SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
COMMISSION FILE NUMBER 000-29637
SELECTICA, INC.
(Exact Name of Registrant as Specified in Its Charter)
| DELAWARE | 77-0432030 |
| (State of Incorporation) | (IRS Employer Identification No.) |
1740 Technology Drive, Suite 460, San Jose, CA 95110-2111
(Address of Principal Executive Offices)
(408) 570-9700
(Registrant’s Telephone Number, Including Area Code)
Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| | | | |
| Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. YES ¨ NO x
The number of shares outstanding of the registrant’s common stock, par value $0.002 per share, as of August 9, 2010, was 2,812,604.
SELECTICA, INC.
INDEX
| PART I FINANCIAL INFORMATION | 4 |
| | | |
| ITEM 1: Financial Statements | 4 |
| | Condensed Consolidated Balance Sheets as of June 30, 2010 and March 31, 2010 | 4 |
| | Condensed Consolidated Statements of Operations for the three months ended June 30, 2010 and 2009 | 5 |
| | Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2010 and 2009 | 6 |
| | Notes to Condensed Consolidated Financial Statements | 7 |
| ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| ITEM 3: Quantitative and Qualitative Disclosures about Market Risk | 22 |
| ITEM 4T: Controls and Procedures | 23 |
| | | |
| PART II OTHER INFORMATION | 23 |
| | | |
| ITEM 1: Legal Proceedings | 23 |
| ITEM 1A: Risk Factors | 23 |
| ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| ITEM 3: Defaults Upon Senior Securities | 24 |
| ITEM 4: Removed and Reserved | 24 |
| ITEM 5: Other Information | 24 |
| ITEM 6: Exhibits | 25 |
| Signatures | 26 |
Cautionary Statement Pursuant to Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995
The words “Selectica”, “we”, “our”, “ours”, “us”, and the “Company” refer to Selectica, Inc. In addition to historical information, this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Item 1A to Part 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010. You should carefully review the risks described in other documents the Company files from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the forward-looking statements, including statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future, which speak only as of the date of this quarterly report on Form 10-Q. The Company undertakes no obligation to release publicly any updates to the forward-looking statements included herein after the date of this document.
PART I: FINANCIAL INFORMATION
| ITEM 1: | FINANCIAL STATEMENTS |
SELECTICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
| | | June 30, 2010 | | | March 31, 2010 | |
| | | (unaudited) | | | | |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 17,028 | | | $ | 16,957 | |
| Short-term investments | | | 198 | | | | 198 | |
| Accounts receivable, net of allowance for doubtful accounts of $171 and $301 | | | 3,118 | | | | 4,242 | |
| Prepaid expenses and other current assets | | | 671 | | | | 538 | |
| Total current assets | | | 21,015 | | | | 21,935 | |
| Property and equipment, net | | | 479 | | | | 536 | |
| Other assets | | | 24 | | | | 24 | |
| Total assets | | $ | 21,518 | | | $ | 22,495 | |
| | | | | | | | | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Current portion of note payable to Versata | | $ | 786 | | | $ | 786 | |
| Accounts payable | | | 838 | | | | 609 | |
| Restructuring liability | | | — | | | | 7 | |
| Accrued payroll and related liabilities | | | 462 | | | | 483 | |
| Other accrued liabilities | | | 66 | | | | 56 | |
| Deferred revenues | | | 3,574 | | | | 4,500 | |
| Total current liabilities | | | 5,726 | | | | 6,441 | |
| Note payable to Versata, net of current portion | | | 3,898 | | | | 4,036 | |
| Other long-term liabilities | | | 361 | | | | 27 | |
| Total liabilities | | | 9,985 | | | | 10,504 | |
| Stockholders’ equity: | | | | | | | | |
| Common stock | | | 4 | | | | 4 | |
| Additional paid-in capital | | | 265,825 | | | | 265,836 | |
| Accumulated deficit | | | (254,296 | ) | | | (253,849 | ) |
| Total stockholders’ equity | | | 11,533 | | | | 11,991 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 21,518 | | | $ | 22,495 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SELECTICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Revenues: | | | | | | |
| License | | $ | 836 | | | $ | 432 | |
| Services | | | 2,897 | | | | 2,783 | |
| | | | | | | | | |
| Total revenues | | | 3,733 | | | | 3,215 | |
| Cost of revenues: | | | | | | | | |
| License | | | 150 | | | | 51 | |
| Services | | | 1,195 | | | | 1,386 | |
| | | | | | | | | |
| Total cost of revenues | | | 1,345 | | | | 1,437 | |
| | | | | | | | | |
| Gross profit | | | 2,388 | | | | 1,778 | |
| Operating expenses: | | | | | | | | |
| Research and development | | | 764 | | | | 1,043 | |
| Sales and marketing | | | 1,038 | | | | 1,199 | |
| General and administrative | | | 971 | | | | 1,458 | |
| Shareholder litigation | | | 1 | | | | 5 | |
| Professional fees related to corporate governance review | | | — | | | | 347 | |
| Restructuring | | | — | | | | 824 | |
| | | | | | | | �� | |
| Total operating expenses | | | 2,774 | | | | 4,876 | |
| | | | | | | | | |
| Loss from operations | | | (386 | ) | | | (3,098 | ) |
| Interest and other income (expense), net | | | (57 | ) | | | (121 | ) |
| | | | | | | | | |
| Loss before provision for (benefit from) income taxes | | | (443 | ) | | | (3,219 | ) |
| Provision for (benefit from) income taxes | | | 4 | | | | (179 | ) |
