1. Nature of the Business

Constant Contact, Inc. (the “Company”) was incorporated as a Massachusetts corporation in 1995. The Company reincorporated in the State of Delaware in 2000. The Company is a leading provider of on-demand email marketing, social media marketing, event marketing and online survey products to small organizations, including small businesses, associations and non-profits. The Company’s email marketing product allows customers to create, send and track email marketing campaigns. The Company’s social media marketing features allow customers to easily manage and optimize their presence across multiple social media networks. The Company’s event marketing product enables customers to promote and manage events, track event registrations and collect online payments. The Company’s online survey product enables customers to create and send surveys and analyze the responses. These products are designed and priced for small organizations and are marketed directly by the Company and through a wide variety of partners.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include those of the Company and its subsidiaries, Constant Contact Securities Corporation, a Massachusetts corporation, and Constant Contact (UK) Limited, a corporation organized under the laws of England and Wales, after elimination of all intercompany accounts and transactions. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The condensed consolidated balance sheet at December 31, 2010 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K, File Number 001-33707, on file with the SEC.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position as of September 30, 2011 and consolidated results of operations for the three and nine months ended September 30, 2011 and 2010 and consolidated cash flows for the nine months ended September 30, 2011 and 2010, have been made. The condensed consolidated results of operations for the three and nine months ended September 30, 2011 and cash flows for the nine months ended September 30, 2011 are not necessarily indicative of the results of operations and cash flows that may be expected for the year ending December 31, 2011.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, judgments and assumptions, including those related to revenue recognition, stock-based compensation, goodwill and acquired intangible assets, capitalization of software and website development costs and income taxes. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenue and expenses that are not readily apparent from other sources. Actual results could differ from these estimates.

Revenue Recognition

The Company provides access to its products through subscription arrangements whereby the customer is charged a fee for access for a defined term. Subscription arrangements include access to use the Company’s software via the Internet and support services, such as telephone, email and chat support. When there is evidence of an arrangement, the fee is fixed or determinable and collectability is deemed reasonably assured, the Company recognizes revenue on a daily basis over the subscription period as the services are delivered. Delivery is considered to have commenced at the time the customer has paid for the products and has access to the account via a log-in and password. The Company also offers ancillary services to its customers related to its products such as custom services and training. Custom services and training revenue is accounted for separate from subscription revenue as those services have value on a standalone basis, do not involve a significant degree of risk or unique acceptance criteria and as the fair value of the Company’s subscription services is evidenced by their availability on a standalone basis. Custom services and training revenue is recognized as the services are performed.

Effective January 1, 2011, the Company adopted new guidance applicable to revenue arrangements with multiple deliverables. The adoption of this guidance did not have a material effect on the consolidated financial statements.

Goodwill and Acquired Intangible Assets

The Company records goodwill when consideration paid in a business acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. The Company performs its annual assessment for impairment of goodwill on November 30 and has determined that there is a single reporting unit for the purpose of conducting this annual goodwill impairment assessment. For purposes of assessing potential impairment, the Company annually estimates the fair value of the reporting unit (based on the Company’s market capitalization) and compares this amount to the carrying value of the reporting unit (as reflected by the Company’s total stockholders’ equity). If the Company determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge would be required.

Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. As the pattern of consumption of the economic benefits of the intangible assets cannot be reliably determined, the Company amortizes acquired intangible assets over their estimated useful lives on a straight-line basis.

Capitalization of Software and Web Site Development Costs

Relative to development costs of its on-demand products and website, the Company capitalizes certain direct costs to develop functionality as well as certain upgrades and enhancements that are probable to result in additional functionality. The costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized as part of property and equipment until the software is substantially complete and ready for its intended use. Capitalized software is amortized over a three-year period in the expense category to which the software relates.

Comprehensive Income

Comprehensive income includes net income, as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive income is unrealized gains and losses on available-for-sale securities.

Comprehensive income was as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2011				2010				2011				2010
Net income		$	5,353			$	2,942			$	4,784			$	1,256
Other comprehensive income:
Unrealized gains (losses) on available-for-sale securities, net			11				9				58				(5	)
Reclassification adjustment for realized gains on available-for-sale securities included in net income			(1	)			—				(13	)			—
Comprehensive income		$	5,363			$	2,951			$	4,829			$	1,251

At September 30, 2011, marketable securities by security type consisted of:

						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury Bills and Notes		$	45,846				61			$	—			$	45,907
International Government Bonds			1,003				—				—				1,003
Corporate and Agency Bonds			42,865				10				(13	)			42,862
Commercial Paper			1,999				—				—				1,999
Total		$	91,713			$	71			$	(13	)		$	91,771

At September 30, 2011, marketable securities consisted of investments that mature within one year with the exception of U.S. Treasury Notes with a fair value of $13,032 and agency bonds with a fair value of $6,509, which have maturities within two years.

