities from Equity, which requires that warrants be recorded as liabilities and carried at their fair value. Our adoption of FASB ASC Topic No. 480 in 2006, resulted in a cumulative effect of change in accounting principle of $558,000 and $455,000 of other income. In the year ended December 31, 2007, the change in the fair value of our preferred warrants resulted in $2.1 million of other expenses. In 2008, the change in the fair value of our preferred warrants resulted in $1.6 million of other income. In 2009, the change in the fair value of our preferred warrants resulted in $64,000 of other income. In the three months ended March 31, 2010, the change in the fair value of our preferred warrants resulted in $65,000 of other expenses. For warrants issued in conjunction with our debt financings, we record the fair value of the warrants as debt discount on our consolidated balance sheet and amortize as non-cash interest expenses. The debt discount is not subject to future fair value adjustments. In the year ended December 31, 2007, we recorded $1.6 million in debt discounts related to the issuance of warrants in conjunction with our debt financings. In the three months ended March 31, 2010, we recorded $1.1 million in debt discounts related to the issuance of warrants in conjunction with our debt financings.

Accounting for Income Taxes

We have incurred net losses since our inception. We account for income taxes in accordance with FASB guidance now codified within FASB ASC Topic No. 740, Income Taxes, which requires companies to recognize deferred income tax assets and liabilities for temporary differences between the financial reporting and tax bases of recorded assets and liabilities and the expected benefits of net operating loss and credit carryforwards. FASB ASC Topic No. 740 requires that deferred income tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax assets will not be realized. We evaluate the realizability of our deferred income tax assets, primarily resulting from net operating loss and credit carryforwards, and adjust our valuation allowance, if necessary.

Quantitative and Qualitative Disclosures About Market Risk

A significant portion of our operations are based in the U.S. and, accordingly, these transactions are denominated in U.S. dollars. However, we have foreign-based operations in the U.K., Israel and Turkey, where transactions are denominated in foreign currencies and are subject to market risk with respect to fluctuations in the relative value of foreign currencies. For the year ended December 31, 2009, approximately 50% of our consolidated revenues were derived from our international subsidiaries. For the three months ended March 31, 2010, approximately 64% of our consolidated revenues were derived from our international subsidiaries. We believe that we mitigate currency exchange rate risk by invoicing clients in the same currency as the related costs. Our primary foreign currency exposures relate to our short-term intercompany balances with our foreign subsidiaries. Our primary foreign subsidiaries have functional currencies denominated in the British pound, Israeli new shekel, Turkish lira, Euro and Swiss franc and foreign denominated assets and liabilities are remeasured each reporting period with any exchange gains and losses recorded in our consolidated statements of operations. Based on currency exposures existing at December 31, 2009 and at March 31, 2010, a 10% movement in foreign exchange rates would not expose us to significant gains or losses in earnings or cash flows. We do not use derivative instruments for managing any of our foreign currency exposure.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and equipment. We do not believe that inflation has had any material effect on our results of operations during 2006, 2007, 2008, 2009 and the three months ended March 31, 2010.

Recent Accounting Pronouncements

In December 2007, the FASB issued guidance now codified within FASB ASC Topic No. 805, Business Combinations. This guidance is effective for fiscal years beginning on or after December 15, 2008, and applies to all business combinations. FASB ASC Topic No. 805 provides that, upon initially obtaining control, an acquirer shall recognize 100% of the fair values of acquired assets, including goodwill, and assumed liabilities, with only limited exceptions, even if the acquirer has not acquired 100% of its target. As a consequence, the current step acquisition model will be eliminated. Additionally, FASB ASC Topic No. 805 changes current practice, in part, as follows: (1) contingent consideration arrangements will be fair valued at the acquisition date and included on that basis in the purchase price consideration; (2) transaction costs will be expensed as incurred, rather than capitalized as part of the purchase price; (3) pre-acquisition contingencies, such as legal issues, will generally have to be accounted for in purchase accounting at fair value; (4) in order to accrue for a restructuring plan in purchase accounting, the requirements in FASB ASC Topic No. 420, Exit or Disposal Cost Obligations, would have to be met at the acquisition date; and (5) In-process research and development charges will no longer be recorded. The adoption of FASB ASC Topic No. 805 on January 1, 2009 did not impact our financial statements, however could materially change the accounting for business combinations consummated subsequent to that date.

In April 2008, the FASB issued guidance now codified within FASB ASC Topic No. 350, Intangibles—Goodwill and Other. FASB ASC Topic No. 350 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB ASC Topic No. 350. FASB ASC Topic No. 350 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. We adopted this statement as of January 1, 2009. The adoption of FASB ASC Topic No. 350 had no impact on our financial condition, results of operations, or cash flows.

In November 2008, the FASB issued guidance now codified within FASB ASC No. Topic 260 Earnings Per Share, (ASC 260). ASC 260 clarifies that incentive distribution rights as participating securities and provides guidance on how to allocate undistributed earnings to the participating securities and compute basic EPS using the two-class method. This amendment is effective retrospectively January 1, 2009 and interim periods within fiscal year 2009 with early application not permitted. The adoption had no impact on our financial position, results of operations, or cash flows.

In April 2009, the FASB issued guidance now codified within FASB ASC Topic No. 820, Fair Value Measurements and Disclosure (ASC 820). ASC 820 removes leasing transactions and related guidance from its scope. These amendments delay the effective date for nonfinancial assets and nonfinancial liabilities, except for items recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, or January 1, 2009. We adopted these amendments on January 1, 2009. The adoption had no impact on our financial position, results of operations, or cash flows. In addition, ASC 820 provides further guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and for identifying circumstances that indicate a transaction is not orderly. ASC 820 includes disclosure in interim and annual reporting periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs. These amendments are effective for interim reporting periods ending after June 15, 2009, or June 30, 2009 for us, and shall be applied prospectively, with early adoption permitted. We adopted these amendments in our interim reporting for the period ended June 30, 2009. The adoption had no impact on our financial position, results of operations, or cash flows.

In May 2009, the FASB issued guidance now codified within ASC Topic No. 855, Subsequent Events (ASC 855). ASC 855 establishes standards for accounting and disclosing subsequent events

(events which occur after the balance sheet date but before financial statements are issued or are available to be issued). ASC 855 requires an entity to disclose the date subsequent events were evaluated and whether that evaluation took place on the date financial statements were issued or were available to be issued. We adopted these amendments within our interim reporting for the period ended June 30, 2009. The adoption of ASC 855 had no impact on our financial condition, results of operations, or cash flows.

In June 2009, the FASB issued guidance now codified within ASC Topic No. 105, Generally Accepted Accounting Principles (ASC 105). ASC 105 establishes the FASB Accounting Standards Codification (the Codification) as the single source of authoritative non-governmental U.S. GAAP. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. Rules and interpretative releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards, and all other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. The provisions of ASC 105 are effective for interim and annual reporting periods ending after September 15, 2009. The adoption of ASC 105 is for disclosure purposes only and had no impact on our financial condition, results of operations, or cash flows.

In October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Delivery Revenue Arrangements (ASU 2009-13). ASU 2009-13 establishes the accounting and reporting guidance for arrangements including multiple revenue-generating activities, and provides amendments to the criteria for separating deliverables, measuring and allocating arrangement consideration to one or more units of accounting. The amendments of ASU 2009-13 also establish a selling price hierarchy for determining the selling price of a deliverable. Significantly enhanced disclosures are also required to provide information about a vendors’s multiple-deliverable revenue arrangements, including information about the nature and terms, significant deliverables, and its performance within arrangements. The amendments also require providing information about the significant judgments made and changes to those judgments and about how the application of the relative selling-price method affects the timing or amount of revenue recognition. The amendments in ASU 2009-13 are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early application is permitted. We are currently evaluating the potential effect, if any, the adoption of ASU 2009-13 will have on our financial condition, results of operations, or cash flows.

In October 2009, the FASB issued ASU 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. ASU 2009-14 removes tangible products from the scope of software revenue recognition guidance and also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are within the scope of the software revenue guidance. More specifically, if the software sold with or embedded within the tangible product is essential to the functionality of the tangible product, then this software, as well as undelivered software elements that relate to this software, are excluded from the scope of existing software revenue guidance. ASU No. 2009-14 is effective for fiscal years that begin on or after June 15, 2010. Early application is permitted. We are currently evaluating the potential effect, if any, the adoption will have on our financial condition, results of operations, or cash flows.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of December 31, 2009 or March 31, 2010.

BUSINESS

Overview

We are a leading, global provider of data center consulting, technology integration and managed services. Our vendor independent services are focused predominantly on helping our clients address inefficiencies in their data center environment, thereby reducing costs, minimizing risk and improving control and visibility in their data centers. We deliver our information technology (IT) services through Transom, our unique business model consisting of software tools, methodologies and subject matter expertise, each developed over the course of thousands of client engagements. Transom allows us to standardize our global client offerings into high quality services that can be delivered in a consistent manner to our clients.

We believe our industry is at the beginning of a significant shift in the way IT services are delivered to clients. Historically, these shifts have occurred approximately every 15 years in connection with transitions in business computing, as the industry moved from mainframe computers in the 1960’s to distributed systems in the 1980’s to Web-enabled computing in the late 1990’s. In each case, technological change created a demand for services to help companies adopt, integrate and manage new capabilities. Today, we believe cloud computing, virtualization, green initiatives and an increasing number of government and industry regulations are driving another major shift in the architecture and services in IT infrastructure. We provide the consulting and services required to help clients fill the gap between their current capabilities and those needed to support these new and emerging data center architectures and technologies.

Our clients include companies of varying sizes, including approximately half of the Fortune 100 companies. We have clients in many industries, including financial services and insurance, energy, healthcare and medical, travel and entertainment. We also serve government agencies around the world.

As of March 31, 2010, we had 533 employees, including approximately 47 direct sales people. Our sales effort is further bolstered by our strategic relationships with technology relationships such as Dell Products L.P. (Dell), International Business Machines Corp. (IBM), Cisco Systems, Inc. (Cisco), Unisys Corporation (Unisys) and Bull SAS (Bull).

Our revenues consist of services and product revenues. Our focus is on growing services revenues. Our services revenues have grown from $35.2 million in 2006 to $87.5 million in 2009, reflecting a total compounded annual growth rate of 35%, including acquisitions. Our services revenues decreased from $22.1 million for the three months ended March 31, 2009 to $21.3 million for the three months ended March 31, 2010. For 2007, 2008, 2009 and for the three months ended March 31, 2009 and 2010 we had net losses to common stockholders of $(18.2) million, $(28.1) million, $(12.8) million, $(3.7) million and $(10.2) million. At March 31, 2010, we had an accumulated deficit of $125 million.

Our Services

We offer our clients three categories of data center services across six primary areas of their IT infrastructure. A data center is the physical environment that houses IT infrastructure, which typically consists of storage, server and networking hardware and software that supports business functions, such as accounting and payroll, marketing and sales, and customer services. Our strategic infrastructure services and infrastructure optimization services comprise our consulting and integration services offerings. Infrastructure operations services are our managed services offerings.

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Our services support our clients through any stage of adopting, deploying or managing technology in their IT environments. In addition, they are highly complementary. For example, a strategic infrastructure services engagement may lead a client to hire us for infrastructure optimization services to execute the plans we developed and thereafter retain us for infrastructure operations services to manage the new environment. Clients may turn to us for any single service category or work with us across all three categories of services.

Strategic Infrastructure Services

Our strategic infrastructure services typically consist of customized, industry-specific consulting engagements through which we help our clients develop strategies, architectures and business cases. During these engagements, our consultants work with our client’s in-house IT team to understand the current state and the desired future state of their IT environment. With this information, we determine the appropriate operational processes, technology features and functionality, budget and timeline to reach that future state. Since these engagements are specific to the needs of each client’s particular environment, the project deliverables vary but often include a written executive summary, current state/future state and gap analysis, design and architecture of proposed IT environment and detailed business case with associated cost analysis. These projects can last from a few weeks to several months, depending on the scope of the project and the complexity of the client’s IT environment.

As an example, we worked with four related subsidiaries of a multinational corporation to determine the optimal solution for their six separate data centers in the U.S. We helped our client develop and evaluate a number of different design options, and ultimately demonstrated significant cost savings through a model consolidating the six data centers while maintaining internally-managed operations rather than outsourcing them.

Infrastructure Optimization Services

Our infrastructure optimization services help clients with the technical deployment, modernization and integration of complex technologies in their data centers. Our services help clients integrate new technologies into their existing IT environments and create a more efficient infrastructure environment that fully utilizes assets, reduces costs and meets or exceeds target service level. In these engagements, our consultants work on-site with the client team to complete technology upgrades and technical deployments of hardware and software. These projects can last several weeks to several months, and the outcome is a more efficient environment.

For example, one of our clients is a leading global retail bank that initially engaged us for consulting and technology integration services in their backup environment. The original engagement was to help them migrate to new technology, which subsequently expanded into a larger data center discovery program across more than 5,000 servers and two petabytes of storage. We identified areas for stabilization and transformation that delivered cost savings and mitigated risk. The deliverables were a comprehensive report, business case and presentation defining the work required. A team of four GlassHouse consultants is now in the second year of working through the tasks identified in the program and has a clear project plan for the next 12 months.

Infrastructure Operations Services

We provide three types of infrastructure operations services, leveraging our 24 hours per day, seven days per week, 365 days per year (24x7x365) service operations center in Cary, North Carolina. Where appropriate, we also supplement these services with on-site staff at the client’s premises. Our infrastructure operations services include:

Optics: These services are delivered through a suite of monitoring and reporting tools offered in a software-as-a-service delivery model. Optics is available for storage, backup, database, virtual servers and parts of the IT security environment. Clients receive customized reports via email and a Web portal. Typically, these services include review and analyses of these reports with one of our subject matter experts on a periodic basis.

Managed Services: These services provide operational management of a client’s storage, backup, database, virtual server and parts of the IT security environments. Governed by a set of service level agreements, we assume all operational responsibilities on behalf of our client for day-to-day tasks for these areas of the IT infrastructure.

Customer Support Services: These services include global 24x7x365 remote technical support, field service, logistics and distribution, and product implementation for original equipment manufacturers. These services are being deemphasized in our services portfolio and we expect that trend to continue.

One of our infrastructure operations clients is a leading pharmaceutical company that initially engaged us for consulting and technology integration services in its storage and backup environments. This subsequently expanded into backup managed services, where our consultants are responsible for the day-to-day management of all backup operations. As part of this service, we provide regular reports and analysis of those reports to the client and resolve any issues affecting backup success rates. Over three years, we expanded our services within the client’s IT environment to include virtualization project work, security services and managed services for database and virtual environments.

Areas of Expertise

We offer our services across six primary large and growing markets:


Area of IT Infrastructure	Description of Services	Market Size and Growth
Data Center Migrations/Consolidation	We help clients plan and execute data center consolidations and migrations, with a focus on risk management and cost efficiency.	The data center migration/consolidation market is expected to grow at a 9.9% compound annual growth rate (CAGR), from $6.1 billion in 2009 to $8.1 billion by 2012. (Source: Bloor Research)¹ Migrations and consolidations involve the creation of a new architecture for IT hardware and software, relocation of data and the hardware that holds it, technology upgrades and changes to IT management processes. We believe that the continued spending on data center migrations/consolidations will result in increased demand for our services as we help clients plan and execute these projects.
Cloud Computing/IT Service Management	We help clients implement best practices and tools, such as service management matrices and cost of capacity analyses, to take advantage of the benefits of both private and public cloud computing.	Cloud infrastructure services are expected to grow at a 32.5% CAGR from $2.6 billion in 2008 to $10.6 billion by 2013. (Source: Gartner, Inc. (Gartner))² Cloud computing is Internet-based computing in which hardware, software and information are provided to the customer as an on-demand service. Cloud infrastructure is the servers, network security and storage that enable cloud computing solutions. IT services management provides clients with tools and processes to improve visibility in their IT environment and prepare to move to a cloud-based infrastructure. We believe that the expected growth in cloud services reflects a shift in business computing that will result in clients utilizing our consulting services as they seek to adopt this new technology.
Virtual Environments	We help clients design, integrate and manage their virtualized environments, encompassing servers, storage, desktop, databases and applications.	The virtualization services market combines server virtualization infrastructure, server virtualization management and hosted virtual desktop market. According to Gartner, this market is expected to grow at a 33.6% CAGR from $1.9 billion in 2008 to $8.1 billion by 2013. (Source: Gartner)³ Virtualization is the creation of a virtual (rather than actual) version of something, such as an operating system, a server, a storage device or network resources, resulting in higher utilization of physical hardware. We believe that this growth in the overall virtualization market will result in increased spending for our services as clients seek external expertise and support as they migrate to virtualized data center environments.
Data Storage/Backup & Recovery	We help clients design, integrate and manage their data storage and backup technologies.	The data storage services market, which includes consulting and managed services as well as data storage capacity services for backup and recovery operations, is expected to grow at a 3% CAGR from $15.7 billion in 2008 to $17.9 billion by 2013. (Source: Gartner)⁴ Although we do not currently provide data storage capacity as part of our service offerings, we believe the growth in the overall data storage services market will lead to increased demand for our consulting, integration and managed services offerings.
IT Security	We help clients design, optimize and manage the security aspect of their IT environments according to their business requirements and risk tolerance profile.	The IT security services market was valued at $20.1 billion in 2007, based on services revenue, and is expected to increase at a CAGR of 17% to reach $44.1 billion by 2012. (Source: IDC)⁵ We believe that this growth will result in increased demand for our IT security services, as we help clients plan and execute projects to improve their IT security.
Disaster Recovery	We help clients develop, implement and test disaster recovery plans to mitigate risk and ensure business resiliency.	The disaster recovery market crosses several domains, including storage, backup, virtualization and security. 56% of worldwide organizations include disaster recovery in their security budgets. (Source: Gartner)⁶

1.	Bloor Research: Data Migration in the Global 2000. By Philip Howard and Carl Potter. September 2007.

Gartner Inc: Forecast: Sizing the Cloud; Understanding the Opportunities in Cloud Services. By Ben Pring, Robert H Brown, Andrew Frank, Simon Hayward and Lydia Leong. 18 March 2009. The Gartner Reports described herein (the Gartner Reports) represent data, research, opinions or viewpoints published, as part of a syndicated subscription service available only to clients, by Gartner, and are not representations of fact. We have been advised by Gartner that each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice. Please see the section titled “Industry and Market Data” for more information about the industry and market data and other statistical information used by us throughout this prospectus.