| | | | | | | | | |
| Net loss | | $ | (447 | ) | | $ | (3,040 | ) |
| | | | | | | | | |
| Basic and diluted net loss per share | | $ | (0.16 | ) | | $ | (1.09 | ) |
| | | | | | | | | |
| Weighted-average shares of common stock used in computing basic and diluted net loss per share | | | 2,812 | | | | 2,779 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SELECTICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Operating activities | | | | | | | | |
| Net loss | | $ | (447 | ) | | $ | (3,040 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | |
| Depreciation and amortization | | | 79 | | | | 111 | |
| Loss on disposition of property and equipment | | | — | | | | 351 | |
| Stock-based compensation | | | 114 | | | | 83 | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable, net | | | 1,124 | | | | 1,835 | |
| Prepaid expenses and other current assets | | | (133 | ) | | | 894 | |
| Accounts payable | | | 229 | | | | (912 | ) |
| Restructuring liability | | | (7 | ) | | | (276 | ) |
| Accrued payroll and related liabilities | | | (21 | ) | | | (176 | ) |
| Other accrued liabilities and other long-term liabilities | | | 406 | | | | (367 | ) |
| Deferred revenues | | | (926 | ) | | | (537 | ) |
| | | | | | | | | |
| Net cash provided by (used in) operating activities | | | 418 | | | | (2,034 | ) |
| | | | | | | | | |
| Investing activities | | | | | | | | |
| Purchase of capital assets | | | (22 | ) | | | (35 | ) |
| Purchase of short-term investments | | | — | | | | (1 | ) |
| | | | | | | | | |
| Net cash used in investing activities | | | (22 | ) | | | (36 | ) |
| | | | | | | | | |
| Financing activities | | | | | | | | |
| Payments on note payable to Versata | | | (200 | ) | | | (200 | ) |
| Common stock issuance costs, net (See Note 6) | | | (125 | ) | | | (1,158 | ) |
| | | | | | | | | |
| Net cash used in financing activities | | | (325 | ) | | | (1,358 | ) |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 71 | | | | (3,428 | ) |
| Cash and cash equivalents at beginning of the period | | | 16,957 | | | | 23,256 | |
| | | | | | | | | |
| Cash and cash equivalents at end of the period | | $ | 17,028 | | | $ | 19,828 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The condensed consolidated balance sheet as of June 30, 2010, the condensed consolidated statements of operations for the three months ended June 30, 2010 and 2009, and the condensed consolidated statements of cash flows for the three months ended June 30, 2010 and 2009 have been prepared by the Company and are unaudited. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial position at June 30, 2010, and the results of operations and cash flows for the three months ended June 30, 2010 and 2009, respectively. Interim results are not necessarily indicative of the results for a full fiscal year. The condensed consolidated balance sheet as of March 31, 2010 has been derived from the audited consolidated financial statements at that date.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.
2. Summary of Significant Accounting Policies
There have been no material changes to any of the Company’s critical accounting policies and estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.
Customer Concentrations
A limited number of customers have historically accounted for a substantial portion of the Company’s revenues.
Customers who accounted for at least 10% of total revenues were as follows:
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Customer A | | | 15 | % | | | 17 | % |
| Customer B | | | 10 | % | | | 10 | % |
| Customer C | | | * | | | | 10 | % |
| Customer D | | | * | | | | 10 | % |
| | |
| * | Customer account was less than 10% of total revenues. |
Customers who accounted for at least 10% of net accounts receivable were as follows:
| | | June 30, 2010 | | | March 31, 2010 | |
| Customer A | | | 20 | % | | | 15 | % |
| Customer B | | | * | | | | 12 | % |
| Customer C | | | * | | | | 10 | % |
| Customer D | | | 11 | % | | | * | |
| | |
| * | Customer account was less than 10% of net accounts receivable. |
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
Fair Value Measurements
The following table summarizes the Company’s assets measured at fair value on a recurring basis in accordance with ASC Topic No. 820, Fair Value Measurements and Disclosures, as of June 30, 2010 (in thousands):
| | Balance as of June 30, 2010 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | |
| Cash equivalents: | | | | | | | | | |
| Money market fund | | $ | 15,053 | | | $ | 15,053 | | | $ | — | |
| Short-term investments: | | | | | | | | | | | | |
| Certificate of deposit | | | 198 | | | | — | | | | 198 | |
| | | | | | | | | | | | | |
| Total | | $ | 15,251 | | | $ | 15,053 | | | $ | 198 | |
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis in accordance with ASC 820 “Fair Value Measurements and Disclosures” as of June 30, 2009 (in thousands):
| | Balance as of June 30, 2009 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | |
| Cash equivalents: | | | | | | | | | |
| Money market fund | | $ | 17,047 | | | $ | 17,047 | | | $ | — | |
| Short-term investments: | | | | | | | | | | | | |
| Certificate of deposit | | | 197 | | | | — | | | | 197 | |
| | | | | | | | | | | | | |
| Total | | $ | 17,244 | | | $ | 17,047 | | | $ | 197 | |
The Company’s financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. As of June 30, 2010 and 2009, the Company did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (Level 3).