At December 31, 2010, marketable securities by security type consisted of:

						Gross				Gross				Estimated
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
U.S. Treasury Bills			40,191				21				(2	)			40,210
International Government Bond			510				—				(1	)			509
Corporate and Agency Bonds			47,304				6				(11	)			47,299
Commercial Paper			3,443				—				—				3,443
Total		$	91,448			$	27			$	(14	)		$	91,461

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, are used to measure fair value:

	•		Level 1 — Quoted prices in active markets for identical assets or liabilities.
	•		Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
	•		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company had cash equivalents of $11,523 and $23,488 at September 30, 2011 and December 31, 2010, respectively, which were invested in money market instruments at September 30, 2011 and in money market instruments and agency bonds at December 31, 2010. The Company carries its cash equivalents and marketable securities at fair value based on quoted market prices. Quoted market prices are a Level 1 measurement in the hierarchy of fair value measurements. The Company also considers receivables related to customer credit card purchases of $2,836 and $1,114 at September 30, 2011 and December 31, 2010, respectively, to be equivalent to cash.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of unrestricted common shares outstanding for the period.

Diluted net income per share is computed by dividing net income by the sum of the weighted average number of unrestricted common shares outstanding during the period and the weighted average number of potential common shares from the assumed exercise of stock options and the vesting of shares of restricted stock and restricted stock units using the “treasury stock” method when the effect is not anti-dilutive.

The following is a summary of the shares used in computing diluted net income per share:

		Three months ended								Nine months ended
		September 30,								September 30,
		2011				2010				2011				2010
						(In thousands)
Weighted average shares used in calculating basic net income per share			29,631				28,887				29,481				28,666
Stock options			757				1,047				1,164				1,152
Warrants			1				1				1				1
Unvested restricted shares and restricted share units			10				2				33				1
Shares used in computing diluted net income per share			30,399				29,937				30,679				29,820

The following common stock equivalents were excluded from the computation of diluted net income per share because they had an anti-dilutive impact because the proceeds from the exercise of the options under the treasury stock method were in excess of the average fair market value for the period:

		Three months ended								Nine months ended
		September 30,								September 30,
		2011				2010				2011				2010
						(In thousands)
Options to purchase common stock			3,224				2,021				1,856				1,837
Restricted shares and restricted share units			116				—				39				—
Total options, restricted shares and restricted share units exercisable into or issuable by common stock			3,340				2,021				1,895				1,837

Accounting for Stock-Based Compensation

The Company values all stock-based compensation, including grants of stock options, restricted stock and restricted stock units, at fair value on the date of grant, and expenses the fair value over the applicable service period. The straight-line method is applied to all grants with service conditions, while the graded vesting method is applied to all grants with both service and performance conditions.

Income Taxes

Income taxes are provided for tax effects of transactions reported in the financial statements and consist of income taxes currently due plus deferred income taxes related to timing differences between the basis of certain assets and liabilities for financial statement and income tax reporting purposes. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.

Segment Data

The Company manages its operations as a single segment for purposes of assessing performance and making operating decisions. Revenue is generated predominately in the U.S. and all significant assets are held in the U.S.

New Accounting Guidance

In June 2011, the Financial Accounting Standards Board issued new accounting guidance on the presentation of comprehensive income to provide companies with two options for presenting comprehensive income. Companies can present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This guidance is effective for the Company on January 1, 2012. Early adoption is permitted. As the new guidance relates only to how comprehensive income is disclosed and does not change the items that must be reported as comprehensive income, adoption will not have an effect on the Company’s consolidated financial statements.

3. Acquisition of Bantam Networks, LLC

On February 15, 2011, the Company acquired substantially all of the assets, excluding cash, of Bantam Networks, LLC, a Delaware limited liability company (“Bantam Networks”), for a cash purchase price of $15,000. Bantam Networks is a contact management and social customer relationship management (“CRM”) software provider. The Company purchased the assets of Bantam Networks in order to expand the CRM functionality of its products. The operating expenses of Bantam Networks have been included in the consolidated financial statements beginning on the acquisition date and are not material to the consolidated results of the Company.

