UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2014 |
☐ | 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: 0-29637
SELECTICA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 77-0432030 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
2121 South El Camino Real, 10th Floor, San Mateo, CA 94403
(Address of Principal Executive Offices)
(650) 532-1500
(Registrant’s Telephone Number)
Securities registered under Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange On Which Registered |
Common Stock, $0.0001 par value per share | The NASDAQ Capital Market |
Securities registered under Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by 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 ☒ 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of September 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of $5.56 per share as reported by The NASDAQ Capital Market on that date, was $12,078,705.
As of June 19, 2014, the registrant had 5,474,067 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference from information to be filed with the Securities and Exchange Commission in the registrant’s definitive proxy statement for its 2014 Annual Meeting of Stockholders (the “Proxy Statement”) or in an amendment to this Annual Report on Form 10-K within 120 days of the registrant’s fiscal year ended March 31, 2014. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof.
SELECTICA, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
MARCH 31, 2014
Table of Contents
| | |
Part I |
Item 1 | Business | 1 |
Item 1A | Risk Factors | 5 |
Item 1B | Unresolved Staff Comments | 13 |
Item 2 | Properties | 13 |
Item 3 | Legal Proceedings | 13 |
Item 4 | Mine Safety Disclosures | 13 |
|
Part II |
Item 5 | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 14 |
Item 6 | Selected Financial Data | 16 |
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 21 |
Item 8 | Financial Statements and Supplementary Data | 21 |
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 48 |
Item 9A | Controls and Procedures | 48 |
Item 9B | Other Information | 49 |
|
Part III |
Item 10 | Directors, Executive Officers and Corporate Governance | 49 |
Item 11 | Executive Compensation | 49 |
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 49 |
Item 13 | Certain Relationships and Related Transactions, and Director Independence | 49 |
Item 14 | Principal Accounting Fees and Services | 49 |
|
Part IV |
Item 15 | Exhibits and Financial Statement Schedules | 49 |
| SIGNATURES | 51 |
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. This Annual Report on Form 10-K (the “10-K” or Report) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of ours and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. These forward-looking statements include statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K and in our other Securities and Exchange Commission (the “SEC”) filings. Furthermore, such forward-looking statements speak only as of the date of this Report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
PART I
Item 1. Business
OVERVIEW
We provide cloud-based software solutions that help companies close deals faster, with less cost, and with lower risk. Selectica Contract Lifecycle Management (“CLM”) combines a single, company-wide contract repository with a flexible workflow engine capable of supporting each organization’s unique contract management processes. Our cloud-based solution streamlines contract processes, from request, authoring, negotiation, and approval through ongoing obligations management, analysis, reporting, and renewals. CLM helps companies take control of their contract processes by converting from paper-based to electronic repositories and by unlocking multiple layers of critical business data, making it available for the evaluation of risk, the exposure of lost revenue, the evaluation of supplier performance, and other purposes. The solution helps to improve the customer buying experience for sales organizations, improve the control of risk and decrease time spent drafting, monitoring and managing contracts, and gain access to previously hidden discounts through the exposure and elimination of unfavorable agreements for procurement and sourcing organizations.
Selectica Configured Price Quote (“CPQ”) streamlines the management and dissemination of complex product information, enabling companies to streamline the opportunity-to-order process for manufacturers, service providers, and financial services companies. Our CPQ solution can be seamlessly integrated with leading CRM systems, as well as ERP systems like Oracle and SAP, to ensure that the latest product, customer, and pricing data is always being used. This helps to simplify and automate the configuration, pricing, and quoting of complex products and services. By empowering customers, product management, marketing, sales leadership, sales operations, salespeople, and channel partners to generate error-free sales proposals for their unique requirements, we believe our cloud-based solution helps companies to close sales faster, accelerate revenue generation and enhance customer relationships.
Along with our software, we provide our customers with an array of services to assist them in implementations, customizations, system upgrades, migrations, and solution architecture.
Selectica was incorporated in California in June 1996 and re-incorporated in Delaware in November 1999. The company’s principal executive offices are located at 2121 South El Camino Real 10th Floor, San Mateo, California, 94403 and its website is www.selectica.com.