3.	Gartner Inc: Dataquest Insight: Virtualization Market Size Driven by Cost Reduction, Resource Utilization and Management Advantages. By Alan Dayley, Ranjit Atwal, Thomas J. Bittman, Philip Dawson, Cameron Haight, Mark A. Margevicius, Jeffrey Hewitt and Brian Gammage. 5 January 2009.

4.	Gartner Inc: Forecast: Storage Professional Services, Worldwide, 4Q09 Update. By Adam W. Couture, Yuko Adachi, Rob Addy and Michele C. Caminos. 2 December 2009.

5.	IDC, Worldwide and U.S. Security Services 2009-2012 Forecast and Analysis: Economic Crisis Impact Update, Doc #216111, January 2009.

6.	Gartner Inc: 2009 Update: What Organizations Are Spending on IT Security. 12 March 2009. By Adam Hils and Vic Wheatman. 12 March 2009.

Our clients engage us through either fixed fee or time and materials contracts, with the majority of our contracts being fixed fee with fixed deliverables. Typically, consulting projects are scoped around defined milestones and deliverables, and are delivered by teams of consultants over weeks or months. Often, our clients engage us to execute a full transformational program consisting of a series of related projects. By breaking the program down into phased projects, we can more efficiently meet each project milestone and deliverable on time and on budget. Managed services contracts are governed by a set of service level agreements that define responsibilities, thresholds and response requirements. These services are delivered by a team that supports multiple clients from our service operations center. Managed services contracts are typically in excess of one year in duration.

Our Business Model: Transom

Transom is our unique business model that enables us to provide consistent, high-value services to our clients. Transom is composed of three elements: software tools, methodologies and subject matter expertise. Each of our client engagements incorporates some combination of these elements to provide clients with a customized and effective solution.

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Software Tools

We use software tools to enhance predictability, efficiency and quality in the delivery of our services. Our suite of tools includes those we have developed internally, those we have acquired, and those based on third-party software which we have modified to fit our service delivery requirements. These tools support our services, automate processes and improve client service and satisfaction. While we have occasionally licensed our software tools to clients directly, software licensing is not part of our strategy and we have not derived material revenues from such licenses.

Our key tools include:

Reflector

Reflector manages the process of data center migrations. Our consultants use Reflector to identify the interdependencies between applications and the hardware on which they reside, taking into

account the fact that multiple applications are often housed on a single piece of hardware. Reflector helps our consultants build customized task lists to manage the migration process, aligning the required tasks within the requisite timeframe, then assigning those task lists to appropriate people responsible for completing them. Reflector can be used to re-model scenarios as the IT environment changes, thus minimizing the risk that a single action or issue can interrupt the entire migration process. Using this tool, our consultants can obtain a “single-pane” view across all the layers of the data center migration.

Fenestra

Fenestra is an automation tool used to gather data and schedule activities to support hosted virtual desktop infrastructure (“HVD”) deployments. Typically, a HVD deployment is time intensive, requiring interaction between the user of each desktop computer and the deployment team. By automatically gathering data at both the desktop device and user level, Fenestra streamlines the timing and execution of the HVD deployment. The tool provides flexibility for the individual user to manage the technology deployment on the user’s own schedule but still within the parameters of the overall project requirements. The project manager benefits from real-time reports against the overall project schedule. Fenestra is highly scalable from a single site deployment to multi-country, multi-site deployments.

vLab

vLab is a patent-pending tool that allows clients to model HVD deployments prior to investing in new technology. Clients can see the impact of deploying HVD in their environment in days rather than weeks or months. This saves clients time and resources by dynamically creating a “virtual data center” based on a client’s specific system configuration and customized inputs. vLab also shortens our sales cycle by eliminating the need for lengthy and costly “real world” proof of concept engagements, as well as lowers our costs by reducing the need to have our consultants travel to client locations.

Optics

Optics is a suite of tools for reporting and monitoring services, providing visibility into the performance of a particular aspect of a client’s IT environment. We provide a suite of managed services offerings, including Optics for Storage; Optics for Backup; Optics for Virtual Environments; Optics for Database; Optics for Vulnerability Management; and Optics for Security Information Management. Each is offered in a scalable software-as-a-service model, supported by both proprietary and third party software tools.

For example, Optics for Virtual Environments provides visibility into a client’s virtual infrastructure through reports, monitoring and analysis by our consultants. We monitor the virtual server environment 24x7 and generate performance and capacity reports. Our consultants analyze the reports and provide actionable recommendations for how to manage and optimize the environment for peak performance and cost savings. Optics for Virtual Environments is a subscription-based service.

EV Tools

Due to our recent acquisition of vcare Infosystems AG, we have acquired a suite of software products called EVTools. These products are sold to customers to help manage their backup and archiving environments. We offer licenses and support for these products.

Methodologies

Another important component of Transom is our proven methodologies to address process and planning inefficiencies within clients’ IT environments. While each methodology is specific to a

particular area in IT infrastructure or a particular set of challenges, the purpose of each is to increase efficiency, reduce risk and improve service levels. These methodologies were developed through our experience in working on thousands of client engagements and are shared throughout our company for the benefit of all of our clients. These methodologies include:

Link

We help our clients improve the process of data center migration from an ad hoc project plan to a streamlined “assembly line,” significantly reducing the time required to complete the migration and minimize the associated business risk. While the majority of individual tasks performed in a data center migration are standard IT operations, a successful migration requires the careful synchronization of these tasks so they are executed in the correct order and with all associated details addressed. Link, supported by our proprietary Reflector tool, reduces the complexity associated with managing multiple interdependent streams of work while continuing to support business processes without interruption.

Accelerate

Accelerate is a four-phase (Design, Plan, Deploy and Transition) methodology that helps enterprises move rapidly from a decision to invest in a new technology or capability to its deployment and adoption. Because the success of Accelerate hinges on driving broad stakeholder agreement in the initial Design phase, we start with a two-day facilitated session, bringing together disparate stakeholders to detail the future state of the new IT environment. In a scripted process, our consultants facilitate a discussion of the new technology and the goals of each stakeholder, while planning for architecture updates and deployment. Conducting this process upfront with the broad group of stakeholders helps manage any issues and misunderstandings prior to actual deployment. At the end of the workshop, all stakeholders sign off on the design and the second phase, Plan, begins. Here we develop a detailed plan for execution and a full architecture, taking into account the unique characteristics of the client’s environment, then define the total level of effort required and develop an economic return on investment model and business case for the deployment. In the Deploy phase, we assemble a team to complement the client’s existing resources, integrate the technology according to the plan, then quickly move to the Transition phase, where we help the in-house team understand how to manage and support their new IT environment.

Script

Script is a three-phase (Plan, Deploy and Go Live) approach, typically implemented in four to six weeks, to bring a client on to our managed services platform with minimal disruption to daily business activities. We implement standard service activities across the client’s environment while allowing flexibility for unique client requirements and integration with existing systems and processes. Key to Script is the early development of a mutually-agreed terms of reference document, which contains the detailed processes and procedures that govern each party’s responsibilities and define the detailed service levels of the managed service.

Subject Matter Expertise

We have developed significant subject matter expertise from hands-on experience in thousands of client engagements. Our consultants have deep expertise in multi-vendor environments and focus on providing solutions that meet the client’s business requirements irrespective of the technology in that environment. Our clients, who engage with us repeatedly to help drive and support their businesses, validate our expertise.

Our consultants have an average of approximately 15 years of experience and present at global industry events, write columns for industry publications, and author whitepapers and bylined articles

about industry issues. We average 50 bylined articles per year and our consultants speak regularly at the industry’s largest events, including VMWorld, IP Expo and Interop.

Drivers of Demand for Our Services

We believe our industry is at the beginning of a significant shift in the way IT services are delivered to clients. Historically, these shifts have occurred approximately every 15 years in connection with transitions in business computing, as the industry has moved from mainframe computers in the 1960’s to distributed systems in the 1980’s to Web-enabled computing in the late 1990’s. In each case, technological change created a demand for services to help companies adopt, integrate and manage new capabilities. Today, we believe cloud computing, virtualization, green initiatives and an increasing number of government and industry regulations are driving another major shift in the architecture and services in IT infrastructure. We provide the consulting and services required to help clients fill the gap between their current capabilities and those needed to support new and emerging data center architectures and technologies.

The convergence of new technologies and increased demands on IT infrastructure is creating significant, inter-related challenges for IT executives, including:

Optimizing IT Infrastructure and Deploying New Technologies

To improve efficiency and agility, as well as to manage costs, IT executives are looking to optimize their existing assets and integrate new technologies. We believe these initiatives have inherent challenges and are leading enterprises to augment their internal IT teams with third-party consulting and managed services to ensure best practices are implemented and service levels are met. The challenges businesses are facing include:

Data Center Optimization: As enterprises continue to generate more data that must be stored and protected, they are forced to increase the size of their data centers and draw on additional resources to support and manage them. Hardware, power and cooling requirements for data centers are increasing rapidly. Gartner estimates that more than 70% of the world’s Global 1000 organizations will have to modify their data center facilities significantly during the next five years, although the current economic crisis will force these changes to come later, rather than sooner⁷ IT executives must determine how to best manage their complex, multi-vendor environments and still support business agility and growth. We believe that enterprises’ in-house IT staff often lack the expertise and the time to take on a data center optimization initiative.

Adoption of Virtualization Technologies: Both server virtualization and desktop virtualization are projected to grow over the next few years. Gartner believes that most enterprises must openly evaluate and implement virtualization at the server and desktop level to take advantage of cost-cutting opportunities and to remain competitive⁸ This creates opportunities for services companies to help enterprises deploy, manage and monitor their newly virtualized environments, and to ensure that the virtual environment is working in concert with the other domains in IT, such as storage, networking and security. There is also growing interest in virtualizing desktop environments, which would allow enterprises to have greater control and management over individual employees’ desktop systems for improved performance and security. Gartner predicts the HVD software market to grow from $75.0 million in 2009 to $1.9 billion by 2013.⁹ We believe this increased acceptance of virtualization technology at the

⁷	Gartner Inc: 2008 US Data Center Conference: Data Center Build/Expansion Update. By Mike Chuba and John R. Phelps. 5 May 2009.

⁸	Gartner Inc: Dataquest Insight: Virtualization Market Size Driven by Cost Reduction, Resource Utilization and Management Advantages. By Alan Dayley, Ranjit Atwal, Thomas J. Bittman, Philip Dawson, Cameron Haight, Mark A. Margevicius, Jeffrey Hewitt and Brian Gammage. 5 January 2009.

⁹	Gartner Inc: Dataquest Insight: Virtualization Market Size Driven by Cost Reduction, Resource Utilization and Management Advantages. By Alan Dayley, Ranjit Atwal, Thomas J. Bittman, Philip Dawson, Cameron Haight, Mark A. Margevicius, Jeffrey Hewitt and Brian Gammage. 5 January 2009.

desktop layer will require enterprises to invest in additional third-party resources with specific virtualization expertise to manage the projects with minimal risk to the business.

Minimizing Costs Within Constrained IT Budgets

Business and technology leaders are expected to address an increasing scope and complexity of IT challenges with fewer resources and usually under rigorous time constraints. There is an interrelated set of budget issues that IT departments must balance, such as:

Managing Operating Expenses: The ongoing costs associated with existing assets—from licensing fees to maintenance to energy bills—continue to increase. In addition, IT executives are buying more hardware and software to manage data growth. These assets require maintenance, licenses and resources to manage them.

Maximizing Existing Assets: There remains a large amount of trapped IT value in existing infrastructure bases. For example, Gartner states that most IT environments are primarily unvirtualized and the server utilization rate in those IT environments is typically between 7-15%; virtualizing these environments can increase utilization to 60-70%.¹⁰

Lack of Transparency into Total Cost of Ownership (TCO): We believe that IT executives find it difficult to establish a TCO for their assets or to calculate the return on investment of their IT infrastructures due to a lack of transparency into costs and a lack of tools and capabilities. The result is that IT executives cannot make a reasonable business case for future purchases, or justify the expense of maintaining their current IT infrastructure, because they do not have a clear understanding of the value of what they currently own.

Managing Risk Efficiently and Cost Effectively

IT executives must address both external and internal threats in order to manage risk. External threats include catastrophic weather events and terrorist attacks that are beyond an IT executive’s control, but still must be addressed through contingency plans. External threats also include computer and network viruses and hackers. In response to these external threats, there has been a significant increase in regulatory mandates created to protect data and consumer privacy. Businesses that do not comply with these regulations face legal sanctions and regulatory violations that may result in significant fines and impact their ability to conduct business. In addition, the negative impact of not implementing adequate threat defenses or contingency plans goes far beyond data loss and can also include loss of revenues and loss of client confidence.

Internal risks are the risks associated with complex, multi-vendor IT environments. As new and emerging technologies are introduced into the data center, there is an increasing risk for integration error. Assets may be improperly configured or staff members may not know how to manage the new technology, which could result in enterprises facing interruptions in daily business operations or the loss of data critical to business functions.

IT executives must mitigate these internal and external risks through:

Data Protection: Businesses depend on practical and proven business continuity and disaster recovery plans to safeguard against catastrophic events, criminal activity and human error. Data protection also includes the reliable management of backup and recovery processes to ensure data is available when needed, especially in case of disaster or litigation (e-discovery).

¹⁰	Gartner Inc: Data Center Efficiency and Capacity: A Metric to Calculate Both. By David J. Cappuccio. Page 1—Key Findings. Report # G00164493. 18 September 2009.

IT Security: Due to the constant threat of attack for new and evolving technologies, IT managers must identify and address vulnerabilities in their IT environment, as well as stay abreast of potential threats, such as viruses, hackers and disgruntled employees.

Compliance: IT departments must comply with governmental and industry-specific regulations for data retention and management. For example, the Payment Card Industry Data Security Standard is a set of requirements designed to ensure that all companies that process, store or transmit credit card information maintain a secure environment. Retailers must add the cost and processes for establishing best practices and verifying their compliance status with an approved scanning vendor. Penalties for noncompliance range from $5,000 to $100,000. This is an added layer of administrative and operational management that IT departments in retail organizations must satisfy.

Responding to Market Dynamics and Emerging Trends

Data center infrastructure is in a constant state of change as recently evidenced by the ongoing adoption of virtualization technologies. In order to remain competitive on a cost and time-to-market basis, IT executives must ensure they are adapting to new paradigms of efficiency, speed and application delivery.

The latest emerging technology being examined in IT delivery is cloud computing. Cloud computing offers a “pay-as-you-go” model that impacts operational, not capital, budgets and removes the burden of owning and maintaining assets from the enterprise. This new model provides IT executives with an opportunity to restructure their infrastructure management. The combined requirements of higher efficiency, lower costs with improved scalability and fluidity to support growth are driving IT executives to explore the realm of cloud computing.

Benefits of Our Services

We believe our services provide compelling benefits to our clients including:

Access to Leading-Edge Data Center Strategies and Practices

Given the ever-changing nature of the data center technologies and business requirements, it is very challenging for IT organizations to keep up with data center best practices. Our broad and deep experience in data center strategy, integration and management allows us to offer approaches that the client may not have considered without the engagement of an expert. This expertise can provide significant value to the overall engagement.

Demonstrable Return on Investment

We have developed software tools and methodologies that demonstrate the value of our service offerings. Through our IP and this subject matter expertise we are able to demonstrate significant value generated from our projects, such as optimizing the total cost of a client’s data infrastructure, decreasing the risk of unplanned downtime and data loss, improving service levels and improving control and management of the environment. Providing clear evidence of these benefits helps our clients validate their projects and advances the view of the IT organization’s strategic importance within their own companies.

Minimized Project Execution Risk

Large IT projects are highly complex and often can lead to unplanned costs and slippage of target completion dates. Our well-established tools and methodologies mitigate this execution risk by quickly

identifying potential roadblocks both prior to and during the execution of these complex projects. Our expertise in data centers allows us to identify and resolve many problems before they create setbacks to the overall project.

Decreased Risk of Data Loss

We work with our clients to develop and implement tailored disaster recovery, data protection and IT security solutions that safeguard against operational failures, catastrophic events and unauthorized activity. We provide vendor independent expertise and unique tools to provide visibility and remediation support to mitigate risk. By addressing these issues, we help our clients avoid the potential interruption of business activities, negative impact on business reputation and financial penalties related to regulatory noncompliance.

Enhanced Visibility into the IT Environment

Our managed services provide clients with continuous monitoring of and reporting on their IT infrastructure. This visibility reduces the complexities of managing IT infrastructure and allows clients to focus on their core business.

Our Growth Strategy

Our objective is to enhance our industry position, while continuing to grow our revenues and enhance our profitability. Our strategy to achieve these objectives includes the following elements:

Deepen and Expand Relationships with Our Current Client Base

We have historically generated a significant amount of our revenues from new projects with existing clients. Because many of our clients are in the early stages of evolving their IT infrastructures, we expect to continue to sell services to these clients as their needs grow and evolve. For clients with global operations, our expanded geographical reach allows us to sell more of our services throughout the client’s enterprise. As we continue to expand geographically, we expect to increase our penetration across global enterprises. In addition, we believe there is a significant opportunity to expand the scope of our client relationships as we develop new service offerings and capabilities, and further establish relationships with senior executives with broader IT management oversight.

Engage with New Clients

We participate in industry events and direct marketing activities to drive broad awareness of our services to prospective clients. These campaigns provide us with lists of qualified prospects. In 2009, we established an inside sales function in the U.S. and the U.K. to pursue and develop these prospects into new clients. Our direct sales team also pursues a target prospect list of Fortune 2500 companies to establish new client relationships.

Leverage Indirect Sales Channels

We have developed relationships with technology vendors who engage us to leverage our IP and our consultants to deliver services to their clients. These indirect sales channels provide us with access to additional enterprise clients to whom we can ultimately cross-sell a broader range of consulting, technology integration and managed services. We plan to continue expanding our indirect sales channels relationships. The introductions that these partnerships produce allow us to acquire new clients and expand our presence into new geographic markets, as well as to sell into higher levels of IT management within many client organizations.