Comprehensive Loss
Comprehensive loss equaled net loss for the three months ended June 30, 2010 and 2009, respectively.
Segment Information
The Company operates as one business segment and therefore segment information is not presented.
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
3. Income Taxes
On April 1, 2007, the Company adopted the provisions of FASB Accounting Standards Codification (ASC 740-10), “Accounting for Uncertainty in Income Taxes.” In connection with the adoption, the Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.
At June 30, 2010, the Company had $1.9 million of unrecognized tax benefits. As these unrecognized tax benefits relate to deferred tax assets with a full valuation allowance, there will be no effect on the Company’s effective tax rate if these amounts are recognized.
The Company’s Federal, state, and foreign tax returns may be subject to examination by the tax authorities from 1997 to 2009 due to net operating losses and tax carryforwards unutilized from such years.
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
4. Stock-Based Compensation
Equity Incentive Program
The Company’s equity incentive program is a broad-based, retention program comprised of stock options, restricted stock units and an employee stock purchase plan designed to align stockholder and employee interests. For a description of the Company’s equity plans, see the notes to consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.
There were 32,000 restricted stock units granted during the three months ended June 30, 2010.
Valuation Assumptions
The Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Risk-free interest rate | | | 1.04 | % | | | 1.72 | % |
| Dividend yield | | | 0.00 | % | | | 0.00 | % |
| Expected volatility | | | 83.29 | % | | | 71.67 | % |
| Expected option life in years | | | 3.09 | | | | 3.17 | |
| Weighted average fair value at grant date | | $ | 3.22 | | | $ | — | |
The following table summarizes activity under the equity incentive plans for the indicated periods:
| | | | | | Options Outstanding | |
| | | Shares available for grant | | | Number of shares | | | Weighted-average exercise price | |
| | | (in thousands except for per share amount) | | | | |
| Outstanding at March 31, 2010 | | | 1,551 | | | | 112 | | | $ | 21.86 | |
| Options granted | | | (37 | ) | | | 37 | | | | 5.93 | |
| Restricted stock units granted | | | (32 | ) | | | — | | | | — | |
| Options cancelled | | | 3 | | | | (3 | ) | | | 15.05 | |
| Options expired | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Outstanding at June 30, 2010 | | | 1,485 | | | | 146 | | | $ | 17.78 | |
The weighted average term for exercisable options is 4.91 years. The intrinsic value is calculated as the difference between the market value as of June 30, 2010 and the exercise price of the shares. The market value of the Company’s common stock as of June 30, 2010 was $5.50 as reported by the NASDAQ Global Market. The aggregate intrinsic value of stock options outstanding at June 30, 2010 and 2009 was $2,325 and $9,600, respectively.
The options outstanding and exercisable at June 30, 2010 were in the following exercise price ranges:
| | | Options Outstanding | | | Options Vested | |
Range of Exercise Prices per share | | Number of Shares | | | Weighted-Average Remaining Contractual Life (in years) | | | Number of Shares | | | Weighted-Average Exercise Price per share | |
| | | (in thousands except for per share amount) | |
| $5.20 — $5.40 | | | 8 | | | | 9.51 | | | | 2 | | | $ | 5.20 | |
| $5.93 — $5.93 | | | 37 | | | | 9.58 | | | | — | | | | — | |
| $7.20 — $16.10 | | | 30 | | | | 5.44 | | | | 14 | | | | 11.07 | |
| $17.00 — $18.90 | | | 31 | | | | 6.25 | | | | 25 | | | | 18.25 | |
| $24.50 — $338.94 | | | 40 | | | | 3.36 | | | | 40 | | | | 36.81 | |
| | | | | | | | | | | | | | | | | |
| $5.20 — $338.94 | | | 146 | | | | 6.32 | | | | 81 | | | $ | 25.84 | |
The effect of recording stock-based compensation expense for each of the periods presented was as follows (in thousands):
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Cost of revenues | | $ | 12 | | | $ | 18 | |
| Research and development | | | 10 | | | | 3 | |
| Sales and marketing | | | 18 | | | | 20 | |
| General and administrative | | | 74 | | | | 42 | |
| Impact on net loss | | $ | 114 | | | $ | 83 | |
As of June 30, 2010, the unrecorded share-based compensation balance related to stock options outstanding excluding estimated forfeitures was $1.03 million and will be recognized over an estimated weighted average amortization period of 2.8 years. The amortization period is based on the expected remaining vesting term of the options.
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
The weighted average remaining contractual term of all options exercisable at June 30, 2010 is 4.62 years. Forfeitures are estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. Based on the Company’s estimates of future forfeiture rates, the Company has assumed an annualized forfeiture rate of 21.71% for its options.
1999 Employee Stock Purchase Plan (“ESPP”)
The price paid for the Company’s common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for the three months ended June 30, 2010 and 2009 was $11,956 and $6,123, respectively. During the three months ended June 30, 2010 and 2009, there were no shares issued under the ESPP.