The Company allocated the purchase price as follows:

Purchased technology		$	1,800
Goodwill			13,200
Total assets acquired		$	15,000

The purchased technology was valued using the cost to replace method. The estimated economic life of the purchased technology is three years and amortization will commence once the software is ready for its intended use.

Goodwill was recognized for the excess purchase price over the fair value of the assets acquired. Goodwill is primarily attributable to Bantam Networks’ knowledge of CRM and expertise in working with contact management software. Goodwill from the Bantam Networks’ acquisition will be included within the Company’s one reporting unit and will be included in the Company’s enterprise-level annual review for impairment. Goodwill resulting from the acquisition of Bantam Networks is deductible for tax purposes.

The following table presents the pro forma results of the historical condensed consolidated statements of operations of the Company and Bantam Networks for the nine month period ended September 30, 2011 and the three and nine month periods ended September 30, 2010, giving effect to the merger as if it occurred on January 1, 2010:

		Three months ended				Nine months ended
		September 30,				September 30,
		2010				2011				2010
Pro forma revenue		$	44,828			$	156,888			$	126,764
Pro forma net income		$	2,689				4,657			$	498
Pro forma net income per share:
Basic		$	0.09			$	0.16			$	0.02
Diluted		$	0.09			$	0.15			$	0.02

The pro forma net income and net income per share presented primarily include adjustments for revenue, amortization, interest income and income taxes. This pro forma information does not purport to indicate the results that would have actually been obtained had the acquisition been completed on the assumed date, or which may be realized in the future.

4. Goodwill and Acquired Intangible Assets

The carrying amount of goodwill was $18,448 as of September 30, 2011. The change in the carrying amount of goodwill for the nine months ended September 30, 2011 was as follows:

Balance as of December 31, 2010		$	5,248
Goodwill related to the acquisition of Bantam Networks		$	13,200
Balance as of September 30, 2011		$	18,448

The Company’s goodwill resulted from the acquisition of Nutshell Mail, Inc. (“NutshellMail”) in May 2010 and the acquisition of substantially all of the assets of Bantam Networks in February 2011. Goodwill is not amortized, but instead is reviewed for impairment at least annually in the fourth quarter or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company has not recorded an impairment charge to date.

Acquired intangible assets consist of developed technology and are stated at cost less accumulated amortization. Amortization is on a straight-line basis over the estimated economic life of three years commencing once the software is ready for its intended use. The gross and net carrying amount of acquired intangible assets was $2,770 and $2,339, respectively, at September 30, 2011. Future estimated amortization expense for the NutshellMail developed software is $81 for the remainder of 2011, $323 for 2012 and $135 for 2013. Amortization of the intangible asset related to developed technology acquired from Bantam Networks has not yet commenced as the software is not yet ready for its intended use.

5. Stock-Based Awards

Stock Incentive Plan

The Company’s 2007 Stock Incentive Plan (“2007 Plan”) permitted the Company to make grants of incentive stock options, non-statutory stock options, restricted stock, restricted stock units and other stock-based awards with a maximum term of ten years. In conjunction with the approval by stockholders of the 2011 Stock Incentive Plan, the board of directors voted that no further stock options or other equity-based awards shall be granted under the 2007 Plan.

In March 2011, the Board of Directors adopted the 2011 Stock Incentive Plan (“2011 Plan”). The 2011 Plan was approved by the stockholders in May 2011. The 2011 Plan permits the Company to make grants of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights and other stock-based awards with a maximum term of seven years. These awards may be granted to the Company’s employees, officers, directors, consultants, and advisors. The Company reserved 4,200,000 shares of its common stock for the issuance under the 2011 Plan. Additionally, per the terms of the 2011 Plan, shares of common stock previously reserved for issuance under the 2007 Plan as well shares reserved for outstanding awards under the 1999 Stock Option/Stock Issuance Plan and 2007 Plan for which the awards are cancelled, forfeited, repurchased or otherwise result in common stock not being issued will be added to the number of shares available for issuance under the 2011 Plan. Awards that are granted with a per share or per unit purchase price less than 100% of fair market value as of the date of grant (e.g., restricted stock and restricted stock unit awards) shall count towards the total number of shares reserved for issuance under the 2011 Plan on a two-for-one basis. As of September 30, 2011, 4,367,581 shares of common stock were available for issuance under the 2011 Plan.