Broaden Our Managed Services Offerings

We provide a wide range of managed services to remotely monitor, report, analyze and actively manage our clients’ IT infrastructure environments. We intend to expand our managed services offerings to provide additional services within our current domain areas. For example, in 2008 and 2009, we added virtualization, security and database managed services offerings. We are currently preparing to introduce networking and server managed services. The ability to provide a broader range of managed services also helps us deepen our penetration into existing client accounts by offering the ability to manage additional parts of their IT environment.

Acquire Complementary Businesses and Technology

Due to the quickly evolving nature of IT infrastructure, new technologies and client requirements routinely emerge. We must continue to address these emerging trends in order to provide a comprehensive set of services to our clients. We believe that in many cases, the best approach to doing so is to acquire resources and expertise that specifically address emerging issues. While our business philosophy is to grow organically, we believe that acquisitions will continue to be an important part of our strategy and we have developed a disciplined approach to quickly integrate acquired companies and assets. We evaluate all potential acquisitions using Transom as a filter. We assess the potential acquisition target for the software tools, methodologies and domain expertise it would contribute to our business. In addition to the assets a new acquisition brings to GlassHouse, we also consider the geographical market the target company serves and how it complements our existing markets. We believe that our significant experience in integrating acquired companies allows us to more quickly address client needs and expand our addressable market opportunity.

We have entered into a non-binding letter of intent to acquire an IT services company based in the Netherlands that specializes in virtual desktop technologies. The terms of the letter of intent include an initial purchase price of approximately $10.2 million in cash and approximately 1.5 million shares of our common stock. In addition, the sellers may over time earn additional consideration of up to $2 million, payable in cash, based on achievement by the acquired business of agreed upon revenue goals. The target company’s unaudited 2009 financial information, as reported by the target company, included revenue of approximately €12.8 million with a net loss of approximately €560,000, each as calculated in accordance with Dutch generally accepted accounting principles. We have not yet completed our due diligence nor entered into any definitive acquisition agreements and therefore cannot be sure if the acquisition will be completed or, if completed, whether the final terms will be as described in the letter of intent.

Acquisition History

Founded in 2001, we initially focused on the storage market. We had always intended to broaden our service offerings into the data center marketplace. As demand increased in adjacent markets we looked for ways to accelerate our growth into areas such as virtualization, security and data center optimization. While our primary focus is on organic growth, we continually evaluate opportunities to add capabilities that fit within our Transom business model. We have invested in strategic acquisitions in the U.S., U.K. and Israel to gain complementary tools and methodologies as well as to hasten our growth in certain geographic markets. Many of our acquisitions have resulted in only a minimal short-term financial impact, but have provided us with certain strategic elements to facilitate our continued organic growth. Additionally, the geographic diversity of our acquisitions has given us many opportunities to expand the relationships with our indirect channel partners who are looking for global coverage and support.

In 2004, our acquisition of two companies in the U.K. brought managed services expertise in storage and backup to our services portfolio and established our Europe, Middle East and Africa headquarters in the U.K. We expanded our presence in the Middle East and added database and server services to our portfolio with our acquisition of two Israel-based companies in 2007. Most recently, the acquisition of a Swiss services firm in 2009 broadened our footprint in continental Europe and added enhanced archiving technology to our portfolio. Since our inception, we have also completed ten other acquisitions that have helped to improve our services offerings and increase our global presence.

We primarily issue shares of our capital stock to purchase our acquisition targets. This approach helps to align the incentives of the newly acquired management, who frequently held a substantial interest in the target, with the rest of our employees. Additionally, we usually endeavor to integrate the new companies into our organization quickly, and provide broader career paths and enhanced responsibilities to the management team. A significant number of the employees from the acquired companies are still employed by us.

Sales and Marketing

Our global sales, marketing and business development teams develop strong relationships with IT executives at prospective and existing clients. We use a hybrid approach in our sales efforts using both senior level consultants and sales professionals, with the intent of becoming a trusted advisor to our clients and partners.

Direct Sales

As of March 31, 2010, we had approximately 47 direct sales professionals, including sales managers, sales representatives, account managers and inside sales personnel. We organize our sales teams by geographic regions. Our direct sales representatives are responsible for all aspects of the selling process. They are incented to both find new clients as well as develop existing relationships. Their compensation is the same whether they develop their own sales leads or work with one of our channel partners. Our direct sales representatives are assisted at times by our inside sales force, who set up new client meetings and provide market intelligence.

The sales process is tightly monitored from the initial meeting to an “opportunity assessment,” which is the process we use to assign sales and technical resources to a potential sales situation. We track all of the activity in SalesForce.com and we support the sales efforts with the use of Atlas, our internal information system that contains sample documentation, marketing materials and tools for estimation.

Indirect Sales

Approximately 27% of our current business is done through indirect sales channels which are new relationships derived from existing strategic relationships. We anticipate continuing to grow channel sales so that it will be equal to or potentially surpass our direct sales activity in future years. Indirect channels provide us with additional new account access and allow us to expand our client base geographically. The indirect sales channels benefit from a relationship with us as we often become trusted advisors to our clients, which can provide further opportunities for the provision of services and sales of products.

Our indirect sales team is responsible for creating go-to-market offerings within our indirect sales channels. The programs are rolled out to the field with the support of our sales organization.

Some of the current key relationships include:

Dell—Dell has licensed portions of our IP, and we work with its salesforce to sell our services for storage, backup, virtualization, and data center;

Cisco—Cisco has licensed portions of our IP, and we work with its salesforce to sell our services for data center and virtualization;

Bull—Bull has licensed our IP and works with us to sell and deliver our services that are marketed through its salesforce in the geographies where it operates;

IBM—IBM works with us to deliver strategic services in storage and backup in the European marketplace;

Unisys—Unisys works with us to provide storage and backup services to its state and local government clients; and

Splunk Inc. (Splunk)—Splunk works with us to sell security solutions that incorporate IP and services that we developed for its software toolset.

In connection with our strategic relationships with Dell, Cisco and Bull SAS, we have granted a perpetual license to Dell, excluding IP acquired or newly developed following the date of the agreement, and perpetual licenses for certain software and other proprietary tools to both Cisco and Bull. Further, Dell and Cisco are permitted to sublicense the rights granted to our IP to other companies that might compete with our business, products and/or services.

Clients

We have developed relationships with Fortune 1000 companies, including approximately half of the Fortune 100 companies, as well as smaller organizations. We market and provide our services primarily to companies in North America, Europe and the Middle East. For additional discussion regarding geographic information, see Note 1 to our consolidated financial statements. We believe that our regular, direct interaction with our clients, the breadth of our client relationships and our reputation among these clients as an independent advisor differentiate us from our competitors.

We help clients define a program to transform their IT infrastructure from a technology-centric to a service-centric model. Most enterprises have built their data centers around the technology that is available at the time and deliver IT services based on that technology’s features and functionality. Our service-centric approach shifts the client’s perspective to create IT services designed to support business objectives and subsequently to make technology decisions that support the services needed. This type of program generally consists of several phases, and individual projects within each phase to achieve the client’s desired end state. For example, one of our clients contracted with us for storage and backup strategy projects in 2003. This was quickly followed by several related projects, such as data migrations, service catalog development and technology upgrades to help them achieve a program goal of a establishing a mature and reliable storage and backup environment. After the strategy and integration work, we were contracted to manage their storage and backup environments in the U.S. This successful relationship has led to additional data center consulting work in the client’s U.K. sites.

The strength of our client relationships has resulted in significant recurring revenues from existing clients. During the three months ended March 31, 2010, approximately 77% of our total revenues came from clients and from companies in our indirect sales channels that had generated revenues in the 24 months prior to this period.

Competition

The market in which we operate is fragmented, highly competitive, rapidly evolving and subject to shifting client needs and expectations. We rely on our deep expertise in our data center domain competencies—data center migration, cloud enablement/IT services management, virtual environments, disaster recovery, storage/backup & recovery and security—to be proactive and nimble in providing services to clients.

When evaluating IT consulting and services options, enterprises generally evaluate potential providers on:

pricing;

scope of services provided;

availability of resources to provide services;

quality of services; and

ability to deliver across multiple geographies.

Our competition occasionally includes consulting and systems integration firms such as Accenture Ltd., IBM and Deloitte Touche Tohmatsu (DTT) and technology vendors such as EMC Corporation, Dell, Unisys and IBM. Many of the companies in this market space serve a broad range of markets and do not focus on the core areas that we serve. In fact, several of these companies are our partners.

We also compete from time to time with smaller regional infrastructure service providers based in the geographic areas where we offer services. We expect additional competition from offshore IT outsourcing firms in locations such as India, Eastern Europe, Latin America and China. Although offshore services may provide price-competitive solutions for some clients, we believe at this time that an onshore presence is required to be competitive from a client service perspective.

Few of our competitors provide infrastructure services as their core offering and most have product resale as a major part of their go-to-market business model. Traditionally, internal IT departments performed many of the services that we provide. Internal departments enjoy the inherent advantages of being closer to business operations and having the ability to influence decision makers and guide IT strategies on a day-to-day basis. However, they may lack specialized expertise or capacity to transform their IT infrastructures around new technologies and infrastructure. As part of our sales efforts, we believe we are able to demonstrate a meaningful return on investment and the benefits of our services in providing greater visibility into IT environments while minimizing risk. Furthermore, since our engagements generally provide training to internal professionals, we are able to provide our clients with the resources necessary to maintain an improved IT environment.

Based on the information we have collected from lost sales opportunities, we attribute only 14% of our opportunities in the first three months of 2010 as lost to direct competition. The balance of our losses were due to clients’ budgetary issues or the decision to keep the project internal. In the first three months of 2010, we won approximately 62% of the proposals presented to clients.

Intellectual Property

Our continued success depends on the skills of our employees and third-party consultants and their ability to continue to innovate and improve our intellectual property. We rely on a combination of, copyright, trademark, patent and design laws, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property rights and proprietary methodologies. We enter into confidentiality agreements with our employees and consultants and we generally control access to and distribution of proprietary information. These agreements generally provide that any confidential information developed by us or on our behalf be kept confidential. Further, we require all employees to execute written agreements assigning to us all rights in all inventions, developments, technologies and other intellectual property created by such employees. We pursue the registration of certain of our trademarks and service marks in the United States and other countries. We registered the mark “Transom” in the United States. We have one patent pending for vLab.

Our business also involves the development of IT applications and other technology deliverables for our clients. Our clients often have the contractual right to own the intellectual property in the software applications we develop for them. We generally integrate safeguards designed to protect our clients’ intellectual property in accordance with their needs and specifications.

Employees

We seek to maintain a culture of innovation by aligning individual incentives with organization-wide goals. Our success depends upon our ability to attract, develop, motivate and retain highly-skilled and multi-dimensional employees. We compete aggressively for talent and we strive to hire the best employees. We believe that we benefit from a talented pool of employees who are encouraged to think individually and creatively when addressing complex technical challenges. Although not currently a material component of our people management strategy, we also retain subcontractors at all of our locations on an as-needed basis for specific client engagements.

As of March 31, 2010, we had 533 employees in offices worldwide. We have never experienced a work stoppage and believe our relationship with our employees is good.

Facilities

Our principal corporate offices are located in Framingham, Massachusetts, where we lease approximately 12,000 square feet. We also have additional offices throughout the United States, the U.K., Israel, Switzerland, Germany and Turkey. Globally, we have a total of 12 leases and subleases totaling 74,261 square feet at this time. Our leases vary in duration and term, have varying renewable terms and have expiration dates ranging from 2011 to 2013. We believe that our existing and planned facilities are adequate to support our existing operations and that, as needed, we will be able to obtain suitable additional facilities on commercially reasonable terms.

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of business. We are not presently a party to any pending litigation or other legal proceedings that are likely to have a material adverse effect on our business, operating results or financial condition.

MANAGEMENT

Executive Officers, Key Employees and Directors

Our executive officers and directors and their ages as of June 1, 2010 are as follows:


Name	Age	Position
Mark Shirman	51	Chairman of the Board of Directors, President and Chief Executive Officer
Kenneth Hale	57	Chief Financial Officer and Treasurer
Andrew Norman	46	Chief Operating Officer
Richard Scannell	41	Senior Vice President, Corporate Strategy and Marketing
Robert Davoli(2)	61	Director
Todd Gresham(2)	48	Director
Kenneth Minihan(1),(3)	66	Director
Ryan Moore(2),(3)	36	Director
Glenn Osaka(1)	54	Director
Patrick Scannell(1)	56	Director
Louis Volpe(3)	60	Director

(1)	Member of Audit Committee.

(2)	Member of Compensation Committee.

(3)	Member of Nominating and Corporate Governance Committee.

Mark Shirman has served as our President and Chief Executive Officer, as well as the Chairman of our board of directors, since co-founding our company in 2001. Before co-founding our company, from 1999 to 2001, Mr. Shirman served as Executive Vice President and Chief Technology Officer at Convergent Group Corp., a privately held company serving the eBusiness requirements of the utility and local government industries that effected a public offering in 2000. From 1985 to 1995, Mr. Shirman served as Chief Executive Officer of Innovative Information Systems Inc., an information technology (IT) consulting firm. We believe Mr. Shirman’s qualifications to serve as a director of our company include his 25 years as an executive within the IT industry, his experience founding and building companies and taking his former company public. Mr. Shirman received a B.A. in Economics from Brandeis University and an M.B.A. in Finance from American University.

Kenneth Hale has served as our Chief Financial Officer and Treasurer since August 2004. Before joining our company, from 2002 to 2004, Mr. Hale served as Chief Financial Officer at AptSoft Corporation, an enterprise software company focused on the alignment of existing systems with business processes. From 1997 to 2001, Mr. Hale served as Chief Financial Officer and Treasurer of NaviSite Inc., a publicly traded company focused on providing Internet outsourcing solutions. From 1989 to 1996, Mr. Hale served as Chief Financial Officer for Media/Communications Partners, a venture capital firm focused on the communications and media industries. From 1980 to 1989, Mr. Hale was a senior manager at Ernst & Young. Mr. Hale is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Mr. Hale received a B.A. in Biology from Colgate University and an M.B.A. from Northeastern University.

Andrew Norman has served as our Chief Operating Officer since October 2008. He previously served as our Senior Vice President, Worldwide Sales, Senior Vice President, International Division and Managing Director for our U.K. offices. Prior to joining us in 2004, Mr. Norman established a new storage business unit at Xyratex Technology Limited, a former IBM facility, and then led a management buyout in 1997 to form Sagitta Performance Systems Limited, a privately held firm focused on storage networking products and storage consulting services. We acquired Sagitta in 2004. Mr. Norman received a B.S. and M.S. in engineering from Brunel University.

Richard Scannell co-founded our company in 2001. In his role as Senior Vice President of Corporate Strategy and Marketing, Mr. Scannell is responsible for our go-to-market strategy and worldwide marketing functions. Prior to co-founding our company, Mr. Scannell served as Chief Operating Officer of UpSource, a start-up company providing outsourced customer relationship management (CRM) services. Prior to working with UpSource, Mr. Scannell held a senior IT Infrastructure management role with Motorola. Mr. Scannell holds a B.S. in Computer Science from University College—Cork, Ireland.

Robert Davoli has served as a member of our board of directors since July 2001. Since 1995, Mr. Davoli has been a Managing Director at Sigma Partners, a venture capital firm. Prior to joining Sigma, Mr. Davoli was President and Chief Executive Officer of Epoch Systems, a provider of data management software products that was sold to EMC in 1993. Before leading Epoch Systems, Mr. Davoli founded and served as President and Chief Executive Officer of SQL Solutions, a provider of tools and services in the relational database market that was later sold to Sybase. We believe Mr. Davoli’s qualifications to serve as a director of our company include his experience founding, scaling and leading successful companies. Mr. Davoli holds a B.A. from Ricker College.

Todd Gresham has been a member of our board of directors since July 2002. Since 2008, Mr. Gresham has served as Senior Vice President of the Networked Storage Solutions Division of Xyratex International Limited (NASDAQ: XRTX). From 2005-2008, Mr. Gresham served as Executive Vice President of the Networked Storage Solutions Division at Xyratex Technology Limited. From 2004 to 2005, Mr. Gresham served as President and Chief Executive Officer of nStor Technologies, Inc. Prior to joining nStor, Mr. Gresham served as Vice President of Global OEM and Reseller Sales at EMC, and General Manager of Asia/Pacific Operations, as well as Vice President of Worldwide Sales, at CLARiiON. Mr. Gresham has over 25 years of executive management experience in both publicly traded and privately held companies. We believe Mr. Gresham’s qualifications to serve as a director of our company include his extensive experience with companies within the infrastructure technologies space. Mr. Gresham studied business at Texas Tech University.

Kenneth Minihan has been a member of our board of directors since December 2004. Mr. Minihan retired from the United States Air Force in 1999, after more than 33 years of active commissioned service to the nation, serving as the 14^th Director of the National Security Agency from 1996 to 1999. Prior to joining the National Security Agency, Mr. Minihan provided military service at the national level in varying capacities, primarily in assisting the military and government with operating and implementing leading edge technology solutions, services and products. Mr. Minihan is a managing director at Paladin Capital Group and sits on the board of directors for various private companies and the following publicly traded companies: BAE Systems, ManTech International Corporation and Lexis Nexis Special Services Inc. We believe Mr. Minihan’s qualifications to serve as a director of our company include his service as a director to several private and public companies named above. Mr. Minihan holds a B.A. from Florida State University, an M.A from the Naval Postgraduate School and has completed executive development programs at the University of Illinois and Harvard University.

Ryan Moore has been a member of our board of directors since September 2003. Mr. Moore co-founded GrandBanks Capital in 2000 and currently is a General Partner at GrandBanks. Prior to co-founding GrandBanks Capital, Mr. Moore worked at SOFTBANK Venture Capital (now known as Mobius Venture Capital) and SOFTBANK Capital Partners. Before joining SOFTBANK, Mr. Moore served as a Senior Associate focused on technology investment banking with Robertson Stephens. We believe Mr. Moore’s qualifications to serve as a director of our company include his experience analyzing the technology sector and his service with us as a Director. Mr. Moore holds a B.A. in Economics from Princeton University.