The Company calculated the fair value of rights granted under its employee stock purchase plan at the date of grant using the following weighted average assumptions:
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Risk-free interest rate | | | 1.53 | % | | | 2.19 | % |
| Dividend yield | | | 0.00 | % | | | 0.00 | % |
| Expected volatility | | | 69.52 | % | | | 41.49 | % |
| Expected life in years | | | 1.64 | | | | 1.24 | |
| Weighted average fair value at grant date | | $ | 10.60 | | | $ | 5.20 | |
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
5. Computation of Basic and Diluted Net Loss per Share
Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period.
The Company excludes potentially dilutive securities from its diluted net loss per share computation when their effect would be antidilutive to net loss per share amounts. The following common stock equivalents were excluded from the net loss per share computation:
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| | | (In thousands) | |
| Options excluded due to the exercise price exceeding the average fair market value of the Company’s common stock during the period | | | 125 | | | | 120 | |
| Options excluded for which the exercise price was at or less than the average fair market value of the Company’s common stock during the period but were excluded as inclusion would decrease the Company’s net loss per share | | | 7 | | | | 11 | |
| | | | | | | | | |
| Total common stock equivalents excluded from diluted net loss per common share | | | 132 | | | | 131 | |
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
6. Litigation and Contingencies
Rights Agreement
On December 22, 2008, the Company filed suit in the Court of Chancery of the State of Delaware against Trilogy, Inc. and certain related parties (“Trilogy”) seeking declaratory relief that the Company’s Rights Agreement as amended on November 16, 2008 was an appropriate measure to protect a valuable asset – the Company’s net operating loss carryforwards and related tax credits – from being limited as to utilization as provided under Section 382 of the Internal Revenue Code (IRC) which could in turn substantially reduce the value of that asset to all of the Company’s shareholders. The Company sued Trilogy after (i) it amended the Rights Agreement on November 16, 2008 to reduce the ownership threshold from 15% to 4.99% , with existing 5% or greater shareholders limited to acquiring no more than an additional 0.5% and (ii) despite the ownership threshold, Trilogy increased its beneficial ownership by 0.51% to 6.71% as announced in its 13(d) filing with the SEC on December 22, 2008. As a result, on January 2, 2009, a special committee of the Company’s Board of Directors declared Trilogy an “Acquiring Person” under the Rights Agreement, exchanged the rights (other than those belonging to Trilogy) for new shares of common stock under the Exchange Provision in the Rights Agreement, adopted an amended Rights Agreement and declared a new dividend of rights under the amended Rights Agreement. On January 16, 2009, the defendants in this action, Trilogy, filed an answer to the Company’s complaint and a counterclaim alleging that the Company’s Board of Directors had breached fiduciary duties in amending the Rights Agreement, in exchanging the rights, in adopting the amended Rights A greement and in declaring a new dividend of rights. The Company, and its Board of Directors, believes that the actions taken were lawful and appropriate under the circumstances and in the interest of all the Company’s shareholders and therefore the allegations of the counterclaim were without merit. The counterclaim asked for various measures of equitable relief and also included a claim for punitive or exemplary damages, which are not available in Delaware. The case was tried in the Delaware Court of Chancery in 2009. On February 26, 2010, the Delaware Court of Chancery issued a memorandum opinion that determined, among other things (i) that the actions taken by the Company’s Board of Directors and its special committee were lawful and appropriate under the circumstances, and (ii) that Trilogy was not entitled to relief for its counterclaims. An appeal from this decision has been filed with the Delaware Supreme Court. A decision on the appeal is expect ed in the third or fourth calendar quarter of 2010. As the costs of this litigation and related legal work are directly related to the issuance of shares under the Company’s rights plan, these costs have been charged as issuance costs against the additional paid-in capital (APIC) account on the Company’s balance sheet, less a reserve for both received and anticipated recoveries from the Company’s Director’s and Officer’s insurance policy. Anticipated recoveries are reflected in prepaid expenses and other current assets on the Company’s balance sheet.
The following table reflects the total charges to APIC for the periods indicated (in thousands):
| | | Quarter Ended June 30, 2010 | | | Year Ended March 31, 2010 and 2009 | | | Total | |
| Gross legal and related costs incurred | | $ | 240 | | | $ | 5,051 | | | $ | 5,291 | |
| Less: received and anticipated reimbursement | | | (115 | ) | | | (1,696 | ) | | | (1,811 | ) |
| Net amounts charged to APIC | | $ | 125 | | | $ | 3,355 | | | $ | 3,480 | |
If the Company determines it is probable that it will ultimately be unsuccessful in its litigation efforts relating to the rights offering, the net amounts charged to APIC will be reversed and recorded as an operating expense in the period such determination is made.
7. Restructuring
During the three months ended June 30, 2010, the Company did not record any restructuring charges. On June 10, 2009, the Company announced that it implemented a re-alignment and restructuring, reducing headcount from 64 at March 31, 2009 to 54 as of June 30, 2009. The Company recorded charges of approximately $0.8 million during the three months ending June 30, 2009, related primarily to severance arrangements and to the write-off of leasehold improvements at its corporate headquarters. The Company began occupying new space in its current building effective August 17, 2009.
SELECTICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(UNAUDITED)
The restructuring accrual and the related utilization for the fiscal years ended March 31, 2009 and 2010, and for the three months ended June 30, 2010, respectively, were as follows (in thousands):
| | | Severance and Benefits | | | Excess Facilities | | | Total | |
| Balance, March 31, 2008 | | $ | 126 | | | $ | 2,705 | | | $ | 2,831 | |
| Additional accruals (adjustments) | | | 661 | | | | (143 | ) | | | 518 | |
| Amounts paid in cash | | | (735 | ) | | | (1,812 | ) | | | (2,547 | ) |
| Loan repayment from Sublessee | | | — | | | | 463 | | | | 463 | |
| Balance, March 31, 2009 | | | 52 | | | | 1,213 | | | | 1,265 | |
| Additional accruals | | | 608 | | | | 637 | | | | 1,245 | |
| Amounts paid in cash | | | (653 | ) | | | (1,850 | ) | | | (2,503 | ) |
| Balance, March 31, 2010 | | | 7 | | | | — | | | | 7 | |
| Additional accruals | | | — | | | | — | | | | — | |
| Amounts paid in cash | | | (7 | ) | | | — | | | | (7 | ) |
| Balance, June 30, 2010 | | $ | — | | | $ | — | | | $ | — | |
8. Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board “FASB” issued the authoritative guidance to eliminate the historical GAAP hierarchy and establish only two levels of U.S. GAAP, authoritative and non-authoritative. When launched on July 1, 2009, the FASB Accounting Standards Codification (ASC) became the single source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The issuance of new standards is now in the form of Accounting Standards Updates that are included in the ASC. This authoritative guidance was effective for financial statements for interim or annual reporting periods ended after September 15, 2009. The Company adopted the new codification in the second quarter of fiscal 2010 and it did not have any impact on the Company’s condensed consolidated financial statements.
In September 2009, FASB amended the ASC as summarized in Accounting Standards Update (“ASU”) 2009-13, “Revenue Recognition (ASC 605): Multiple-Deliverable Revenue Arrangements.” Guidance in ASC 605-25 on revenue arrangements with multiple deliverables has been amended to require an entity to allocate revenue to deliverables in an arrangement using its best estimate of selling prices if the vendor does not have vendor-specific objective evidence or third-party evidence of selling prices, and to eliminate the use of the residual method and require the entity to allocate revenue using the relative selling price method. The new guidance also requires expanded quantitative and qualitative disclosures about revenue from arrangements with mu ltiple deliverables. The update is effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. Adoption may either be on a prospective basis for new revenue arrangements entered into after adoption of the update, or by retrospective application. The Company is assessing the potential impact of the update on its consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements.” This update will require (1) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (2) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements for related to the purchases, sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements. Those disclosure requirements are effective for fiscal years ending after December 31, 2010. The Company is still assessing the impact on this guidance and does not believe the adoption of this guidance will have a material impact to its consolidated financial statements.
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In addition to historical information, this quarterly report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in the “Risk Factors” in Item 1A to Part 1 to the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2010 (the “Form 10-K”). They include the following: the level of demand for Selectica’s products and services; the intensity of competition; Selectica’s ability to effectively m anage product transitions and to continue to expand and improve internal infrastructure; risks associated with potential acquisitions; and adverse financial, customer and employee consequences that might result to us if litigation were to be resolved in an adverse manner to us. For a more detailed discussion of the risks relating to our business, readers should refer to 1A to Part 1 in the Form 10-K entitled “Risks Factors.” Readers are cautioned not to place undue reliance on the forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future, which speak only as of the date of this quarterly report. We assume no obligation to update these forward-looking statements.
Overview
We provide Contract Management (CM) and Sales Configuration (SCS) software solutions that allow enterprises to efficiently manage business processes. Our solutions include software, on demand hosting, professional services and expertise.
Our CM products enable customers to create, manage and analyze contracts in a single, easy to use repository and are offered as an on-premise or hosted solution. Our software enables any and all corporate departments (e.g. Sales, Services, Procurement, Finance, IT and others) to model their specific contracting processes using our application and to manage the lifecycle of the department’s relationships with the counterparty from creation through closure.
Our SCS products enable customers to increase revenues and reduce costs through seamless, web-enabled automation of the “quote to contract” business processes, which reside between legacy Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems. These products are built using Java technology and utilize a unique business logic engine, repository, and a multi-threaded architecture. This design reduces the amount of memory used to support new user sessions and to deploy a cost-effective, robust and highly scalable, Internet-enhanced sales channel.
Quarterly Financial Overview
For the three months ended June 30, 2010, our revenues were approximately $3.7 million with license revenues representing 22% and services revenues representing 78% of total revenues. In addition, approximately 33% of our quarterly revenues came from three customers. License margins for the quarter were 82% and services margins were 59%. Net loss for the quarter was approximately $0.4 million or $(0.16) per share. For the three months ended June 30, 2009, our revenues were approximately $3.2 million with license revenues representing 13% and service revenues representing 87% of total revenues. In addition, approximately 36% of our quarterly revenues came from three customers. License margins for the quarter were 88% and service margins were 50%. Net loss for the quarter was approximately $3.0 million or $(1.09) per sha re, which included charges of approximately $0.8 million related primarily to severance arrangements and to the write-off of leasehold improvements at our corporate headquarters.
Critical Accounting Policies and Estimates
There have been no material changes to any of our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended March 31, 2010.