Stock Purchase Plan

The Company’s 2007 Employee Stock Purchase Plan, as amended (the “Purchase Plan”), became effective upon the completion of the Company’s initial public offering. Six-month offering periods begin on January 1 and July 1 of each year, during which employees may elect to purchase shares of the Company’s common stock according to the terms of the offering. The per share purchase price for offerings is equal to 85% of the closing market price of the Company’s common stock on the last day of the offering period. The first offering period of 2011 began on January 1, 2011 and was completed on June 30, 2011. The second offering period of 2011 began on July 1, 2011 and will be completed on December 31, 2011. As of September 30, 2011, 210,170 shares of common stock were available for issuance to participating employees under the Purchase Plan.

Stock-Based Compensation Expense

The Company recognized stock-based compensation expense on all awards in the following expense categories:

		Three months ended								Nine months ended
		September 30,								September 30,
		2011				2010				2011				2010
Cost of revenue		$	408			$	281			$	1,141			$	804
Research and development			831				586				2,360				1,559
Sales and marketing			478				473				1,934				1,347
General and administrative			1,075				754				3,208				2,100
		$	2,792			$	2,094			$	8,643			$	5,810

In 2011, the Company granted 190,000 options with a grant date fair value of $14.28 per share that had performance-based vesting criteria. The vesting of these options is determined by a two-tiered target. If either target is achieved, a corresponding number of options vest. If neither of the performance objectives is achieved by December 31, 2011, the options will be cancelled. For financial reporting purposes, the Company has assessed the probability of achieving either of the performance goals as not probable and, accordingly, has not recorded stock-based compensation expense associated with these options.

6. Income Taxes

For the three and nine months ended September 30, 2011, the Company recorded an income tax expense of $410 and $357, respectively. These amounts consisted of a current income tax expense of $347 and $136 for the three and nine months ended September 30, 2011, respectively, and a deferred income tax expense of $63 and $221 for the three and nine months ended September 30, 2011, respectively. The current income tax expense recorded for the three and nine months ended September 30, 2011 related to the Company’s income before taxes for the period multiplied by its estimated annual effective tax rate for 2011. The Company expects to generate federal and state taxable income for the full year 2011. The Company’s federal taxable income is expected to be fully offset by net operating loss carryforwards and other deferred tax attributes. However, the Company will be subject to state income taxes. The deferred income tax expense related to the amortization for tax purposes of goodwill from the Bantam Networks acquisition.

The Company recorded an income tax expense of $59 for the three and nine months ended September 30, 2010 related to the Company’s income before taxes for the period multiplied by its estimated annual effective tax rate for 2010.

The Company had gross deferred tax assets of $19,766 at December 31, 2010, which has not changed significantly at September 30, 2011 other than a reduction in net operating loss carryforwards as a result of taxable net income generated through September 30, 2011. The Company has provided a valuation allowance for the full amount of its net deferred tax assets because, at September 30, 2011 and December 31, 2010, it was not more likely than not that any future benefit from deductible temporary differences and net operating loss and tax credit carryforwards would be realized.

The Company has not recorded any amounts for unrecognized tax benefits as of September 30, 2011 or December 31, 2010. As of September 30, 2011 and December 31, 2010, the Company had no accrued interest or tax penalties recorded. The Company’s income tax return reporting periods since December 31, 2008 are open to income tax audit examination by the federal and state tax authorities. In addition, because the Company has net operating loss carryforwards, the Internal Revenue Service is permitted to audit earlier years and propose adjustments up to the amount of net operating losses generated in those years.

7. Accrued Expenses

		September 30,				December 31,
		2011				2010
Payroll and payroll related		$	4,252			$	2,638
Licensed software and maintenance			1,197				1,216
Marketing programs			2,449				426
Other accrued expenses			3,567				2,444
		$	11,465			$	6,724

8. Commitments and Contingencies

Office Leases

In May 2009, the Company entered into a new lease (the “New Lease”) that superseded the original lease for its headquarters. The New Lease, effective through September 30, 2015 with one five-year extension option, includes the space under the original lease as well as additional space that will be made available to the Company at various points during the term of the New Lease. The New Lease also includes payment escalations and rent holidays. Under the New Lease, the landlord is responsible for making certain improvements to the leased space at an agreed upon cost to the landlord. If the landlord and the Company mutually agree to make improvements that cost in excess of the agreed upon landlord cost, the landlord bills that excess cost to the Company as additional rent. This additional rent is included in the net calculation of lease incentives, so that rent expense per square foot is recognized on a straight-line basis over the remaining term of occupancy. In September 2010, the Company amended the New Lease to include a small amount of additional space. All other terms and conditions of the amendment, inclusive of the landlord’s obligations to make certain improvements, are consistent with the New Lease.