Glenn Osaka has been a member of our board of directors since July 2002. Mr. Osaka currently serves as Senior Vice President for Professional Services at Juniper Networks. Prior to joining Juniper in April 2009, Mr. Osaka served as Vice President, Strategy and Planning for Worldwide Operations at Cisco Systems, Inc. (Cisco). Prior to joining Cisco in 2007, Mr. Osaka was President and Chief Executive Officer of Reactivity, Inc., a provider of XML acceleration and security processing. Mr. Osaka previously served as the Silicon Valley Managing Director of the Redleaf Group, an early-stage focused technology investment company, and worked at Hewlett-Packard in a variety of positions. We believe Mr. Osaka’s qualifications to serve as a director of our company his experience at several technology services companies. Mr. Osaka holds a B.A. in Psychology and an M.B.A. from University of California, Los Angeles.

Patrick Scannell has been a member of our board of directors since September 2007. Mr. Scannell has served as the Senior Vice President and Chief Financial Officer of Netezza Corporation since 2003. Prior to joining Netezza, Mr. Scannell served as Chief Financial Officer of PhotonEX Corporation, a provider of optical systems, from 2000 to 2002. From 1998 to 2000, Mr. Scannell served as Chief Financial Officer of Silknet Software, Inc., a provider of CRM infrastructure software. We believe Mr. Scannell’s qualifications to serve as a director of our company include his experience as a chief financial officer at several companies. Mr. Scannell holds a B.S. from Boston College and an M.B.A. from Babson College.

Louis Volpe has been a member of our board of directors since January 2009. Mr. Volpe leads Kodiak Venture Partner’s investment efforts in software and core technology areas with over 25 years of technology industry experience. He focuses on new and unique software products and technologies that provide quick return on investment to clients. Prior to joining Kodiak in 2000, Mr. Volpe was part of the executive management teams at ArrowPoint Communications, GeoTel Communications and Parametric Technology. Mr. Volpe has served as President, Chief Operating Officer and Senior Vice President of Sales and Marketing as well as a member of the board of directors at these companies. We believe Mr. Volpe’s qualifications to serve as a director of our company include his focus on core technology areas and his experience in senior roles and as a Director at a variety of companies. Mr. Volpe holds a B.A from Tufts University and an M.B.A. from Boston University.

Election of Officers

Our officers are currently elected by our board of directors on an annual basis and serve until their successors are duly elected and qualified, or until their earlier resignation or removal. There are no family relationships among any of our officers or directors.

Corporate Governance and Board Composition

Selection Arrangements. Our current directors were elected pursuant to a stockholders agreement among certain holders of our preferred and common stock. This portion of the stockholders agreement will terminate upon the closing of this offering, and there will be no further contractual obligations regarding the election of our directors.

Classified Board. Our amended and restated certificate of incorporation that will become effective as of the closing of this offering provides for a classified board of directors consisting of three classes of directors, each serving a staggered three-year term. As a result, a portion of our board of directors will be elected each year from and after the closing of the offering. To implement the classified structure upon the consummation of the offering, three of the nominees to the board of directors will be elected to

one-year terms, two of the nominees will be elected to two-year terms and three of the nominees will be elected to three-year terms. Thereafter, directors will be elected for three-year terms.

Ryan Moore, Louis Volpe and Patrick Scannell have been designated as Class I directors whose term will expire at the 2011 annual meeting of stockholders, assuming the completion of the proposed offering. Todd Gresham and Robert Davoli have been designated as Class II directors whose term will expire at the 2012 annual meeting of stockholders, assuming completion of the proposed offering. Mark Shirman, Kenneth Minihan and Glenn Osaka have been designated as Class III directors whose term will expire at the 2013 annual meeting of stockholders, assuming completion of the proposed offering. Our amended and restated bylaws that will become effective as of the closing of the offering provide that the number of authorized directors may be changed only by a majority of directors then authorized (including any vacancies). Any additional directorships resulting from an increase in the number of authorized directors will be distributed among the three classes so that, as nearly as reasonably possible, each class will consist of one-third of the directors. The classification of the board of directors may have the effect of delaying or preventing changes in control of our company.

Independent Directors. Each of our directors, other than Mr. Shirman, qualifies as an independent director in accordance with the published listing requirements of the NYSE. The NYSE independence definition includes a series of objective tests, such as that the director is not also one of our employees and has not engaged in various types of business dealings with us. In addition, as further required by the NYSE rules, our board of directors has made a subjective determination as to each independent director that no relationships exist which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our directors reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities as they may relate to us and our management.

Board Structure and Committees. Our board of directors has established an audit committee, a compensation committee and a nominating/corporate governance committee.

Our board of directors and its committees set schedules to meet throughout the year, and also can hold special meetings and act by written consent from time to time as appropriate. Our board of directors has delegated various responsibilities and authority to its committees as generally described below. The committees will regularly report on their activities and actions to the full board of directors. Each member of each committee of our board of directors qualifies as an independent director in accordance with the NYSE standards described above and SEC rules and regulations. Each committee of our board of directors has a written charter approved by our board of directors. Upon the effectiveness of the registration statement of which this prospectus forms a part, copies of each charter will be posted on our Web site at www.glasshouse.com under the Investor Relations section. The inclusion of our Web site address in this prospectus does not include or incorporate by reference the information on our Web site into this prospectus.

Audit Committee. Our audit committee currently consists of Patrick Scannell, Kenneth Minihan and Glenn Osaka. Each member of our audit committee can read and has an understanding of fundamental financial statements. Mr. Scannell serves as chairman of the audit committee.

Mr. Scannell qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations of the SEC. The designation of Mr. Scannell as an “audit committee financial expert” does not impose on him any duties, obligations or liability that are greater than those that are generally imposed on him as a member of our audit committee and our board of directors, and his designation as

an “audit committee financial expert” pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of our audit committee or board of directors.

The audit committee monitors our corporate financial statements and reporting and our external audits, including, among other things, our internal controls and audit functions, the results and scope of the annual audit and other services provided by our independent registered public accounting firm and our compliance with legal matters that have a significant impact on our financial statements. Our audit committee also consults with our management and our independent registered public accounting firm prior to the presentation of financial statements to stockholders and, as appropriate, initiates inquiries into aspects of our financial affairs. Our audit committee is responsible for establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters, and has established such procedures to become effective upon the effectiveness of the registration statement of which this prospectus forms a part. In addition, our audit committee is directly responsible for the appointment, retention, compensation and oversight of the work of our independent auditors, including approving services and fee arrangements. All related party transactions will be approved by our audit committee before we enter into them.

Both our independent registered public accounting firm and internal financial personnel regularly meet with, and have unrestricted access to, the audit committee.

Compensation Committee. Our compensation committee currently consists of Robert Davoli, Todd Gresham and Ryan Moore. Each member of this committee is a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Davoli serves as chairman of the compensation committee.

The compensation committee reviews, makes recommendations to our board of directors and approves our compensation policies and all forms of compensation to be provided to our executive officers and directors, including, among other things, annual salaries, bonuses, stock option and other incentive compensation arrangements. In addition, our compensation committee will administer our stock option plans, including reviewing and granting stock options with respect to our executive officers and directors, and may, from time to time, advise our board of directors with respect to stock option and compensation of our other employees.

Nominating/Corporate Governance Committee. Our nominating/corporate governance committee currently consists of Louis Volpe, Kenneth Minihan and Ryan Moore. Our nominating/corporate governance committee identifies, evaluates and recommends nominees to our board of directors and committees of our board of directors, conducts searches for appropriate directors and evaluates the performance of our board of directors and of individual directors. The nominating/corporate governance committee is also responsible for reviewing developments in corporate governance practices, evaluating the adequacy of our corporate governance practices and reporting and making recommendations to our board of directors concerning corporate governance matters. Mr. Volpe serves as chairman of the nominating/corporate governance committee.

Code of Business Conduct. Our board of directors has adopted a code of business conduct that will become effective upon the effectiveness of the registration statement of which this prospectus forms a part. This code of business conduct will apply to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) and directors. Upon the effectiveness of the registration

statement of which this prospectus forms a part, the full text of our code of business conduct will be posted on our Web site at www.glasshouse.com under the Investor Relations section. We intend to disclose future amendments to certain provisions of our code of business conduct, or waivers of such provisions, applicable to our directors and executive officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) at the same location on our Web site identified above and also in a Current Report on Form 8-K within four business days following the date of such amendment or waiver. The inclusion of our Web site address in this prospectus does not include or incorporate by reference the information on our Web site into this prospectus.

Compensation Committee Interlocks and Insider Participation

The compensation committee of our board of directors currently consists of Robert Davoli, Todd Gresham and Ryan Moore.

Interlocks. None of our executive officers has ever served as a member of the board of directors or compensation committee of any other entity that has or has had one or more executive officers serving as a member of our board of directors or our compensation committee.

Participation. On October 26, 2006 and April 10, 2007, we sold shares of our Series D preferred stock at $2.4318 per share to investment funds affiliated with Robert Davoli and investment funds affiliated with Ryan Moore. On April 10, 2007, we also sold warrants to these entities at a nominal purchase price ($0.0001) with an exercise price equal to $2.4318 per share. As detailed below, the funds affiliated with Robert Davoli purchased 1,770,621 shares of Series D preferred stock for an aggregate purchase price of approximately $4,305,796. As detailed below, the funds affiliated with Ryan Moore purchased 888,596 shares of Series D preferred stock for an aggregate purchase price of approximately $2,160,888. The table below sets forth the number of Series D shares and/or warrants purchased at each closing:


Closing Date	Investor Name	Series D Shares Purchased	Series D Warrants Purchased	Compensation Committee Member, Title
October 2006	Sigma Partners	773,011	0	Robert Davoli, Managing Partner of Sigma Partners
April 2007	Sigma Partners	997,610	199,522	Same as above
October 2006	GrandBanks Capital	387,940	0	Ryan Moore, General Partner of GrandBanks Capital
April 2007	GrandBanks Capital	500,656	100,130	Same as above

On May 4, 2007, we sold shares of our Series E preferred stock at $2.5594 per share to investment funds affiliated with Ryan Moore. On May 4, 2007 and August 15, 2007, we sold shares of our Series E preferred stock at $2.5594 per share to investment funds affiliated with Robert Davoli. On August 15, 2007, we also sold warrants to these entities at a nominal purchase price ($0.0001) with an exercise price of $2.5594 per share. The funds affiliated with Ryan Moore purchased 475,696 shares of Series E preferred stock for an aggregate purchase price of approximately $1,217,496. The funds affiliated with Robert Davoli purchased 1,537,103 shares of Series E preferred stock for an aggregate purchase price of approximately $3,934,061. The table below sets forth the number of Series E shares and/or warrants purchased at each closing:


Closing Date	Investor Name	Series E Shares Purchased	Series E Warrants Purchased	Compensation Committee Member, Title
May 2007	Sigma Partners	947,874	0	Robert Davoli, Managing Partners of Sigma Partners
August 2007	Sigma Partners	589,229	117,844	Same as above
May 2007	GrandBanks Capital	475,696	0	Ryan Moore, General Partner of GrandBanks Capital

For more information regarding the shares held by the funds affiliated with Robert Davoli and the funds affiliated with Ryan Moore, please refer to the sections titled “Transactions with Related Persons, Promoters and Certain Control Persons” and “Principal Stockholders.”

For more information regarding the contractual arrangements that we entered into with the funds affiliated with Robert Davoli and the funds affiliated with Ryan Moore in connection with their purchases of Series D preferred stock and Series E preferred stock, please see the subsections titled “Transactions with Related Persons, Promoters and Certain Control Persons—Registration Rights Agreement” and “Transactions with Related Persons, Promoters and Certain Control Persons—Stockholders Agreement.”

We also performed services for an entity affiliated with compensation committee member Todd Gresham. Mr. Gresham serves as an Executive Vice President at Xyratex Technology Limited (Xyratex), a provider of enterprise class data storage subsystems and network technology. Our provision of services to Xyratex generated approximately $256,000 and $124,000 in revenues to us in 2007 and 2008, respectively, and $22,000 in revenues to us during the year ended December 31, 2009.

Director Compensation

On January 12, 2010, our board of directors adopted a compensation program for non-employee directors, which includes a program of automatic options for non-employee directors to be granted under the 2010 Equity Incentive Plan. This program will become effective upon the effective date of the registration statement of which this prospectus forms a part and will remain in place until our board of directors amends or terminates it, which it may do at any time in its discretion. Pursuant to this program, each member of our board of directors who is not our employee will receive a $10,000 annual retainer. Each non-employee director serving on our audit committee or compensation committee will receive an annual retainer of $5,000. The chairman of the audit committee or compensation committee will receive an additional annual retainer of $5,000.

Under the director compensation program, each non-employee director who first joins our board of directors after the date of this offering will receive on the date on which he or she joins our board of directors an option to purchase 60,000 shares. This option will vest over a two-year period, with 50% of

each option grant vesting after one year and an additional 25% of the option shares for each subsequent six-month period thereafter.

Each non-employee director who is serving on our board of directors on the date of this offering will automatically be granted an option to purchase 30,000 shares of our common stock effective on his or her re-election to our board of directors at the annual meeting of our stockholders occurring in 2011. These options will have the same vesting schedule as described above.

For each year beginning in 2011, a non-employee director who continues serving as a director after an annual meeting of our stockholders will automatically be granted an additional option to purchase 20,000 shares of our common stock on the date of the annual meeting. A non-employee director who will serve as chairman of our audit committee or compensation committee after an annual meeting will automatically be granted an additional option to purchase 10,000 shares of our common stock on the date of the annual meeting, and a non-employee director who will serve as a member of our audit committee or compensation committee will automatically be granted an additional option to purchase 5,000 shares of our common stock on the date of the annual meeting (and will receive additional options to purchase a total of 10,000 shares if such director serves on both committees). However, a non-employee director who receives a 60,000-share or 30,000-share option described above will not also receive during the same calendar year any of the options described in this paragraph. Each of these options vests in equal monthly installments over the 12-month period commencing on the date of grant.

The exercise price of each non-employee director’s option will be equal to the fair market value of our common stock on the option grant date. A director may pay the exercise price by using cash, shares of common stock that the director already owns, or an immediate sale of the option shares through a third party broker. Each non-employee director’s options have a ten-year term, except that they expire one year after the director leaves our board of directors. A non-employee director’s option granted under this program will become fully vested upon a change in control of our company and will become fully vested if the non-employee director’s service terminates due to death.

We currently have a policy to reimburse directors for travel, lodging and other reasonable expenses incurred in connection with their attendance at board and committee meetings.

The following table sets forth the total compensation earned in 2009 by each person who served as a member of our board of directors during 2009, other than a director who also served as an executive officer.


Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($) (1)		Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)	Total ($)
Todd Gresham	0	0	44,436	(2)	0	0	0	44,436
Glenn Osaka	0	0	44,436	(2)	0	0	0	44,436

(1)

The amounts in this column reflect the aggregate grant date fair value of the option plus, because each option was both granted and repriced during 2009, the incremental fair value as of the repricing date, both computed in accordance with FASB ASC Topic No. 718. See Note 12 of the notes to our consolidated financial statements included elsewhere in this prospectus for a discussion of our assumptions in estimating the fair value of our option awards.

(2)

The shares granted under this option are exercisable in full as of the initial vesting date and are subject to a right of repurchase held by us. Our right of repurchase will lapse with respect to 50% of the shares subject to this option when the option holder completes 12 months of continuous service after the initial vesting date and will lapse with respect to an additional 25% of the shares subject to this option when the option holder completes each additional six-months period of continuous service thereafter.

The following table describes the options that we granted to our non-employee directors and that were outstanding on December 31, 2009:


Name	Date of Grant	Number of Options Granted		Exercise Price per Share		Grant Date Fair Value(1)		Aggregate Number of Options Outstanding on 09/30/09
Todd Gresham	08/31/2009	75,000	(1)	$	1.38	$	261
Todd Gresham	08/31/2009	75,000	(2)	$	1.38	$	44,436	150,000
Glenn Osaka	08/31/2009	75,000	(1)	$	1.38	$	261
Glenn Osaka	08/31/2009	75,000	(2)	$	1.38	$	44,436	150,000
Patrick Scannell	08/31/2009	100,000	(1)	$	1.38	$	17,399	100,000

(1)

This amount reflects the incremental fair value of the repriced option, computed as of the repricing date in accordance with FASB ASC Topic No. 718. See Note 12 of the notes to our consolidated financial statements included elsewhere in this prospectus for a discussion of our assumptions in estimating the fair value of our option awards.

(2)

This amount reflects the aggregate grant date fair value of the option plus, because the option was both granted and repriced during 2009, the incremental fair value as of the repricing date, both computed in accordance with FASB ASC Topic No. 718. See Note 12 of the notes to our consolidated financial statements included elsewhere in this prospectus for a discussion of our assumptions in estimating the fair value of our option awards.

2009 Director Compensation

Our directors received no cash compensation during 2009 for their service on our board of directors or committees of our board of directors. We have a policy of reimbursing our directors for their reasonable out-of-pocket expenses incurred in attending board and committee meetings.

In July 2009, we granted each of Mr. Gresham and Mr. Osaka options to purchase 75,000 shares of our common stock at an exercise price of $1.38 per share. Each of these option grants vests over a 2-year period, with 50% of each option grant vesting after one year and an additional 25% of the option shares for each subsequent 6 month period thereafter.

Following this offering, our non-employee directors will be eligible for cash compensation and automatic stock option grants under our 2010 Equity Incentive Plan. Please see the section titled “Management—Director Compensation” above for more information.

Limitation of Liability and Indemnification

Prior to the effective date of this offering, we will enter into indemnification agreements with each of our directors. The form of agreement provides that we will indemnify each of our directors against any and all expenses incurred by that director because of his or her status as one of our directors, to the fullest extent permitted by Delaware law, our amended and restated certificate of incorporation and bylaws. In addition, the form agreement provides that, to the fullest extent permitted by Delaware law, but subject to various exceptions, we will advance all expenses incurred by our directors in connection with a legal proceeding.

Our amended and restated certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of directors. The amended and restated certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability:

for any breach of the director’s duty of loyalty to us or our stockholders;

for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

in respect of unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

for any transaction from which the director derives any improper personal benefit.

Our amended and restated certificate of incorporation also provides that if Delaware law is amended, after the approval by our stockholders of our amended and restated certificate of incorporation, to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law. The foregoing provisions of the amended and restated certificate of incorporation are not intended to limit the liability of directors or officers for any violation of applicable federal securities laws. As permitted by Section 145 of the Delaware General Corporation Law, our amended and restated certificate of incorporation provides that we may indemnify our directors to the fullest extent permitted by Delaware law and the amended and restated certificate of incorporation provisions relating to indemnity may not be retroactively repealed or modified so as to adversely affect the protection of our directors.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws provide that we are authorized to enter into indemnification agreements with our directors and officers and we are authorized to purchase directors’ and officers’ liability insurance, which we currently maintain to cover our directors and executive officers.