Factors Affecting Operating Results
A small number of customers account for a significant portion of our total revenues. We expect that our revenues will continue to depend upon a limited number of customers. If we were to lose a large customer, it would have a significant impact upon future revenues. Customers who accounted for at least 10% of total revenues were as follows:
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| Customer A | | | 15 | % | | | 17 | % |
| Customer B | | | 10 | % | | | 10 | % |
| Customer C | | | * | | | | 10 | % |
| Customer D | | | * | | | | 10 | % |
| * | Customer account was less than 10% of total revenues. |
We have incurred significant losses since inception and, as of June 30, 2010, we had an accumulated deficit of approximately $254 million. We believe our success depends on the growth of our customer base and the development of the emerging contract management and compliance markets and the stability of our sales configuration customer base.
We believe that period-to-period comparisons of revenues and operating results are not necessarily meaningful and should not be relied upon as indications of future performance. Our operating results have historically been dependent on a few significant customer transactions which make predicting future performance difficult.
Because our services tend to be specific to each customer and how that customer will use our products, and because each customer sets different acceptance criteria, it is difficult for us to accurately forecast the amount of revenue that will be recognized on any particular customer contract during any quarter or fiscal year. As a result, we base our revenue estimates, and our determination of associated expense levels, on our analysis of the likely revenue recognition events under each contract during a particular period. Although the value of customer contracts signed during any particular quarter or fiscal year is not an accurate indicator of revenues that will be recognized during any particular quarter or fiscal year, in general, if the value of customer contracts signed in any particular quarter or fiscal year is lower than expected, revenue recognized in future quarters and fiscal years will likely be negatively affected.
Results of Operations:
Revenues
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | | | Change | |
| | | (in thousands, except percentages) | |
| License | | $ | 836 | | | $ | 432 | | | $ | 404 | |
| Percentage of total revenues | | | 22 | % | | | 13 | % | | | 94 | % |
| Services | | $ | 2,897 | | | $ | 2,783 | | | $ | 114 | |
| Percentage of total revenues | | | 78 | % | | | 87 | % | | | 4 | % |
| Total revenues | | $ | 3,733 | | | $ | 3,215 | | | $ | 518 | |
License. License revenues consist of revenue from licensing our software products. For the three months ending June 30, 2010, license revenues increased $0.4 million compared to the three months ending June 30, 2009 primarily due to a greater number of license transactions in our CM product, partially offset by lower average selling prices. We expect license revenues to continue to fluctuate in future periods as a percentage of total revenues and in absolute dollars depending on the number and size of new license contracts.
Services. Services revenues are comprised of fees from consulting, maintenance, hosting, training, subscription revenues and out-of-pocket reimbursements. During the three months ended June 30, 2010, services revenues increased $0.1 million compared to the three months ended June 30, 2009 primarily due to higher maintenance revenues from a larger number of CM customers. Maintenance revenues represented 54% and 52% of total services revenues for the three months ended June 30, 2010 and 2009, respectively.
We expect services revenues to continue to fluctuate in future periods as a percentage of total revenues and in absolute dollars. This will depend on the number and size of new software implementations and follow-on services to our existing customers. We expect maintenance revenues to fluctuate in absolute dollars and as a percentage of services revenues based on the number of maintenance renewals, and number and size of new contracts. In addition, maintenance renewals are extremely dependent upon customer satisfaction and the level of need to make changes or upgrade versions of our software by our customers. Fluctuations in services revenues are also due to timing of revenue recognition, achievement of milestones, customer acceptance, changes in scope, and additional services.
Cost of revenues
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | | | Change | |
| | | (in thousands, except percentages) | |
| Cost of license revenues | | $ | 150 | | | $ | 51 | | | $ | 99 | |
| Percentage of license revenues | | | 18 | % | | | 12 | %�� | | | 194 | % |
| Cost of services revenues | | $ | 1,195 | | | $ | 1,386 | | | $ | (191 | ) |
| Percentage of services revenues | | | 41 | % | | | 50 | % | | | (14 | )% |
Cost of License Revenues. Cost of license revenues consists primarily of a fixed allocation of our research and development costs, and costs of purchased third party licenses sold to customers as part of a bundled arrangement. During the three months ended June 30, 2010, cost of license revenues increased by $0.1 million compared to the three months ended June 30, 2009 primarily due to the delivery of third party licenses sold to a customer. We expect cost of license revenues to maintain a relatively consistent level in absolute dollars in fiscal 2011.
Cost of Services Revenues. Cost of services revenues is comprised mainly of salaries and related expenses of our services organization, our data center costs, plus certain allocated expenses. During the three months ended June 30, 2010, these costs decreased $0.2 million or 14% compared to the same period in 2009 primarily due to reductions in the use of outside contractors.
We expect cost of services revenues to fluctuate as a percentage of service revenues, and we plan to reduce cost of services revenues in absolute dollars over the next year as necessary to balance expense levels with projected revenues.
Gross Margins
Gross margin percentages for services revenues and license revenues for the respective periods are as follows:
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| License | | | 82 | % | | | 88 | % |
| Services | | | 59 | % | | | 50 | % |
Gross Margin — Licenses. Because we have certain license costs that are fixed, margins will vary based on gross license revenue, the nature of the license agreements and product mix. Gross margin decreased to 82% for the three months ended June 30, 2010 compared to 88% for the three months ended June 30, 2009. This was primarily due to an increase in cost of license revenues year over year resulting from the sale of third party licenses to a customer.
