Talent acquisition is the sourcing, recruiting, screening and assessment of employees. Employee performance management is the systematic process by which an organization tracks, monitors and optimizes employee behavior and productivity, and evaluates performance through employee reviews, appraisals and business metrics. International Data Corporation, or IDC, estimated in 2004 that the worldwide market for e-recruiting and performance management applications will grow from approximately $460 million in 2003 to $1.1 billion by 2008, a 19% compound annual growth rate, and the worldwide market for human resources business process outsourcing will grow from approximately $6.9 billion in 2003 to $14.2 billion in 2008, a 16% compound annual growth rate.

Over the past two decades, many organizations have implemented software systems that systemize best practices and drive efficiency in most departments, including enterprise resource planning systems, customer relationship management systems and supply chain management systems. These software applications provide a wide array of benefits that both increase revenue growth and eliminate expenses. The human resources, or HR, departments of most of these organizations have only implemented HR information systems, which track basic employee information for payroll and benefits purposes, or rudimentary applicant tracking systems. Although these systems provide some level of automation, they do little to increase the effectiveness of talent acquisition and employee performance management programs.

Recent developments in technology have enabled software developers to offer enterprise software applications on an on-demand basis. Leveraging the Internet, multi-tiered architectures, advances in security and open standards for application integration, software vendors can offer software applications to their clients as a service, hosting the software on servers operated by the software vendor. Clients, using an Internet browser, access the applications, which are designed to be easily configured and integrated with a client’s existing applications. IDC estimated in 2004 the worldwide market for software-as-a-service will grow from approximately $3.0 billion in 2003 to $9.1 billion by 2008, a 24.6% compound annual growth rate.

In concert with providing talent acquisition and employment performance management solutions that enable organizations to implement best practices in these areas, the Company provides its clients with the option of outsourcing to the Company certain aspects of their staffing operations and recruiting campaigns, including the sourcing, recruiting, screening, assessment and on-boarding of employees. Acknowledging that organizations need to retain strategic control of their HR programs, the Company offers its clients the ability to outsource only the tactical components and design solutions that meet each client’s specific objectives. These solutions combine the Company’s services and technology in what it believes is an integrated delivery platform that allows organizations to manage fluctuation in hiring needs and leverage shared infrastructure to reduce costs.

The Company believes its employment process outsourcing, or EPO, services enable the Company’s clients to reduce operating costs, focus on their core business, create a variable cost structure around certain non-strategic HR functions, improve the quality of certain HR functions, foster innovation and obtain access to leading technology without the corresponding investment to own the technology themselves. Clients contract for the Company’s EPO services for a pre-determined period. The Company’s EPO services are provided in concert with its talent acquisition and employee performance management solutions and the Company has developed proprietary technology for large volume sourcing performed by its sourcing center in Hyderabad, India, enabling the Company to provide these services in an efficient and scalable manner.

Cost of revenue increased by 39.5% to $12.2 million for the year ended December 31, 2004 from $8.8 million for the year ended December 31, 2003.

Compensation and benefits expenses increased by 38.8% to $16.0 million for the year ended December 31, 2004 from $11.5 million for the year ended December 31, 2003.

Other selling, general and administrative expenses increased by 14.6% to $7.4 million for the year ended December 31, 2004 from $6.4 million for the year ended December 31, 2003.

Research and development expenses increased by 23.3% to $4.3 million for the year ended December 31, 2004 from $3.5 million for the year ended December 31, 2003.