Compensation Discussion and Analysis

This section discusses the principles underlying our executive officer compensation policies, our recent decisions with respect the executive officers who are named in the “2009 Summary Compensation Table” (on page 102 below) and the most important factors relevant to an analysis of these policies and decisions.

Overview and Responsibilities for Compensation Decisions

The compensation committee of our board of directors has responsibility for evaluating the performance and development of our executive officers in their respective positions, reviewing individual compensation as well as corporate compensation principles and programs, establishing corporate and individual performance objectives as they affect compensation, making determinations as to whether and to what extent such performance objectives have been achieved, and ensuring that we have effective and appropriate compensation programs in place. Our chief executive officer (CEO) supports our compensation committee by driving our annual business plan process, providing information relating to ongoing progress under our annual business plan and other business and financial results, undertaking performance assessments of other executives and presenting other personnel-related data. In addition, as the manager of our executive team, our CEO assesses each executive’s contribution to corporate goals as well as achievement of their individual goals and makes a recommendation to our compensation committee with respect to compensation for executive officers other than himself. Our compensation committee meets, including in executive sessions, to consider these recommendations, conducts a similar evaluation of the CEO’s contributions to corporate goals and achievement of individual goals, and makes determinations related to the CEO’s and the other executive officers’ compensation.

Our overall compensation philosophy is to provide a competitive total compensation package that will fairly compensate our executive officers, attract and retain qualified executive officers who are able

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to contribute to the long-term success of our company, incent future performance toward clearly defined corporate goals and align our executives’ long-term interests with those of our stockholders. Our compensation committee believes that the quality, skills and dedication of our executive officers are critical factors affecting our long-term value. Our compensation arrangements include components that are for the most part fixed on an annual basis and others that are performance-related and will vary with performance, including over multi-year periods.

In setting compensation levels for individuals officers, our compensation committee applies its judgment in determining the amount and mix of compensation elements for each named executive officer, and to date our compensation process has been a largely discretionary process based upon the collective experience and judgment of the compensation committee members acting as a group. Factors affecting its decisions generally include overall corporate performance, the individual officer’s performance including against corporate-level strategic goals established as part of our annual business plan, the officer’s effectiveness in managing toward achievement of those goals, the nature and scope of the officer’s responsibilities, and market compensation information for individual officer positions including information obtained through the publicly available surveys and as a result of the personal experience of members of our board of directors.

While our compensation committee is authorized to engage the services of outside consultants and advisors, neither the compensation committee nor our management has to date retained a compensation consultant to review or provide advice with respect to our policies and procedures with respect to executive compensation. To date, we have not formally benchmarked our executive compensation against peer companies and do not have an identified group of peer companies against which we would compare our compensation practices. While our compensation committee considers the overall mix of compensation components in its review of compensation matters, it has not adopted any formal or informal policies or guidelines for allocating compensation between long-term and current compensation, between cash and non-cash compensation, or among different forms of non-cash compensation. The compensation committee intends following this offering to continue to manage our executive officer compensation programs on a flexible basis that will allow it to respond to market and business developments as it views appropriate in its judgment.

Prior to this offering, we have reviewed company compensation annually as part of the business plan process undertaken by management and our board of directors in the early part of each year. During this process, the compensation committee reviews overall compensation, evaluates performance, determines corporate-level performance goals for that year’s business plan and, when appropriate, makes changes to one or more components of our executives’ compensation. We expect to continue this practice after this offering.

Historically, the exercise price of our stock options has been at least equal to the fair market value of our common stock on the date of grant. Prior to this offering, the fair market value of our common stock has been established by our board of directors using factors it considered appropriate for a reasonable valuation. Following this offering, the fair market value of our common stock will be the closing price of our stock on the NYSE on the date of the grant. As a privately owned company prior to the date of this offering, we have not established a program, plan or practice pertaining to the timing of stock option grants to executive officers coinciding with the release of material non-public information nor have we established such a policy for use following this offering, although we may do so in the future.

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Principal Elements of Executive Compensation

Compensation for our executive officers has been highly individualized, at times structured as a result of arm’s-length negotiations when an officer is first hired and always taking into account our financial condition and available resources. The resulting mix of compensation components has included base salary, annual incentive cash bonus, long-term incentive awards in the form of stock options, certain benefits that would pay upon an executive officer’s involuntary termination in certain circumstances, and other benefits plans generally available to all salaried employees. Our compensation committee felt this mix is appropriate for our executive team because it provides a fixed component (base salary) designed to offer the executive funds from which to manage his or her living expenses and variable components (annual incentive bonuses and stock options) that incentivize our management team to work toward achievement of corporate goals and our long-term success, as well as offering protection (through termination-related benefits) against abrupt changes in the executive’s circumstances in the event of involuntary employment termination including in the context of a change of control of the company. Our compensation committee also takes note of the fact that this mix is typical of companies in our industry and at our stage of development. It has no current plans to change the mix of components or vary the relative portions of fixed and variable compensation that comprise our overall compensation packages.

Base Salaries. Base salary for our CEO and other executive officers is established based on the scope of their responsibilities, length of service with the company, individual performance during the prior year, and competitive market compensation. Base salaries are reviewed annually and adjusted from time to time based on competitive conditions, individual performance, our overall financial results, changes in job duties and responsibilities and the company’s overall budget for base salary increases. The budget is designed to allow salary increases to retain and motivate successful performers while maintaining affordability within the company’s business plan.

In May 2009, as part of the annual compensation review, our CEO’s base salary was increased from $275,000 to $315,000 in recognition of his performance and the overall growth and performance of the company during the preceding year. In addition, at that same time, the compensation committee approved a base salary increase for our chief financial officer from $225,000 to $245,000 in recognition of the completion of the standardization of accounting and financial reporting across our geographies. Additionally, the compensation committee approved a base salary increase for our senior vice president, corporate strategy and marketing from $190,000 to $215,000 in recognition of the successful launches of our data center and security practice lines. No other named executive officers’ base salary was increased in 2009.

Cash Incentive Bonus. Since 2003, we have operated an annual cash incentive bonus program to motivate our executive officers to attain specific short-term performance objectives that, in turn, further our long-term objectives. This program is managed as part of our annual business plan process and involves a high level of discretion on the part of our compensation committee. Typically, our board of directors approves a business plan for the year that incorporates corporate-level objectives, and achievement of those objectives becomes an important factor considered by the compensation committee when, after year-end, it makes a final determination of bonus amounts to be paid. Other factors that are considered by the compensation committee in determining amounts to pay include the company’s overall performance and business results, general market conditions, future business prospects, funds available from which to pay bonuses, individual performance, competitive conditions and any other factors it finds relevant.

This discretionary approach to the variable component of our compensation program allows a fluid approach in how we manage short-term corporate strategy and executive incentives, while

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allowing us to achieve more constancy in our focus on longer-term corporate objectives. Our compensation committee and our board of directors believe that this flexibility is important in managing a rapidly growing consulting firm, including because it allows executive officers to respond nimbly to the often changing demands of the business without undue focus on any one specific short-term performance objective. Our compensation committee does not have plans at this time to change the way it manages our annual cash incentive bonus program or to take a more formal or objective approach to the way it sets bonus payment amounts.

Each executive officer has a target bonus amount, established either in a negotiated employment contract (typically at the time of hire) or over the course of the officer’s tenure with the company. In determining whether and to what extent to pay bonuses for a particular year, the compensation committee is aware of each officer’s target bonus, however because of the emphasis it places on annual business plan achievement, actual bonus amounts paid may be zero or an amount in excess of the target amount. For 2009, the target bonus for executive officers was 30% of base salary, except for our CEO whose target bonus was 40% of base salary. We do not expect to change these target bonus percentages for 2010.

For 2009, the corporate-level performance objectives specified in our business plan related to bookings, revenues and EBITDA. These same objectives were identified as factors to consider in determining whether 2009 annual cash incentive bonuses would be paid to our executive officers. However, as a result of the CEO’s recommendation to the compensation committee that we pay no annual incentive bonuses to executive officers for 2009, the compensation committee did not undertake any analysis of level of achievement of these performance goals as they related to our executive compensation program. The CEO’s reasons for making this decision included the fact that 2009 was a challenging year from an overall economic and market perspective and that although the company achieved its shorter-term business objectives and made progress toward its longer-term objectives, it was appropriate to wait until more progress was made toward those longer-term objectives before recommending executive bonuses. Furthermore, the resources saved by not paying executive bonuses helped fund bonuses to exceptional performers at the non-executive level.

Long-Term Incentive Compensation. To date, our only long-term incentive award has been in the form of options to purchase our common stock. Our stock options have an exercise price at least equal to the fair market value of our common stock on the grant date, generally vest over four years, with 25% of the option shares vesting after one year of service and the remainder vesting in equal installments at the end of each quarter thereafter, and have a ten year maximum term. Additional vesting acceleration benefits apply in certain circumstances discussed below.

Generally, a stock option award is made in the year that an executive officer commences employment. The size of this award is intended to offer the executive a meaningful opportunity for stock ownership relative to his or her position and reflects the compensation committee’s assessment of market conditions affecting the position as well as the individual’s potential for future responsibility within the company. Thereafter, additional option grants may be made in the discretion of our compensation committee or board of directors. To date, we have not granted additional options on an annual basis to executives or other employees, although we do evaluate individual performance annually. Instead, additional options have been granted to executives on a case-by-case basis reflecting the compensation committee’s determination that such grants are appropriate or necessary to reward exceptional performance (including upon promotion) or to retain individuals when market conditions change. The size of additional option grants are determined in the discretion of the compensation committee or our board of directors, and typically incorporate our CEO’s recommendations (except with respect to his own option grants).

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In 2009, our compensation committee approved option grants to Mr. Hale, Mr. Norman, Mr. Scannell and Mr. Rosenblum. In selecting executive officers to receive option grants, the compensation committee considered performance that merited an additional long-term incentive award. In considering the amount of the grant, the committee reviewed each individuals contribution to the company during the year, and in some circumstances, what additional option grant was necessary to achieve a desired total compensation package (including total equity interest in the company) for the officer involved. To date, we have not granted restricted stock or restricted stock unit awards (although certain of our founders hold vested restricted shares). After this offering, our compensation committee may consider granting such awards in addition to or in lieu of options.

On September 2, 2009, our board of directors approved a repricing of outstanding options such that all options held by employees who were employed on August 31, 2009 with an exercise price per share above $1.38 would be amended to have an exercise price per share equal to $1.38. As our employee stock option program is a key component of our overall compensation program, the repricing allowed us to continue to retain and incent our employees through competitive total compensation packages as well as continue to align the interests of employees and shareholders. Our named executive officers had options eligible for repricing and all officers participated in the repricing and had their options amended under the terms of the program. The board and compensation committee determined it appropriate to permit executive officers holding eligible options to participate in the repricing because it was an appropriate retention device for officers of a company whose stock is not publicly traded.

Severance and Change in Control Benefits. We have entered into retention agreements with certain of our executive officers, which provide severance benefits in the event the executive officer’s employment is terminated by us without cause, or the executive officer is terminated without cause or resigns for good reason in connection with a change in control, in consideration of a release of potential claims and other customary covenants. The terms of these agreements are described in more detail in the section titled “Executive Compensation—Estimated Benefits and Payments Upon Termination of Employment” below. Our board of directors and compensation committee have determined it appropriate to have these termination-related benefits in place to preserve morale and productivity and encourage retention in the face of potentially disruptive circumstances that might cause an executive to be concerned that his or her employment is in jeopardy or that might involve an actual or rumored change in control of the company. No changes were made to the company’s severance and change of control-related benefits during 2009.

Other Benefits. In addition to the components of compensation described above, we provide our executive officers with benefits that are generally available to our salaried employees. These benefits include health and medical benefits, flexible spending plans and the opportunity to participate in a 401(k) retirement plan.

Other than expatriate benefits for Andrew Norman, who has at our request transferred from the U.K. to the U.S., we do not provide perquisites or personal benefits to our executives.

Tax and Accounting Issues

We account for the equity compensation expense for our employees in accordance with the provisions of FASB ASC Topic No. 718, Compensation—Stock Compensation, which requires us to estimate and record an expense for each award of equity compensation over the service period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued. For more information, please see “Accounting for Stock-Based Compensation” in Management’s Discussion and Analysis above.

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Our board of directors and compensation committee will consider the deductibility of compensation amounts paid to our executive officers including the potential future effects of Section 162(m) of the Internal Revenue Code of 1986, as amended, on the compensation paid to our executive officers in making its decisions, although prior to this offering and until we achieve sustained profitability, such deductibility is not material to our financial position. Section 162(m) disallows a tax deduction for any publicly held corporation for individual compensation exceeding $1.0 million in any taxable year for our president and CEO and each of the other named executive officers (other than our chief financial officer), unless compensation is “performance-based” as defined under Section 162(m). We expect that our compensation committee will adopt a policy that, where reasonably practicable, we will seek to qualify certain variable compensation paid to our executive officers for an exemption from the deductibility limitations of Section 162(m) and may structure the amount and form of compensation for our executive officers so as to maximize our ability to deduct it. Our stock option grants are designed to qualify as performance-based compensation for purposes of Section 162(m) and we expect compensation amounts related to options to be fully deductible. However, our compensation committee may, in its judgment, authorize compensation payments that are not deductible when it believes that such payments are appropriate to attract and retain executive talent.

Executive Compensation

Summary Compensation Table

The following table provides information regarding the compensation earned in 2009 by the individuals who served as our principal executive officer and principal financial officer in 2009 and each of the next three most highly compensated executive officers during 2009. We refer to these executive officers as our named executive officers.


Name/Role	Year	Salary ($)		Bonus ($)		Option Awards(1) ($)			All Other Compensation			Total ($)
Mark Shirman	2009	$	308,246	$	0	$	2,364	(2)	$	1,571	(3)	$	312,181
President & Chief Executive Officer

Kenneth Hale	2009	$	237,417	$	0	$	134,804	(4)	$	2,038	(3)	$	374,259
Vice President & Chief Financial Officer

Andrew Norman	2009	$	240,000	$	0	$	220,115	(5)	$	107,975	(6)	$	568,090
Chief Operating Officer

Richard Scannell	2009	$	205,521	$	0	$	134,804	(7)	$	1,230	(3)	$	341,555
Senior Vice President, Corporate Strategy & Marketing

Doron Rosenblum(8)	2009	$	195,091	$	0	$	33,957	(9)		25,245	(10)	$	254,293
General Manager, Israel (GlassHouse Technologies Ltd.)

(1)

The amounts in this column reflect with respect to options newly granted in 2009 the aggregate grant date fair value of the option, computed in accordance with FASB ASC Topic No. 718. The amounts in this column reflect with respect to options repriced in September 2009 the incremental fair value, computed as of the repricing date in accordance with FASB ASC Topic No. 718, with respect to that repriced option. See the 2009 Grant of Plan-Based Awards table below for grant date fair value and incremental fair value, as applicable, for each option for which a value is included in the above table. See Note 12 of the notes to our consolidated financial statements included elsewhere in this prospectus for a discussion of our assumptions in estimating the fair value of our option awards.

(2)	Entire amount of, $2,364 was related to options repriced in 2009.

(3)	Represents amounts for executive long-term disability benefits.

(4)	Of this amount, $18,124 was related to options repriced in 2009 and $116,680 was related to options initially awarded in 2009.

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(5)	Of this amount, $8,715 was related to options repriced in 2009 and $211,400 was related to options initially awarded in 2009.

(6)

Represents $65,000 in lease payments, $3,000 in rental agent fees, $37,851 in tax equalization payments for a residence in the U.S. and $2,124 in tax preparation fees. These housing, tax and tax preparation payments are provided to allay additional housing expenses resulting from Mr. Norman’s relocation to the U.S. from the U.K. where he served in various roles before becoming chief operating officer.

(7)	Of this amount, $18,124 was related to options repriced in 2009 and $116,680 was related to options initially awarded in 2009.

(8)	Mr. Rosenblum’s employment ended as of April 26, 2010.

(9)	Of this amount, $21,234 was related to options repriced in 2009 and $12,723 was related to options initially awarded in 2009.

(10)	Represents $23,088 in payments related to reimbursement for company automobile expenses, $1,356 for executive long-term disability benefits and $801 in recovery payments, which are standard for Israel based employees. 2009 Grants of Plan-Based Awards

2009 Grants of Plan-Based Awards

The following table sets forth each plan-based award granted to our named executive officers during 2009.


Name	Grant Date	All Other Option Awards: Number of Securities Underlying Options (#)		Exercise or Base Price of Option Awards ($/Sh)(3)		Grant Date Fair Value of Stock and Option Awards ($)(4))
Mark Shirman	8/31/2009	680,000	(1)(2)	$	1.38	$	2,364

Kenneth Hale	8/31/2009	200,000	(1)(2)	$	1.38	$	695
	8/31/2009	100,000	(1)(2)	$	1.38	$	17,429
	12/18/2009	200,000	(1)	$	1.48	$	116,680

Andrew Norman	8/31/2009	50,000	(1)(2)	$	1.38	$	8,715
	3/4/2009	200,000	(1)	$	1.22	$	94,720
	12/18/2009	200,000	(1)	$	1.48	$	116,680

Richard Scannell	8/31/2009	200,000	(1)(2)	$	1.38	$	695
	8/31/2009	100,000	(1)(2)	$	1.38	$	17,429
	12/18/2009	200,000	(1)	$	1.48	$	116,680

Doron Rosenblum	8/31/2009	100,000	(1)(2)	$	1.38	$	10,668
	8/31/2009	50,000	(1)(2)	$	1.38	$	10,566
	5/19/2009	25,000	(1)	$	1.26	$	12,723

(1)

The shares granted under this option are exercisable in full as of the grant date, but are subject to a right of repurchase held by us that lapses on the option vesting schedule. The shares underlying the option vest with respect 25% of the shares when the option holder completes 12 months of continuous service after the initial vesting date and as to an addition 6.25% of the shares when the option holder completes each additional three-month period of continuous service thereafter. Initial vesting dates for each option are reflected in the Outstanding Equity Awards at 2009 Fiscal Year End table below.

(2)	The shares granted under this option were repriced in September 2009 pursuant to a repricing program approved by our board or directors. Additional information regarding the repricing may be found on page 101.