Gross Margin — Services. During the three months ended June 30, 2010, gross margin from services increased to 59% compared to 50% for the three months ended June 30, 2009. This increase was largely due to a combination of higher services revenues year over year, and a decrease in cost of services revenues year over year primarily due to reductions in the use of outside contractors.
We expect that our overall gross margins will continue to fluctuate due to the timing of services and license revenue recognition and will continue to be adversely affected by lower margins associated with services revenues. The impact on our gross margin will depend on the mix of services we provide, whether the services are performed by our in-house staff or third party consultants, and the overall utilization rates of our professional services organization.
Operating Expenses
Research and Development Expenses
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | | | Change | |
| | | (in thousands, except percentages) | |
| Research and development | | $ | 764 | | | $ | 1,043 | | | $ | (279 | ) |
| Percentage of total revenues | | | 20 | % | | | 32 | % | | | (27 | )% |
Research and development expenses consist primarily of salaries and related costs of our engineering, quality assurance, technical publication efforts and certain allocated expenses. Research and development expenses decreased $0.3 million during the three months ending June 30, 2010 compared to the same period in 2009. These decreases are primarily due to reductions in the use of outside contractors as well as our reduction in force near the end of the first quarter of fiscal year 2010, which resulted in lower compensation expenses.
We expect research and development expenditures to increase modestly in absolute dollars over the next year as we continue development in our CM products and integrate with tools provided by third parties.
Sales and Marketing
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | | | Change | |
| | | (in thousands, except percentages) | |
| Sales and marketing | | $ | 1,038 | | | $ | 1,199 | | | $ | (161 | ) |
| Percentage of total revenues | | | 28 | % | | | 37 | % | | | (13 | )% |
Sales and marketing expenses consist primarily of salaries and related costs for our sales and marketing organization, sales commissions, expenses for travel and entertainment, trade shows, public relations, collateral sales materials, advertising and certain allocated expenses. For the three months ended June 30, 2010, sales and marketing expenses decreased $0.2 million compared to the same period in 2009 primarily due to reductions in the use of outside services including advertising and trade show expenses, as well as our reduction in force near the end of the first quarter of fiscal year 2010, which resulted in lower compensation expenses. We expect modest reductions in sales and marketing expenses in fiscal 2011 as a percentage of total revenues.
General and Administrative
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | | | Change | |
| | | (in thousands, except percentages) | |
| General and administrative | | $ | 971 | | | $ | 1,458 | | | $ | (487 | ) |
| Percentage of total revenues | | | 26 | % | | | 45 | % | | | (33 | )% |
General and administrative expenses consist mainly of personnel and related costs for general corporate functions, including finance, accounting, legal, human resources, bad debt expense and certain allocated expenses. General and administrative expenses decreased by approximately $0.5 million in the three months ended June 30, 2010 compared to the same period in 2009, primarily due to decreases in the use of outside services and consultants, as well as significant cost reductions in legal expenses.
Professional Fees Related to Corporate Governance Review and Restructuring
| | Three Months Ended June 30, | |
| | 2010 | | 2009 | | Change | |
| | (in thousands, except percentages) | |
| Professional fees related to corporate governance review | | $ | — | | | $ | 347 | | | $ | (347 | ) |
| Percentage of total revenues | | | — | % | | | 11 | % | | | (100 | )% |
| Restructuring | | $ | — | | | $ | 824 | | | $ | (824 | ) |
| Percentage of total revenues | | | — | % | | | 26 | % | | | (100 | )% |
The corporate governance review was initiated in fiscal year 2010 as a result of internal initiatives and matters that were raised during the course of our litigation with Trilogy, Inc. We have, from time to time, realigned or restructured our costs to better fit the sales and customer model in place at the time. During the three months ended June 30, 2009, our restructuring expenses related to employee severances and to write offs of leasehold improvements in the headquarters facility that we ceased to occupy on August 17, 2009. There were no restructuring expenses during the three months ended June 30, 2010.
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest earned on cash balances and short-term investments, interest expense on our note payable to Versata, foreign currency fluctuations, and other miscellaneous expenditures. During the three months ended June 30, 2010 and 2009, interest and other income (expense), net totaled $57,000 and $121,000, respectively. The expense reductions are due to additional one time miscellaneous expenditures in the prior fiscal year from the sale of our Indian subsidiary on March 31, 2009. For more information on the sale of the Indian subsidiary, see Footnote 15 in our Annual Report on Form 10-K for the year ending March 31, 2009.
Provision for Income Taxes
During the three months ended June 30, 2010 and 2009, we recorded an income tax provision (benefit) of approximately $4,000 and ($179,000), respectively. The June 30, 2010 amount relates to nominal state minimum and franchise taxes and the June 30, 2009 amount relates to federal refundable R&D credit benefits and nominal state minimum and franchise taxes.