The Company leases a sales and support office in Colorado under a lease agreement effective through April 2019 with three three-year extension options. The agreement contains certain lease incentives and payment escalations. The Company also leases small amounts of general office space in Florida, New York, California and the United Kingdom under lease agreements that expire at various dates through 2014.

Lease incentives, payment escalations and rent holidays specified in the lease agreements are accrued or deferred as appropriate such that rent expense per square foot is recognized on a straight-line basis over the terms of occupancy. At September 30, 2011 and December 31, 2010, the Company had both prepaid rent and accrued rent balances related to its office leases. The prepaid rent balance was $1,300 at September 30, 2011, of which $444 was included in prepaid expenses and other current assets and $856 was included in other assets. The accrued rent balance was $2,355 at September 30, 2011, of which $260 was included in accrued expenses and $2,095 was included in other long-term liabilities. The prepaid rent balance was $1,076 at December 31, 2010, of which $371 was included in prepaid expenses and other current assets and $705 was included in other assets. The accrued rent balance was $2,525 at December 31, 2010, of which $243 was included in accrued expenses and $2,282 was included in other long-term liabilities.

Total rent expense under office leases was $1,567 and $4,567 for the three and nine months ended September 30, 2011, respectively, and $1,265 and $3,611 for the three and nine months ended September 30, 2010, respectively.

As of September 30, 2011, future minimum lease payments under non-cancellable office leases are as follows:

Remainder of 2011		$	1,317
2012			5,567
2013			5,610
2014			5,631
2015			4,473
Thereafter			3,162
Total		$	25,760

Third-party Hosting Agreements

The Company has agreements with various vendors to provide specialized space and equipment and related services from which the Company hosts its software applications. In 2010, the Company signed a hosting facilities agreement in a new datacenter, which the Company began occupying in 2011. In the first quarter of 2011, the Company signed a new hosting facility agreement that superseded an existing hosting facilities agreement. The term was also extended for an additional three years from the original term.

Payment escalations and rent holidays specified in these agreements are accrued or deferred as appropriate such that rent expense per square foot is recognized on a straight-line basis over the terms of occupancy. At September 30, 2011, the Company had prepaid rent of $495, which was included in other assets.

The agreements include payment commitments that expire at various dates through mid-2017. As of September 30, 2011, future minimum payments under these non-cancellable agreements are as follows:

Remainder of 2011			1,005
2012			4,620
2013			3,385
2014			3,111
2015			3,204
Thereafter			4,076
Total		$	19,401

Vendor Commitments

As of September 30, 2011, the Company had issued both cancellable and non-cancellable purchase orders and entered into contractual commitments with various vendors totaling $7,032 related primarily to marketing programs and other non-marketing goods and services to be delivered over the next twelve months.

Letters of Credit and Restricted Cash

As of September 30, 2011 and December 31, 2010, the Company maintained a letter of credit totaling $750 for the benefit of the landlord of the Company’s corporate headquarters lease. The landlord can draw against the letter of credit in the event of default by the Company. The Company was required to maintain a cash balance of at least $750 as of September 30, 2011 and December 31, 2010, to secure the letter of credit. This amount was classified as restricted cash in the balance sheet at September 30, 2011 and December 31, 2010.

Indemnification Obligations

The Company enters into standard indemnification agreements with the Company’s channel partners and certain other third parties in the ordinary course of business. Pursuant to these agreements, the Company indemnifies and agrees to reimburse the indemnified party for losses incurred by the indemnified party in connection with certain intellectual property infringement and other claims by any third party with respect to the Company’s business and technology. Based on historical information and information known as of September 30, 2011, the Company does not expect it will incur any significant liabilities under these indemnification agreements.

Legal Matters

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of its business. The Company is not presently a party to any legal proceedings that, in its opinion, would have a material adverse effect on the Company’s business, results of operations or financial condition.

9. 401(k) Savings Plan

The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the plan may be made at the discretion of the Board of Directors. The Company elected to make matching contributions for the plan years ending December 31, 2011 and 2010 at a rate of 100% of each employee’s contribution up to a maximum matching contribution of 3% of the employee’s compensation and at a rate of 50% of each employee’s contribution in excess of 3% up to a maximum of 5% of the employee’s compensation.

Through September 30, 2011 and 2010, the Company made matching contributions of $1,450 and $1,275 for the plan years ended December 31, 2011 and 2010, respectively.