(3)	The amounts in this column represent the fair market value of a share of our common stock, as determined by our board of directors, on the date of grant. Please see the section titled “Management—Compensation Discussion and Analysis” above for a discussion of how we valued our common stock.

(4)

The amounts in this column reflect with respect to newly granted options the aggregate grant date fair value of the stock option, computed in accordance with FASB ASC Topic No. 718. The amounts in this column reflect with respect to options repriced in September 2009 the incremental fair value, computed as of the repricing date in accordance with FASB ASC Topic No. 718, with respect to that repriced option. See Note 12 of the notes to our consolidated financial statements included elsewhere in this prospectus for a discussion of our assumptions in estimating the fair value of our option awards.

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Outstanding Equity Awards at 2009 Fiscal Year-End

The following table sets forth information regarding each option held by each of our named executive officers as of December 31, 2009.


Name	Date of Grant	Initial Vesting Date	Option Exercise Price $/share		Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Unexercisable	Number of Vested Securities Underlying Options Exercisable	Option Expiration Date
Mark Shirman	9/10/2003	9/10/2003	$	0.08	600,000	(2)	0(4)	600,000	9/9/2013
	12/16/2004	12/16/2004	$	0.24	500,000	(2)	0(4)	500,000	12/15/2014
	8/31/2009	3/23/2007	$	1.38	680,000	(1)(2)	0(4)	467,500	3/22/2017

Kenneth Hale	8/18/2004	8/2/2004	$	0.08	193,761	(2)	0(4)	193,761	8/17/2014
	8/18/2004	8/2/2004	$	0.08	68,000	(2)	0(4)	68,000	8/17/2014
	8/31/2009	3/23/2007	$	1.38	200,000	(1)(2)	0(4)	137,600	3/22/2017
	8/31/2009	9/21/2007	$	1.38	100,000	(1)(2)	0(4)	56,250	9/20/2017
	12/18/2009	12/18/2009	$	1.48	200,000	(2)	0(4)	0	12/17/2019

Andrew Norman	1/17/2006	1/17/2006	$	0.24	100,000	(2)	0(4)	93,750	1/16/2016
	8/31/2009	9/21/2007	$	1.38	50,000	(1)(2)	0(4)	28,125	9/20/2017
	3/4/2009	3/4/2009	$	1.22	200,000	(2)	0(4)	0	3/3/2019
	12/18/2009	12/18/2009	$	1.48	200,000	(2)	0(4)	0	12/17/2019

Richard Scannell	7/30/2001	7/30/2001	$	0.02	83,761	(2)	0(4)	83,761	7/30/2011
	3/1/2002	3/1/2002	$	0.02	20,000	(2)	0(4)	20,000	2/29/2012
	6/26/2002	6/26/2002	$	0.045	85,000	(2)	0(4)	85,000	6/25/2012
	11/5/2003	11/5/2003	$	0.08	60,000	(2)	0(4)	60,000	11/4/2013
	12/16/2004	12/16/2004	$	0.24	225,000	(2)	0(4)	225,000	12/15/2014
	8/31/2009	3/23/2007	$	1.38	200,000	(1)(2)	0(4)	137,500	3/22/2017
	8/31/2009	9/21/2007	$	1.38	100,000	(1)(2)	0(4)	56,250	9/20/2017
	12/18/2009	12/18/2009	$	1.48	200,000	(2)	0(4)	0	12/17/2019

Doron Rosenblum	8/31/2009	3/22/2007	$	1.38	100,000	(1)(2)	0(4)	68,750	5/24/2017
	8/31/2009	1/18/2008	$	1.38	50,000	(1)(2)	0(4)	21,875	1/17/2018
	5/19/2009	5/19/2009	$	1.26	25,000	(2)	0(4)	0	5/18/2019

(1)	The shares granted under this option were repriced in September 2009 pursuant to a repricing program approved by our board of directors. Additional information regarding the repricing may be found on page 101.

(2)

The shares granted under this option are exercisable in full as of the grant date but are subject to a right of repurchase held by us that lapses on the option’s vesting schedule. Shares underlying the option vest with respect 25% of the shares when the option holder completes 12 months of continuous service after the initial vesting date and as to an addition 6.25% of the shares when the option holder completes each additional three-month period of continuous service thereafter.

(3)

The shares granted under this option are exercisable in full as of the grant date and are subject to a right of repurchase held by us that lapses on the option’s vesting schedule. Shares underlying the option vest with respect 50% of the shares when the option holder completes 12 months of continuous service after the initial vesting date and as to an addition 25% of the shares when the option holder completes each additional six-month period of continuous service thereafter.

(4)	For a description of the acceleration of vesting provisions applicable to the options held by our named executive officers, please see the section titled “Management—Potential Payments Upon Termination or Change in Control” below.

The vesting applicable to each outstanding option is described in the footnotes to the table above. For a description of the acceleration of vesting provisions applicable to the options held by our named executive officers, please see the section titled “Management—Potential Payments Upon Termination or Change in Control” below.

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2009 Option Exercises

There were no option exercises by our named executive officers in 2009.

Employment Agreements and Offer Letters

We have entered into offer letters, employment agreements and/or services agreements with each of our named executive officers.

Mark Shirman. We entered into an employment agreement with Mr. Shirman effective as of March 1, 2004, which sets forth his initial base salary of $200,000 per year, his initial stock option grant to purchase 600,000 shares of our common stock and the opportunity to earn an annual bonus. This agreement contains confidentiality and assignment of intellectual property provisions and binds Mr. Shirman to one-year non-competition and non-solicitation obligations following his termination of employment with us.

Kenneth Hale. We entered into an offer letter with Mr. Hale in July 2004 which sets forth his initial base salary of $185,000 per year, his initial stock option grant to purchase 415,000 shares of our common stock and the opportunity to earn an annual bonus consistent with the bonuses paid to other members of the management team. In connection with his offer letter, we also executed an employment agreement with Mr. Hale. This agreement contains confidentiality and assignment of intellectual property provisions and binds Mr. Hale to one-year non-competition and non-solicitation obligations following his termination of employment with us.

Andrew Norman. We have executed an employment agreement with Mr. Norman that contains confidentiality and assignment of intellectual property provisions and binds Mr. Norman to one-year non-competition and non-solicitation obligations following his termination of employment with us.

Richard Scannell. We entered into an offer letter with Mr. Scannell in June 2001 which sets forth his initial base salary of $150,000 per year, his initial stock grant of 2% of the common stock of our company at the time and 1% of the option pool at the time as well as the opportunity to earn an annual bonus consistent with the bonuses paid to other members of the management team. In connection with his offer letter, we also executed an employment agreement with Mr. Scannell. This agreement contains confidentiality and assignment of intellectual property provisions and binds Mr. Scannell to one-year non-competition and non-solicitation obligations following his termination of employment with us.

Doron Rosenblum. We entered into an offer letter with Mr. Rosenblum in March 2007 which sets forth his initial base salary of $180,000 per year, his initial stock option grant to purchase 100,000 shares of our common stock and the opportunity to earn an annual bonus consistent with the bonuses paid to other members of the management team. In connection with his offer letter, we also executed an employment agreement with Mr. Rosenblum. This agreement contains confidentiality and assignment of intellectual property provisions and binds Mr. Rosenblum to one-year non-competition and non-solicitation obligations following his termination of employment with us.

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Potential Payments Upon Termination or Change in Control

We have entered into executive retention agreements with each of Mr. Shirman, Mr. Hale, Mr. Scannell, Mr. Norman, and Mr. Rosenblum that provide for payments if the officer’s employment terminates under certain circumstances, including in connection with a change in control.

Under these retention agreements, certain severance benefits become available, contingent upon the officer’s signing a general release of claims, in the event he is subject to an involuntary termination, which would occur if:

the officer’s employment is terminated without cause (which includes all terminations that were not due to the officer’s involvement in personal dishonesty, conviction of a felony, willful acts materially injurious to us, or continuing willful failures to perform his duties); or

the officer resigns as a result of a constructive termination (generally arising in the event certain material adverse changes were made to the conditions of the officer’s compensation or employment conditions).

The benefits provided in the event of the involuntary termination occurs upon or within 12 months following a change of control are:

payment of a cash amount equal to a specified portion of the officer’s annual salary (6 months for each officer, except Mr. Shirman whose agreement provides that this payment will equal 12 months of annual salary);

full vesting acceleration of all options and restricted stock awards held by the officer; and

continued health insurance benefits for up to the number of months equal to the number of months used to determine the salary-related cash payment described above.

A change of control is defined as:

approval by our stockholders of certain mergers or consolidations in which we are involved;

approval by our stockholders or our board of directors of a plan of liquidation or sale of assets; or

acquisition by any person of 50% or more of the total voting power of our then outstanding securities.

In the event the involuntary termination occurs outside the context of a change of control, the officer would become entitled to receive the same benefits as described above, except that instead of full vesting acceleration applicable to options and restricted stock awards, he would receive only 12 months of vesting acceleration.

In addition, in the event that an officer’s employment terminates as a result of his death or disability (as defined in the relevant agreement), he or his estate is entitled to receive 12 months of additional vesting on all stock options and restricted shares held by him.

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Estimated Benefits and Payments Upon Termination of Employment

The following table describes the potential payments and benefits upon termination of our named executive officers’ employment before or after a change in control of our company as described above, as if each officer’s employment terminated as of December 31, 2009, the last business day of the 2009 fiscal year.


Name	Benefit	Voluntary Resignation / Termination for Cause or Disability		Termination Other than for Cause or Disability Prior to Change in Control		Termination Other than for Cause or Disability after a Change in Control		Resignation for Good Reason after a Change in Control
Mark Shirman	Severance			$	315,000	$	315,000	$	315,000
	Option Acceleration
	COBRA Premiums			$	16,087	$	16,087	$	16,087
	Vacation Payout				0		0		0
	Total Value				331,087		331,087		331,087

Kenneth Hale	Severance			$	122,500	$	122,500	$	122,500
	Option Acceleration
	COBRA Premiums			$	8,043	$	8,043	$	8,043
	Vacation Payout				0		0		0
	Total Value				130,543		130,543		130,543

Andrew Norman	Severance			$	120,000	$	120,000	$	120,000
	Option Acceleration
	COBRA Premiums			$	8,043	$	8,043	$	8,043
	Vacation Payout				0		0		0
	Total Value				128,043		128,043		128,043

Richard Scannell	Severance			$	107,500	$	107,500	$	107,500
	Option Acceleration
	COBRA Premiums			$	8,043	$	8,043	$	8,043
	Vacation Payout				0		0		0
	Total Value				115,543		115,543		115,543

Doron Rosenblum	Severance			$	97,546	$	97,546	$	97,546
	Option Acceleration
	COBRA Premiums				0		0		0
	Vacation Payout	$	6,003	$	6,003	$	6,003	$	6,003
	Total Value				103,549		103,549		103,549

For purposes of valuing the severance and vacation payments in the table above, we used each executive officer’s base salary in effect at the end of 2009 and the number of accrued but unused vacation days at the end of 2009.

The value of option acceleration shown in the table above was calculated based on the assumption that the officer’s employment was terminated and the change in control (if applicable) occurred on December 31, 2009 and that the fair market value of our common stock on that date was $ which represents the midpoint of the range of the initial public offering price set forth on the cover page of this prospectus. The value of the vesting acceleration was calculated by multiplying the number of unvested shares subject to each option by the difference between the fair market value of our common stock as of December 31, 2009 and the exercise price of the option.

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Compensation Risks

We believe that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on our company. In addition, the Compensation Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks.

Equity Benefit Plans

2010 Equity Incentive Plan

Our 2010 Equity Incentive Plan (the 2010 Plan) was adopted by our board of directors on January 12, 2010 and we will obtain stockholder approval of this plan prior to the date of this offering. The 2010 Plan will become effective on the effective date of the registration statement of which this prospectus is a part. Our 2010 Plan replaces our Amended and Restated 2001 Stock Option and Grant Plan (the 2001 Plan), our primary equity compensation plan used prior to this offering. No further option grants will be made under 2001 Plan after the consummation of this offering.

The material terms of our 2010 Plan are as follows:

Share Reserve. We have reserved shares of our common stock for issuance under the 2010 Plan, plus up to additional shares to be transferred from the 2001 Plan. In addition, the number of shares reserved for issuance under the 2010 Plan will be increased automatically on January 1 of each year beginning in 2011 by a number equal to the lesser of shares or % of the shares of common stock outstanding at that time. Accordingly, the maximum number of shares of common stock that might be issued pursuant to awards under the 2010 Plan during its term is shares.

In general, if awards granted under the 2010 Plan expire without shares having been issued, or are forfeited or repurchased under the terms of the award, or if shares are withheld from an award in payment of the exercise price or satisfaction of tax withholding obligations, then the shares underlying those expired awards, or shares so forfeited, repurchased or withheld, will again become available for grant under the 2010 Plan.

Administration. The compensation committee will administer the 2010 Plan. The committee will have broad discretionary authority to make all interpretive and administrative decisions relating to our 2010 Plan. It may delegate authority to officers or subcommittees to administer the 2010 Plan in certain respects. References to the “administrator” in the following descriptions of our various equity compensation plans refer to our board of directors, compensation committee or any other person or committee authorized to administer any aspect of such plan, as appropriate in context.

Eligibility. All of our employees, as well as employees of any of our subsidiaries, members of our board of directors who are not employees and consultants and other independent contractors or advisors are eligible to be granted awards under our 2010 Plan.

Types of Award. Our 2010 Plan provides for the following types of awards:

incentive and nonstatutory stock options;

stock appreciation rights;

restricted shares;

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stock units; and

such other forms of equity-based compensation awards as the compensation committee may from time to time determine it appropriate to grant.

Options and Stock Appreciation Rights. The exercise or base price for options and stock appreciation rights granted under the 2010 Plan may not be less than 100% of the fair market value of our common stock on the award grant date. Optionees may pay the exercise price on purchasing shares by using:

cash;

shares of common stock that the optionee already owns;

an immediate sale of the option shares through a broker designated by us; or

other lawful methods of consideration permitted by the administrator.

Options give the participant a right to purchase a specified number of shares of common stock at a fixed exercise price over a specified period of time. A participant who exercises a stock appreciation right is entitled to receive the increase in value of our common stock over the base price on such terms as are specified in the award agreement. The settlement value of the stock appreciation right may be paid in cash or shares of common stock. Options and stock appreciation rights granted under our 2010 Plan will be subject to such conditions as the administrator determines, which may include service period-based or performance vesting. Such awards will generally have a term of no more than 10 years from the date of grant, although they will expire earlier under certain circumstances including upon the holder’s termination of service or on certain events if we were to experience a change of control. To date, we have not granted stock appreciation rights under our equity plans. Stock options granted prior to this offering under our 2001 Plan have typically been subject to four year service-based vesting.

No participant may receive options or stock appreciation rights under the 2010 Plan covering more than shares in one calendar year, except that a newly hired employee may receive options or stock appreciation rights covering up to shares in the first year of employment.

The 2010 Plan allows our compensation committee to reprice (lower the exercise price of) outstanding options or stock appreciation rights without seeking shareholder approval; however the exercise price of awards may never be less than the fair market value of our common stock on the date on which the exercise prices are adjusted. Our compensation committee may also approve programs under which outstanding options or stock appreciation rights are exchanged for cash or other equity awards on such terms as it determines appropriate.

Restricted Shares and Stock Units. Restricted shares may be awarded under the 2010 Plan in return for such consideration as the compensation committee determines appropriate, including cash or services provided to us. Restricted shares vest and become nonforfeitable at the times and upon the conditions determined by the administrator.

Stock units may also be awarded under the 2010 Plan. Recipients are not required to pay any cash consideration for shares issued under stock units, which may be granted in consideration of their services to us. The settlement of stock units (issuance of shares subject to the units) will occur upon satisfaction of any service-based or performance vesting or other conditions imposed by the administrator, and may be settled on a deferred basis. Settlement of vested stock units may be made in the form of cash, shares of common stock or a combination of both.

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No participant may receive restricted shares or stock units under the 2010 Plan covering more than shares in one calendar year, except that a newly hired employee may receive such awards covering up to shares in the first year of employment. These limits are in addition to the annual limits described above with respect to options and stock appreciation rights.

Other Equity-Based Awards. The 2010 Plan also permits the administrator to grant other types of equity-based compensation awards, the structure(s) of which may differ from those awards described above. Such other equity awards will be subject to such terms and conditions as the administrator determines appropriate, consistent with the general terms of the 2010 Plan. To the extent that we issue any such other types of equity-based awards, they will be considered to be restricted share awards for purposes of application of the annual share limits described above.

Performance Objectives. The 2010 Plan includes provisions permiting us to grant awards that will qualify as “performance-based compensation” under applicable federal tax rules, thus enhancing our ability to deduct compensation amounts paid to certain of our executive officers. These tax rules, which begin to apply to us at some point following the offering, will require, among other things, that we grant restricted stock and stock unit awards subject to vesting only up pre-specified performance conditions in order to ensure our ability to deduct fully the related compensation amounts for awards granted to certain of our executive officers. The performance conditions that might be used for this purpose under the 2010 Plan are: operating profits (including EBITDA), net profits, earnings per share, profit returns and margins, revenues, sales, bookings, stockholder return or value, stock price, working capital, and staff retention.

Change in Control. If a change in control of our company occurs, awards outstanding under the 2010 Plan will be subject to the terms of the transaction agreement we enter into with our acquiror. Such agreement may provide that awards be subject to assumption by the acquiror, for substitution by the acquiror of a comparable award, or for termination on various terms. The 2010 Plan does not provide for automatic acceleration of vesting for any awards in connection with a change of control, although the compensation committee may provide for any vesting it determines in its discretion to be appropriate. A change of control for purposes of the 2010 Plan includes:

a merger of our company after which our own stockholders own 50% or less of the surviving corporation or its parent company;

a sale of all or substantially all of our assets;

a proxy contest that results in the replacement of more than one-half of our directors over a 24-month period; or

an acquisition of 50% or more of our outstanding stock by any person or group, other than a person related to our company, such as a holding company owned by our stockholders.