Liquidity and Capital Resources
| | | June 30, 2010 | | | March 31, 2010 | |
| | | (in thousands) | |
| Cash, cash equivalents and short-term investments | | $ | 17,226 | | | $ | 17,155 | |
| Working capital | | $ | 15,289 | | | $ | 15,494 | |
| | | Three Months Ended June 30, | |
| | | 2010 | | | 2009 | |
| | | (in thousands) | |
| Net cash provided by (used in) operating activities | | $ | 418 | | | $ | (2,034 | ) |
| Net cash used in investing activities | | $ | (22 | ) | | $ | (36 | ) |
| Net cash used in financing activities | | $ | (325 | ) | | $ | (1,358 | ) |
Our primary sources of liquidity consisted of approximately $17.2 million in cash, cash equivalents and short-term investments as of June 30, 2010 compared to approximately $17.2 million in cash, cash equivalents and short-term investments as of March 31, 2010.
Net cash provided by operating activities was $0.4 million for the three months ended June 30, 2010, resulting primarily from improved operating results, a $1.1 million decrease in accounts receivable, net resulting from strong cash collection efforts during the quarter, and a $0.2 million increase in accounts payable. These increases were partially offset by a $0.9 million decrease in deferred revenues.
Net cash used in operating activities was $2.0 million for the three months ended June 30, 2009, resulting primarily from our net loss of $3.0 million, and a $0.9 million decrease in accounts payable. These decreases in cash flows from operating activities were partially offset by a $1.8 million decrease in accounts receivable, net.
Net cash used in investing activities was not significant for the three months ended June 30, 2010 and 2009, respectively.
As a result of current adverse financial market conditions, investments in some financial instruments may pose risks arising from liquidity and credit concerns. Although we believe our current investment portfolio has very little risk of impairment, we cannot predict future market conditions or market liquidity and can provide no assurance that our investment portfolio will remain unimpaired.
Net cash used in financing activities was $0.3 million for the three months ended June 30, 2010, resulting from $0.1 million in costs to defend our Rights Agreement, as well as $0.2 million of payments on our note payable to Versata.
Net cash used in financing activities was $1.4 million for the three months ended June 30, 2009, resulting from $1.2 million in costs to defend our Rights Agreement, as well as $0.2 million of payments on our note payable to Versata.
We expect to incur significant operating costs for the foreseeable future. We expect to fund our operating costs, as well as our future capital expenditures and liquidity needs, from a combination of available cash balances and internally generated funds. We have no outside debt other than our note payable to Versata, and do not have any plans to enter into borrowing arrangements. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenues, our ability to manage costs and ongoing legal proceedings.
We believe our cash, cash equivalents, and short-term investment balances as of June 30, 2010 are adequate to fund our operations through at least June 30, 2011. However, given the significant changes in our business and results of operations in the last 12 months, the fluctuation in cash and investment balances may be greater than presently anticipated. After the next 12 months, we may find it necessary to obtain additional funds. In the event additional funds are required, we may not be able to obtain additional financing on favorable terms or at all.
Contractual Obligations
We had no significant commitments for capital expenditures as of June 30, 2010.
We do not anticipate any significant capital expenditures, payments due on long-term obligations other than our note payable to Versata, or other contractual obligations. However, management is continuing to review our cost structure to minimize expenses and use of cash as we implement our planned business model changes. This activity may result in additional restructuring charges or severance and other benefits.
Our contractual obligations and commercial commitments at June 30, 2010, are summarized as follows:
| | | Payments Due By Period | | | |
| | Total | | Less Than 1 Year | | 1-3 Years | | 4-5 Years | | After 5 Years | |
| | | (in thousands) | |
| Operating leases | | | $ | 220 | | | $ | 165 | | | $ | 55 | | | $ | — | | | $ | — | |
| Versata note | | | | 4,684 | | | | 786 | | | | 2,006 | | | | 1,338 | | | | 554 | |
| Total | | | $ | 4,904 | | | $ | 951 | | | $ | 2,061 | | | $ | 1,338 | | | $ | 554 | |
| ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.
| ITEM 4T: | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including the President and Chief Operating Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the period ending June 30, 2010. Based upon this evaluation our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act that was conducted during the quarter ended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
In the future we may be subject to other lawsuits, including claims relating to intellectual property matters or securities laws. Any litigation, even if not successful against us, could result in substantial costs and divert management’s and other resources away from the operations of our business. If successful against us, we could be liable for large damage awards and, in the case of patent litigation, subject to injunctions that significantly harm our business.
Not applicable.
ITEM 2: | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Purchases of Equity Securities by the Issuer
We have granted shares of restricted common stock that allow statutory tax withholding obligations incurred upon vesting of those shares to be satisfied by forfeiting a portion of those shares to us. The following table shows the shares acquired by us upon forfeiture of restricted shares during the quarter ended June 30, 2010.
ISSUER PURCHASES OF EQUITY SECURITIES
| | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans or Program |
| April 1, 2010—April 30, 2010 | | — | | $ | — | | — | | — |
| May 1, 2010—May 31, 2010 | | 269 | | | 6.10 | | — | | — |
| June 1, 2010—June 30, 2010 | | — | | | — | | — | | — |
| Total | | 269 | | $ | 6.10 | | — | | — |
| ITEM 3: | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
ITEM 4: | REMOVED AND RESERVED. |
Not applicable.
Exhibit | | |
| | |
| 31.1 | | Certification of President and Chief Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1 | | Certification of President and Chief Operating Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 16, 2010
| | |
| |
| Todd Spartz | |
| Chief Financial Officer | |
EXHIBIT INDEX
Exhibit | | |
| | |
| 31.1 | | Certification of President and Chief Operating Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.1 | | Certification of President and Chief Operating Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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