Adjustments to Shares. To the extent we experience certain corporate events such as stock splits, stock dividends, or similar reclassifications or combinations of our capital stock, the number of shares remaining available for grant under the 2010 Plan, the various annual share limits described above (including the number of shares specified under the annual evergreen formula), the number of shares subject to outstanding awards, and the exercise, purchase or repurchase prices applicable to awards will be proportionately adjusted to reflect such event. In the event we declare a material, extraordinary dividend payable in a form other than shares, a recapitalization, a spin-off or a similar occurrence, the administrator may make such adjustments to the 2010 Plan and outstanding awards as it determines appropriate in its discretion.

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Amendments or Termination. Our board of directors may amend or terminate the 2010 Plan at any time, including without stockholder approval of any such amendment unless applicable law (including the NYSE rules) requires such approval. The 2010 Plan will continue in effect until , 2020 unless terminated earlier in accordance with its terms.

2010 Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (the Purchase Plan) was adopted by our board of directors on and we will obtain stockholder approval of this plan prior to the date of this offering. The Purchase Plan will become effective on the effective date of the registration statement of which this prospectus is a part. Awards granted under this plan are intended to qualify under and provide U.S.-based participants with the tax benefits of Section 423 of the Internal Revenue Code of 1986, as amended.

Share Reserve. We have reserved shares of our common stock for issuance under the plan. The number of shares reserved for issuance under the Purchase Plan will be increased automatically on January 1 of each year beginning in 2011 by a number equal to the lesser of shares or % of the shares of common stock outstanding at that time. Accordingly, the maximum number of shares of common stock that might be issued pursuant to awards under the Purchase Plan during its term is shares.

Administration. The compensation committee of our board of directors will administer the plan, although the committee may delegate certain of its functions in this regard to one or more officers.

Eligibility. All of our employees and if so designated by the compensation committee, employees of our subsidiaries, are eligible to participate if we employ them for more than

20 hours per week and for more than 5 months per year. Eligible employees may begin participating in

the Purchase Plan at the start of any offering period.

Offering Periods. We expect to administer the Purchase Plan by implementing a series of 24-month offering periods, with a new 24-month offering period beginning every 6 months and 4 purchases taking place within each such offering period. Thus we expect to operate up to four overlapping offering periods at any time and to have purchases occurring every six months. However, we may change the timing and duration of offering periods and the frequency of purchases, as long as such changes comply with the terms of the Purchase Plan (which generally permits any terms permitted under Section 423 of the Internal Revenue Code of 1986, as amended). The first offering period under the Purchase Plan is expected to commence shortly after the effective date of this offering and will end on January 31, 2011.

Amount of Contributions. Our Purchase Plan permits each eligible employee to purchase common stock through payroll deductions (or through such other methods as the administrator allows with respect to all participants in an offering period). Each employee’s payroll deductions may not exceed 15% of the employee’s annual cash compensation or a lesser amount approved by our board of directors. Purchases of our common stock will generally occur on January 31 and July 31 of each year. Each participant may purchase up to the number of shares determined by our board of directors on any purchase date, not to exceed 2,500 shares. The value of the shares purchased in any calendar year may not exceed $25,000, in accordance with tax rules. Participants may withdraw their contributions at any time before stock is purchased.

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Purchase Price. The price of each share of common stock purchased under our Purchase Plan will not be less than 85% of the lower of:

the fair market value per share of common stock on the first day of the applicable offering period or

the fair market value per share of common stock on the purchase date.

Other Provisions. Employees may end their participation in the Purchase Plan at any time. Participation ends automatically upon termination of employment with our company. If a change of control of our company occurs, our Purchase Plan will end and shares will be purchased with the payroll deductions accumulated to date by participating employees. The Purchase Plan provides for adjustments similar to those described above with respect to our 2010 Plan in the event we experience certain corporate events such as stock splits, dividends and similar events (including an adjustment to the per-purchase period share limit). Our board of directors may amend or terminate the Purchase Plan at any time. Without further action by our board of directors, the Purchase Plan will terminate in , . Amendments to the Purchase Plan will be subject to stockholder approval if required by applicable law.

Amended and Restated 2001 Stock Option and Grant Plan

The 2001 Plan was adopted by our board of directors in July 2003 and last amended on December 18, 2009 to provide for the grant of incentive and nonstatutory stock options to purchase shares of our common stock and restricted shares of our common stock. The 2001 Plan has been approved by our stockholders. The 2010 Plan will replace the 2001 Plan and no further awards will be made under our 2001 Plan after this offering. However, options outstanding under the 2001 Plan will continue to be governed by their existing terms. As of December 31, 2009, we have reserved 16,626,922 shares for issuance under the 2001 Plan. Our board of directors has administered the 2001 Plan. Awards have been granted to certain of our U.S.-based, U.K.-based and Turkey-based employees, members of our board of directors who are not employees and consultants.

As of December 31, 2009, we had outstanding options under the 2001 Plan to purchase an aggregate of 10,143,939 shares of common stock at exercise prices ranging from $0.02 to $1.48 per share, or a weighted average per share exercise price of $0.88. As of December 31, 2009, there were 1,659,485 shares of common stock available for future option grants under the 2001 Plan.

The exercise price for options granted under the 2001 Plan is determined by our board of directors in its sole and absolute discretion. Optionees may pay the exercise price in a form satisfactory to our board of directors, including, without limitation, by cash or check. In most cases, the options in this plan vest over a four-year period following the date of grant and generally expire upon the earlier of (1) 10 years after they are granted, (2) the date that is three months after the termination of the optionee’s service for any reason other than death or disability (or such later date as the board of directors may determine) and (3) the date that is twelve months after the termination of the optionee’s service for death or disability (or such later date as the board of directors may determine).

Change in Control; Adjustments to Shares; Repricing. The provisions under our 2001 Plan related to certain changes of control and corporate events and transactions are generally similar to those described above with respect to our 2010 Plan. Our board of directors may reprice awards outstanding under the 2001 Plan without seeking stockholder approval.

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Series 1 Stock Plan

Our Series 1 Stock Plan was adopted by our board of directors on June 7, 2004 in connection with our acquisition of Source Enterprise Consulting Limited to provide for the grant of stock options to purchase shares of Series 1 preferred stock. The Series 1 Stock Plan has been approved by our stockholders. No further awards may be made under the Series 1 Stock Plan following this offering. Options already outstanding under the Series 1 Stock Plan will continue to be governed by their existing terms following this offering. There were originally 325,000 shares reserved for issuance under the Series 1 Stock Plan. Our board of directors has administered the Series 1 Stock Plan. Certain U.K.- based employees, specifically the former employees of Source Enterprise Consulting Limited, have been granted awards under our Series 1 Stock Plan.

As of December 31, 2009, options to purchase 64,677 shares of Series 1 preferred stock were outstanding and unexercised (each with an exercise price of $1.34 per share), options to purchase 138,862 shares had been issued and exercised, and 110,465 shares of the total 325,000 reserved shares had been cancelled and reallocated as part of the reserve of the 2001 Stock Plan. As of December 31, 2009, there were 2,674 shares of Series 1 preferred stock available for future option grants under the Series 1 Stock Plan.

Optionees may pay the exercise price for these options in a form satisfactory to our board of directors, including, without limitation, by cash or check. In most cases, the options granted under this plan vest over a four-year period following the date of grant and generally expire upon the earlier of (1) 10 years after they are granted, (2) the date that is three months after the termination of the optionee’s service for any reason other than disability (or such later date as our board of directors may determine) and (3) the date that is twelve months after the termination of the optionee’s service for disability (or such later date as our board of directors may determine).

Change in Control. The Series 1 Stock Plan does not contain change of control provisions. It provides for adjustments upon certain corporate events such as stock splits, dividends, and similar events. Our board of directors may reprice awards granted under the Series 1 Stock Plan without stockholder approval.

2007 Section 102 Share Option Plan

Our 2007 Section 102 Share Option Plan (the Israeli Plan) was adopted by our board of directors on March 23, 2007. The Israeli Plan will continue following this offering.

Share Reserve. We have reserved 684,275 shares of our common stock for issuance under the Israeli Plan.

As of December 31, 2009, we had outstanding under the Israeli Plan unexercised options to purchase an aggregate of 654,737 shares of common stock with exercise prices ranging from $1.22 to $1.48, or a weighted average per share exercise price of $1.35. As of December 31, 2009, there were 29,538 shares of common stock available for future option grants under the Israeli Plan.

Administration. Our board of directors administers the Israeli Plan and has complete discretion to make all decisions relating to such Plan, subject to its provisions. Our board may also reprice outstanding options (reduce the exercise price to current fair market value) without seeking stockholder approval and modify outstanding awards in other ways.

Eligibility. All Israel-based employees and certain non-employee consultants, advisors and service providers are eligible receive options under our Israeli Plan.

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Types of Awards. Our Israeli Plan provides for the award of approved and unapproved Section 102 options. Approved Section 102 options are granted pursuant to Section 102(b) of the Israeli Income Tax Ordinance 1961 and are held in trust by ESOP Trust Company, the trustee for the Israeli Plan, for the holding period necessary to enable the respective optionee to enjoy certain tax benefits under Section 102. Unapproved Section 102 options are granted pursuant to Section 102(c) of the Israeli Income Tax Ordinance 1961 and are not held in trust by ESOP Trust Company. Unapproved Section 102 options are issued directly to the relevant optionee.

The exercise price for options granted under the Israeli Plan is determined by our board of directors in its sole and absolute discretion. Optionees may pay the exercise price in a form satisfactory to our board of directors, including, without limitation, by cash or check. In most cases, the options in this plan vest over a two or four-year period following the date of grant and generally expire upon the earlier of (1) 10 years after they are granted, (2) the date that is three months after the termination of the optionee’s service for any reason other than disability (or such later date as our board of directors may determine) and (3) the date that is twelve months after the termination of the optionee’s service for disability (or such later date as our board of directors may determine).

Change in Control. If we are party to a merger or consolidation, all outstanding options granted under the Israeli Plan will be subject to the agreement of merger or consolidation. Such transaction agreement will provide for one or more of the treatments described above with respect to the 2010 Plan.

Amendments or Termination. Our board of directors may amend or terminate the Israeli Plan at any time. If our board of directors amends the Israeli Plan, it does not need to ask for stockholder approval of the amendment unless it increases the number of shares available for issuance under the 2007 Israeli Plan (except in the case of a combination or consolidation of shares).

The Israeli Plan will automatically terminate on the later of ten years following the date on which the plan was initially implemented or the shares available under such plan were increased.

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TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS

In addition to the compensation arrangements with directors and executive officers and the registration rights described elsewhere in this prospectus, the following is a description of each transaction since January 1, 2007 and each currently proposed transaction in which:

we have been or are to be a participant;

the amount involved exceeds $120,000; and

any of our directors, executive officers or holders of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest.

All of the transactions set forth below were approved by a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors. We believe that we have executed all of the transactions set forth below on terms no less favorable to us than we could have obtained from unaffiliated third parties. However, at the time of such transactions we did not have formal policies or procedures in place for the review, approval or ratification of related party transactions. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and their affiliates are approved by the audit committee and a majority of our board of directors, including a majority of the independent and disinterested members of our board of directors, and are on terms no less favorable to us than those that we could obtain from unaffiliated third parties. In connection with this offering, we intend to adopt a written policy with respect to the review and approval of future related party transactions.

Private Placement Financings

Series D Preferred Stock Financing. On April 10, 2007, we sold an aggregate of 1,855,177 shares of our Series D preferred stock at a price of $2.4318 per share and additional warrants to purchase 371,033 shares of Series D preferred stock at a price of $0.0001 per warrant to various investors, including, without limitation intended, entities affiliated with Kodiak Venture Partners, entities affiliated with Sigma Partners, entities affiliated with GrandBanks Capital and entities affiliated with Paladin Capital Group. The table below sets forth the number of Series D Preferred shares purchased by the listed investors at each closing.


Investor Name	Series D Shares Purchased	Series D Warrants Purchased	Affiliated Party
Sigma Partners	997,610	199,522	Robert Davoli, Managing Partner of Sigma Partners
GrandBanks Capital	500,656	100,130	Ryan Moore, General Partner of GrandBanks Capital
Paladin Capital Group	356,911	71,381	Kenneth Minihan, Managing Director, Paladin Capital Group
Total Series D Shares and Warrants Purchased by Listed Investors	1,855,177	371,033

Robert Davoli (Managing Director, Sigma Partners), Ryan Moore (General Partner, GrandBanks Capital), and Kenneth Minihan (Managing Director, Paladin Capital Group) served as members of our board of directors at the time of the financing and continue to serve as members of our board of directors.

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Please see the section titled “Principal Stockholders” for more details regarding the shares held by these entities.

Series E Preferred Stock Financing. On May 4, 2007 and on August 15, 2007, we sold an aggregate of 4,493,245 shares of our Series E preferred stock at a price of $2.5594 per share and additional warrants to purchase 312,567 shares of Series E preferred stock at a price of $2.5594 to various investors, including, without limitation intended, entities affiliated with Sigma Partners, entities affiliated with GrandBanks Capital and entities affiliated with Paladin Capital Group. The table below sets forth the number of Series E preferred shared purchased by the listed investors at each closing.


Closing Date	Investor Name	Series E Shares Purchased	Series E Warrants Purchased	Affiliated Party
May 2007	Sigma Partners	947,874	0	Robert Davoli, Managing Partners of Sigma Partners

August 2007	Sigma Partners	589,229	117,844	Same as above

May 2007	GrandBanks Capital	475,696	0	Ryan Moore, General Partner of GrandBanks Capital

May 2007	Paladin Capital Group	339,117	0	Kenneth Minihan, Managing Director, Paladin Capital Group

August 2007	Paladin Capital Group	210,807	42,159	Same as above

Total Series E Shares and Warrants Purchased by Listed Investors		2,562,723	160,003

Robert Davoli (Managing Director, Sigma Partners), Ryan Moore (General Partner, GrandBanks Capital), and Kenneth Minihan (Managing Director, Paladin Capital Group) served as members of our board of directors at the time of the financings and continue to serve as members of our board of directors.

Please see the section titled “Principal Stockholders” for more details regarding the shares held by these entities.

Convertible Note Financing. On June 28, 2010 we entered into a note purchase agreement (the “Note Agreement”) with entities affiliated with our existing investors Sigma Partners, GrandBanks Capital and Kodiak Venture Partners. Under the terms of the Note Agreement we issued unsecured convertible promissory notes (the “Notes”) for $3.0 million and we may issue an additional $5.0 million during the period commencing October 1, 2010 and ending October 31, 2010. The Notes we issued bear and any additional Notes issued will bear a fixed rate of interest at 8.00% and are and will be junior to our existing secured indebtedness and junior to our convertible promissory note with Dell. We may not prepay the Notes and the investors may demand repayment of all outstanding principal and accrued interest on any issued Notes under certain circumstances, including the occurrence of the offering contemplated in this prospectus. At any time prior to the offering contemplated by this prospectus, the investors may elect to convert all outstanding principal and accrued interest on any issued Notes into shares of our Series F Preferred Stock. In connection with entering into the Note Agreement, we issued warrants to purchase up to 900,000 shares of our common stock at an exercise price of $3.00 per share. In addition, in the event any additional Notes are issued, we will issue additional warrants to each Investor purchasing a Note in amounts equal to 10% of the principal

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amount of the Note purchased by any such Investor divided by $3.00. The warrants issued and any additional warrants to be issued have or will have a term of three years and net exercise provisions. The table below sets forth the amount of the Notes issued and the number of warrants to purchase common stock purchased by the listed investors at each closing.


Closing Date	Investor Name	Notes Convertible into Series F Purchased		Common Stock Warrants Purchased	Affiliated Party
June 2010	Sigma Partners	$	1,344,000	569,801	Robert Davoli, Managing Partners of Sigma Partners

June 2010	Kodiak Venture Partners	$	94,000	28,133	Louis Volpe, General Partner, Kodiak Venture Partners

June 2010	GrandBanks Capital	$	553,360	168,733	Ryan Moore, General Partner of GrandBanks Capital

Total Notes and Warrants Purchased by Listed Investors		$	1,991,360	766,667

Several of the managing partners/directors of these investors serve as members of our board of directors: Louis Volpe (General Partner, Kodiak Venture Partners); Robert Davoli (Managing Director, Sigma Partners); and Ryan Moore (General Partner, GrandBanks Capital).

Please see the section titled “Principal Stockholders” for more details regarding the shares held by these entities.

Acquisitions

Acquisition of Certain Assets of CRI Technologies, Inc. In November 2009, we acquired certain assets of CRI Technologies (CRI) for 699,390 shares of common stock pursuant to an asset purchase agreement. Robert Davoli, a director of our company, was also a director of CRI at the time of the acquisition. Investment entities in which Mr. Davoli has a financial interest hold shares of CRI, which entities, subject to any liability for claims under the asset purchase agreement, are expected to receive 349,695 of consideration shares. The asset purchase agreement memorializing the transaction and the consideration for the assets were negotiated as an arms-length transaction between our officers and the officers of CRI and its subsidiary, Virtera, Inc. (Virtera). The purchase price for the assets was determined by taking into account potential revenue streams from assumed contracts and other relationships, less the internal costs of billing for and collecting on services that had been previously provided by CRI/Virtera whose accounts payable we did not purchase. The disinterested members of our board of directors determined that the acquisition was in the best interests of our company and our stockholders.

Registration Rights Agreement

We have entered into a registration rights agreement with several of our significant stockholders, including entities affiliated with Kodiak Venture Partners, entities affiliated with Sigma Partners, entities and persons affiliated with GrandBanks Capital, entities affiliated with Paladin Capital Group and various other entities and individuals. The registration rights agreement was initially executed when we first sold shares of our preferred stock in 2001. The agreement has been amended several times to include new holders of our preferred stock, certain entities and persons receiving shares of our common stock as acquisition consideration and certain lenders. Under the registration rights

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agreement holders of shares of common stock will be entitled to rights with respect to the registration of those shares under the Securities Act. Under the terms of the eighth amended and restated registration rights agreement, as amended, between us and the holders of these registrable securities, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, these holders are entitled to notice of registration and are entitled to include their shares of common stock in the registration. Certain holders of these registrable securities are also entitled to specified demand registration rights under which they may require us to file a registration statement under the Securities Act at our expense with respect to our shares of common stock, and we are required to use our commercially reasonable efforts to effect this registration. Further, the holders of these registrable securities may require us to file additional registration statements on Form S-3 after the completion of this offering. This is not a complete description of this registration rights agreement and is qualified by the full text of the eighth amended and restated registration rights agreement, as amended, filed as Exhibit 4.3 to the registration statement of which this prospectus is a part.

Stockholders Agreement

We have entered into a stockholders agreement with several of our significant stockholders, including entities affiliated with Kodiak Venture Partners, entities affiliated with Sigma Partners, entities affiliated with Paladin Capital Group and various other entities and individuals. The stockholders agreement was initially executed when we first sold shares of our preferred stock in 2001. The agreement has been amended several times to include new holders of our preferred stock, certain entities and persons receiving shares of our common stock as acquisition consideration, certain lenders and a limited number of holders of our common stock. Holders of shares of common stock are entitled to the provisions of the stockholders agreement. The stockholders agreement provides for, among other things, certain information and inspection rights as well as the right of first offer with respect to future sales of our equity securities by us. These rights will terminate immediately prior to the completion of this offering and the only material term of the stockholders agreement that will remain in place is a 180-day lock-up provision. This is not a complete description of the fifth amended and restated stockholders agreement, as amended, and is qualified by the full text of the fifth amended and restated stockholders agreement, as amended, filed as Exhibit 4.4 to the registration statement of which this prospectus is a part.

Other Transactions with our Executive Officers, Directors, Key Employees and Significant Stockholders

Business Dealings with Xyratex. Todd Gresham, one of our current directors, serves as the Executive Vice President at Xyratex Technology Limited, a provider of enterprise class data storage subsystems and network technology. We have performed services for Xyratex, generating a total of approximately $256,000 and $124,000 in revenues to us in 2007 and 2008, respectively, and $22,000 in revenues to us during 2009.

Indemnification Agreements. Upon the closing of this offering, we will enter into indemnification agreements with each of our directors and executive officers and certain other key employees. The form of agreement provides that we will indemnify each of our directors, executive officers and such key employees against any and all expenses incurred by that director, executive officer or key employee because of his or her status as one of our directors, executive officers or key employees to the fullest extent permitted by Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws (except in a proceeding initiated by such person without the approval of our board of directors). In addition, the form agreement provides that, to the fullest extent permitted by Delaware law, we will advance all expenses incurred by our directors, executive officers and key employees in connection with a legal proceeding in which they may be entitled to indemnification.

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Stock Option Awards. For information regarding stock options and stock awards granted to our named executive officers and directors, please see the section titled “Management—Director Compensation” and “Management—Executive Compensation.”

Management Stock Repurchase. In June 2008, we repurchased shares of common stock and Series 1 stock from members of our management team at the then fair market value, which was $2.26 per share. The table below sets forth the number and type of shares that we repurchased from the listed executive officers.


Executive Officer	Shares Repurchased	Class of Security
Mark Shirman	842,919	Common Stock
Ken Hale	197,192	Common Stock
Richard Scannell	197,192	Common Stock
Andrew Norman	221,239	Series 1 Preferred Stock

Third Party Notes. We have a note outstanding for £17,000 ($26,000) with former directors of Systems Group Integration Ltd. that is not formally documented. Our Swiss subsidiary has certain loan agreements for advances up to CHF462,250 ($445,000) secured by personal guarantees of certain officers and former shareholders of the subsidiary.

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PRINCIPAL STOCKHOLDERS

The following table provides information concerning beneficial ownership of our capital stock as of March 31, 2010, and as adjusted to reflect the completion of this offering, by:

each stockholder, or group of affiliated stockholders, that we know owns more than 5% of our outstanding capital stock;

each of our named executive officers;

each of our directors;

all of our directors and executive officers as a group.

The following table lists the number of shares and percentage of shares beneficially owned based on 68,989,654 shares of common stock outstanding as of March 31, 2010.

The table also lists the applicable percentage beneficial ownership based on shares of common stock outstanding upon completion of this offering, assuming no exercise of the underwriters’ option to purchase up to an aggregate of shares of our common stock.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and generally includes voting power and/or investment power with respect to the securities held. Shares of common stock subject to options and warrants currently exercisable or exercisable within 60 days of March 31, 2010 are deemed outstanding and beneficially owned by the person holding such options for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons or entities named have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them.

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Unless otherwise indicated, the principal address of each of the stockholders below is c/o GlassHouse Technologies, Inc., 200 Crossing Boulevard, Framingham, Massachusetts 01702.


	Shares Beneficially Owned Prior to Offering				Shares Beneficially Owned After Offering
Name and Address of Beneficial Owner	Number		Percent		Number		Percent
5% Stockholders
Kodiak Venture Partners 1000 Winter Street, Suite 3800 Waltham, MA 02451	6,932,930	(1)	10.04	%	6,932,930	(1)	%
Sigma Partners 20 Custom House Street, Suite 830 Boston, MA 02110	16,788,865	(2)	24.34	%	16,788,865	(2)	%
GrandBanks Capital 10 Langley Road, Suite 403 Newton Center, MA 02459	8,070,732	(3)	11.70	%	8,070,732	(3)	%
Paladin Capital Group 2001 Pennsylvania Avenue NW Suite 400 Washington, D.C. 20006	6,006,477	(4)	8.71	%	6,006,477	(4)	%

Directors and Named Executive Officers
Louis Volpe	6,932,930	(5)	10.04	%	6,932,930	(5)	%
Robert E. Davoli	16,788,865	(6)	24.34	%	16,788,865	(6)	%
Ryan Moore	8,070,732	(7)	11.70	%	8,070,732	(7)	%
Kenneth A. Minihan	6,006,477	(8)	8.71	%	6,006,477	(8)	%
Todd Gresham	250,000	(9)	0.36	%	250,000	(9)	%
Glenn Osaka	250,000		0.36	%	250,000		%
Mark Shirman	3,638,672	(10)	5.27	%	3,638,672	(10)	%
Ken Hale	761,761	(11)	1.10	%	761,761	(11)	%
Doron Rosenblum	175,000	(12)	0.25	%	175,000	(12)	%
Andy Norman	1,086,097	(13)	1.57	%	1,086,097	(13)	%
Richard Scannell	973,761	(14)	1.41	%	973,761	(14)	%
Patrick Scannell	100,000	(15)	0.14	%	100,000	(15)	%
All directors and executive officers as a group	45,034,295		65.28	%	45,034,295		%

(1)

Represents 5,012,345 shares and 176,568 warrants exercisable within 60 days held by Kodiak Venture Partners II-A, L.P., 1,100,662 shares and 38,772 warrants exercisable within 60 days held by Kodiak Venture Partners II-B, L.P, and 604,583 shares held by SKI Opportunities Fund, LLC. The general partner of Kodiak Venture Partners II-A, L.P and Kodiak Venture Partners II-B, L.P. is Kodiak Ventures Management II, L.P. The general partner of Kodiak Ventures Management II, L.P. is Kodiak Ventures Management Company, Inc. The general partner of SKI Opportunities Fund, LLC is SKI Opportunities Fund (GP), LLC and the general partner of SKI Opportunities Fund (GP), LLC is Kodiak Ventures Management Company, Inc. David Furneaux and Louis Volpe are the President and Treasurer, respectively, of Kodiak Ventures Management Company, Inc. and share voting and depositive power for the shares held of record by Kodiak Ventures Management Company, Inc. Each of David Furneaux and Louis Volpe disclaims beneficial ownership of the shares held by Kodiak Ventures Management Company Inc. except to the extent of each of their individual pecuniary interests therein.

(2)

Represents 14,479,120 shares and 684,470 warrants exercisable within 60 days held by Sigma Partners 6, L.P., 1,389,788 shares and 56,015 warrants exercisable within 60 days held by Sigma Associates 6, L.P., and 169,707 shares and 9,765 warrants exercisable within 60 days held by Sigma Investors 6, L.P. Sigma Management 6, L.L.C. is the general partner of each of Sigma Partners 6, L.P., Sigma Associates 6, L.P., and Sigma Investors 6, L.P. Robert Davoli, Lawrence G. Finch, Gregory Gretsch, Clifford L. Haas, John Mandile, Peter Solvik, Robert Spinner and Wade Woodson are the managing members of Sigma Management 6, L.L.C. Each of the managing members disclaims beneficial ownership of the shares held by Sigma Management 6, L.L.C. except to the extent of each of their individual pecuniary interests therein.

(3)

Represents 4,519,791 shares and 185,012 warrants exercisable within 60 days held by GrandBanks Capital Venture Fund, L.P., 3,114,377 shares and 127,485 warrants exercisable within 60 days held by GrandBanks Capital Softbank Fund, L.P., and 119,190 shares and 4,877 warrants exercisable within 60 days held by GrandBanks Capital Advisors

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Fund, L.P. GrandBanks Capital LLC is the general partner of each of GrandBanks Capital Venture Fund, L.P., GrandBanks Capital Softbank Fund, L.P., and GrandBanks Capital Advisors Fund, L.P. Charles R. Lax is the managing members of GrandBanks Capital LLC. Mr. Lax disclaims beneficial ownership of the shares held by GrandBanks Capital LLC except to the extent of each of their individual pecuniary interests therein.

(4)

Represents 2,842,131 shares and 132,948 warrants exercisable within 60 days held by Paladin Homeland Security Fund, L.P., 1,827,655 shares and 85,492 warrants exercisable within 60 days held by Paladin Homeland Security Fund (NY City), L.P., 637,245 shares and 29,807 warrants exercisable within 60 days held by Paladin Homeland Security Fund (CA), L.P., and 431,036 shares and 20,163 warrants exercisable within 60 days held by Paladin Homeland Security Fund (Cayman Islands), L.P. Paladin Homeland Security Holdings, LLC is the general partner of each of Paladin Homeland Security Fund, L.P., Paladin Homeland Security Fund (NY City), L.P., and Paladin Homeland Security Fund (CA), L.P. Paladin Homeland Security Holdings (Cayman Islands), Ltd. is the general partner of Paladin Homeland Security Fund (Cayman Islands), L.P. Paladin Capital Group II, LLC is the managing member of Paladin Homeland Security Holdings, LLC. 2001 Penn Ave. Investments, LLC is the managing member of Paladin Capital Group II, LLC and Michael R. Steed is the sole manager of 2001 Penn Ave. Investments, LLC. Michael R. Steed is the sole director of Paladin Homeland Security Holdings (Cayman Islands), Ltd. The sole manager and the sole director disclaims beneficial ownership of the shares indirectly held by Paladin Homeland Security Holdings, LLC and Paladin Homeland Security Holdings (Cayman Islands), Ltd., except to the extent of his individual pecuniary interest therein.

(5)	See footnote (1) regarding Mr. Volpe’s relationship with Kodiak Venture Partners. Mr. Volpe disclaims beneficial ownership of the shares held by the entities affiliated with Kodiak Venture Partners referenced in footnote (1) above, except to the extent of his pecuniary interest therein.

(6)	See footnote (2) regarding Mr. Davoli’s relationship with Sigma Partners. Mr. Davoli disclaims beneficial ownership of the shares held by the entities affiliated with Sigma Partners referenced in footnote (2) above, except to the extent of his pecuniary interest therein.

(7)	Ryan Moore is affiliated with GrandBanks Capital. Mr. Moore disclaims beneficial ownership of the shares held by the entities affiliated with GrandBanks Capital referenced in footnote (3) above, except to the extent of his pecuniary interest therein.

(8)	Kenneth Minihan is affiliated with Paladin Capital Group. Mr. Minihan disclaims beneficial ownership of the shares held by the entities affiliated with Paladin Capital Group referenced in footnote (4) above, except to the extent of his pecuniary interest therein.

(9)	Includes 150,000 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

(10)	Includes 1,780,000 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

(11)	Includes 761,761 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

(12)	Includes 175,000 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

(13)	Includes 550,000 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

(14)	Includes 973,761 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

(15)	Includes 100,000 shares issuable upon exercise of options exercisable within 60 days of March 31, 2010.

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DESCRIPTION OF CAPITAL STOCK

General

Following the closing of this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. The following summary of our capital stock and certain provisions of our amended and restated certificate of incorporation and bylaws does not purport to be complete and is qualified by the provisions of our amended and restated certificate of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.

Common Stock

As of March 31, 2010, there were 68,989,654 shares of common stock issued (including 2,454,514 shares of our common stock held in treasury) assuming the conversion of all then issued shares of preferred stock, including shares held in treasury stock, held of record by approximately 230 stockholders.

There will be shares of common stock outstanding, assuming no exercise of the underwriters’ option to purchase additional shares in the offering and assuming no exercise after March 31, 2010 of outstanding options, after giving effect to the sale of the shares of common stock to the public offered in this prospectus.

The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of funds legally available, subject to preferences that may be applicable to preferred stock, if any, then outstanding. At present, we have no plans to issue dividends. Please see the section titled “Dividend Policy.” In the event of a liquidation, dissolution or winding up of our company, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of Series A, Series B, Series C, Series D, Series E and Series F preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable.

Preferred Stock

Upon the closing of this offering, we will have no shares of our preferred stock outstanding. Outstanding shares of Series A preferred stock will be converted into 3,360,000 shares of common stock, outstanding shares of Series B preferred stock will be converted into 10,642,814 shares of common stock, outstanding shares of Series C preferred stock will be converted into 8,364,707 shares of common stock, outstanding shares of Series D preferred stock will be converted into 15,626,305 shares of common stock, outstanding shares of Series E preferred stock will be converted into 4,493,245 shares of common stock, outstanding shares of Series F preferred stock will be converted into 3,602,940 shares of common stock and issued shares of Series 1 preferred stock, including shares held in treasury stock, will be converted into 4,446,576 shares of common stock.

Our board of directors is authorized to issue preferred stock in one or more series, to establish the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of such shares and any qualifications, limitations or restrictions thereof. The

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issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. At present, we have no plans to issue any preferred stock.

Registration Rights

After the completion of this offering, holders of shares of common stock will be entitled to rights with respect to the registration of those shares under the Securities Act. Under the terms of the eighth amended and restated registration rights agreement, as amended, between us and the holders of these registrable securities, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, these holders are entitled to notice of registration and are entitled to include their shares of common stock in the registration. Certain holders of these registrable securities are also entitled to specified demand registration rights under which they may require us to file a registration statement under the Securities Act at our expense with respect to our shares of common stock, and we are required to use our commercially reasonable efforts to effect this registration. Further, the holders of these registrable securities may require us to file additional registration statements on Form S-3. All of these registration rights are subject to conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in the registration and our right not to effect a requested registration within six months following the initial offering of our securities, including this offering.

Anti-Takeover Effects of Our Certificate of Incorporation, Bylaws and Delaware Law

Some provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws could make the following transactions more difficult:

acquisition of our company by means of a tender offer, a proxy contest or otherwise; and

removal of our incumbent officers and directors.

These provisions of our amended and restated certificate of incorporation and amended and restated bylaws, summarized below, are expected to discourage and prevent coercive takeover practices and inadequate takeover bids. These provisions are designed to encourage persons seeking to acquire control of our company to negotiate first with our board of directors. They are also intended to provide our management with the flexibility to enhance the likelihood of continuity and stability if our board of directors determines that a takeover is not in the best interests of our stockholders. These provisions, however, could have the effect of discouraging attempts to acquire us, which could deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

Election and Removal of Directors. Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that establish specific procedures for appointing and removing members of our board of directors. Under our amended and restated certificate of incorporation and amended and restated bylaws, our board of directors will be classified into three classes of directors and directors will be elected by a plurality of the votes cast in each election. Only one class will stand for election at each annual meeting, and directors will be elected to serve three-year terms. In addition, our amended and restated certificate of incorporation and amended and restated bylaws will provide that vacancies and newly created directorships on our board of directors may be filled only by a majority vote of the directors then serving on our board of directors (except as otherwise required by law or by

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resolution of our board of directors). Under our amended and restated certificate of incorporation and amended and restated bylaws, directors may be removed only for cause.

Special Stockholder Meetings. Under our amended and restated certificate of incorporation and amended and restated bylaws, only the chairman of our board of directors, our CEO and our board of directors may call special meetings of stockholders.

Requirements for Advance Notification of Stockholder Nominations and Proposals. Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors.

Delaware Anti-Takeover Law. Following this offering, we will be subject to Section 203 of the Delaware General Corporation Law, which is an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date that the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or another transaction resulting in a financial benefit to the interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns 15% or more of the corporation’s voting stock. The existence of this provision may have an anti-takeover effect with respect to transactions that are not approved in advance by our board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

Elimination of Stockholder Action by Written Consent. Our amended and restated certificate of incorporation and amended and restated bylaws eliminate the right of stockholders to act by written consent without a meeting after the closing of this offering.

No Cumulative Voting. Under Delaware law, cumulative voting for the election of directors is not permitted unless a corporation’s certificate of incorporation authorizes cumulative voting. Our amended and restated certificate of incorporation and amended and restated bylaws do not provide for cumulative voting in the election of directors. Cumulative voting allows a minority stockholder to vote a portion or all of its shares for one or more candidates for seats on our board of directors. Without cumulative voting, a minority stockholder will not be able to gain as many seats on our board of directors based on the number of shares of our stock the stockholder holds as the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board of directors decision regarding a takeover.

Undesignated Preferred Stock. The authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company.

Amendment of Charter Provisions. The amendment of most of the above provisions in our amended and restated certificate of incorporation and our amended and restated bylaws requires approval by holders of at least two-thirds of our outstanding capital stock entitled to vote generally in the election of directors.

These and other provisions could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of

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our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be American Stock Transfer and Trust Company. Its telephone number is 1-800-937-5449.

New York Stock Exchange

We have been cleared to apply to have our common stock listed on the NYSE under the symbol “GLAS.”

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock, and we cannot assure you that a significant public market for our common stock will develop or be sustained after this offering. As described below, no shares currently outstanding will be available for sale immediately after this offering due to certain contractual and securities law restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions lapse could cause the prevailing market price to decline and limit our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding an aggregate of shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares and no exercise of options or warrants to purchase common stock that were outstanding as of December 31, 2009. The shares of common stock being sold in this offering will be freely tradable without restriction or further registration under the Securities Act.

The remaining shares of common stock held by existing stockholders are restricted securities as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Section 4(1), or Rule 144 or 701 promulgated under the Securities Act, which rules are summarized below.

The following table shows approximately when the shares of our common stock that are not being sold in this offering, but which will be outstanding when this offering is complete, will be eligible for sale in the public market:

Eligibility of Restricted Shares for Sale in the Public Market


Days After Date of this Prospectus

GlassHouse Technologies Inc S-1/A