SELECTICA PRODUCTS
Selectica Contract Lifecycle Management
Selectica Contract Lifecycle Management (CLM) automates the entire contract lifecycle—from initial request through contract renewal. We believe that our cloud solutions offer a high degree of flexibility, enabling customers across many departments (e.g., sales, services, procurement, finance, IT, leasing, intellectual property, and more) to model their specific contracting processes and to manage the lifecycle of a contract from creation through closure. We believe our CLM solution meets the needs of many challenging and dynamic organizations:
| • | Corporate legal organizations. The General Counsel’s office and other legal organizations can use Selectica CLM to move paper-bound contracts into a secure, centralized, and searchable electronic repository, and gain visibility and control of all corporate agreements. |
| • | Procurement organizations. Procurement contract managers can use Selectica CLM to expose off-contract spending. |
| • | Sales organizations. Sales organizations can use Selectica CLM to shorten the sales cycle and speed time to revenue, while potentially protecting the company from inadvertent and expensive contract errors. |
| • | Finance organizations. Finance organizations can use Selectica CLM to identify and account for non-standard terms and pricing in the revenue cycle while discovering unrealized revenue buried in sales agreements. |
| • | Contract Administration. Contract administrators can use Selectica CLM to create visibility into contract obligations not captured by ERP and CRM and empower non-contract professionals to create and execute basic contracts. |
We believe our CLM solution provides the following key features:
Repository
• Centralized repository for contracts and attachments
• Full-text, Boolean, and fuzzy search functionality
• Ability to attach native, scanned, and faxed documents to any contract record
• Advanced filtering tools, folders, and hierarchies for document organization
• Amendment consolidation in a single auditable “effective view”
Contract authoring
• Microsoft Word add-in for creating, authoring, editing, and checking in contracts
• Data extraction from .doc, .pdf, and faxed third-party documents
• Step-by-step contract creation wizard
Contract process management
• Conditional, parallel, and serial approval workflows
• ESignature integrations (wet or electronic)
• Composers for contracts, boilerplates, approvals, tasks, notifications, and user accounts
• Obligation tracking with alerts, post-execution workflow steps, and advanced reporting
• Alerts for contract renewal opportunities
• Contract renewal authoring based on previous contract records
Mobile support
• Compatibility with iPad, iPhone, Android, and Blackberry devices
• Single-click mobile approvals
• Mobile interface for approving, rejecting, commenting on, and reassigning contracts
Alerts
• Notifications and tasks for expirations, renewals, obligations, and key milestones
• Custom email alerts
Reporting and analytics
• Scheduled and ad-hoc reporting capabilities
• One-click switching between contract record and report results
• Automated report emails in .pdf, .xls, or .xml format
• Integrations with external report writers, including Crystal Reports, Cognos, and Adobe
• Contract fulfillment tracking
• Personalized dashboards
Integration
• Integration with Selectica Guided Selling
• Integration with ERP and business intelligence tools
• Integration with Salesforce.com CRM
• Integration with EMC Documentum
Security
• Strong network (128-bit SSL) and data security
• Permission-based access to data and business processes
• Security and audit reporting
Administration
• Suite of composers for managing data, templates, clauses, and more
• Cloud deployment
• Configurable, easy-to-manage interface
Selectica Configure Price Quote (CPQ)
Selectica Configure Price Quote (CPQ) software slices through sales complexity to help best-in-class companies sell more. Selectica enables sales reps and channel partners to recommend the best combination of products and services, construct accurate quotes, and get contracts signed fast. With powerful, constraint-based configuration, step-by-step guided selling, and streamlined workflows for quote, proposal, and contract management, Selectica CPQ takes enterprise sales to the next level, increasing average deal size, accelerating sales cycles, and making global business faster and more efficient.
Selectica CPQ is designed to automate product, solution, and sales configuration for companies with complex product and service offerings.
Employees
As of March 31, 2014, we had a total of 75 employees, all located in the United States. Of the total, 11 are engaged in research and development, 33 are engaged in professional services, 23 are engaged in sales and marketing, and 8 are engaged in general & administration. None of our employees are represented by a labor union and we consider our relations with our employees to be good.
Selectica Professional Services
We offer a range of services to ensure that the solutions meet users’ requirements. Our Professional Services team takes a best-practice, collaborative approach, applying their extensive experience with contract lifecycle management and sales configuration solutions. We provide these services using both our in-house expertise and that of third parties experienced in our solutions acting under our direction. As of March 31, 2014, the Professional Services organization had 33 employees, as well as approximately 84 individuals contracted through our Odessa, Ukraine facility as noted below.
Sales and Marketing
We sell our CLM and CPQ cloud solutions primarily through our direct sales force along with strategic and OEM partners. As of March 31, 2014, our sales team consisted of 14 employees and our marketing team consisted 9 of employees.
Our CLM and CPQ direct sales force is complemented by business partners, supported by telesales and system engineering resources. We have developed programs to attract and retain high quality, motivated sales representatives that have the necessary technical skills and consultative sales experience. We have also developed specific partner relationships to expand our solutions and domain expertise into various targeted markets. We believe that the cultivation and integration of these support networks assists in both the establishment and enhancement of customer relationships.
Our marketing department is engaged in revenue-centered, sales-support and awareness-building activities, such as lead generation programs, web marketing, product management, public relations, advertising, speaking programs, seminars, sales collateral creation and production, direct mail, and event hosting.
Research and Development
To date, we have invested substantial resources in research and development. As of March 31, 2014, we had 11 full-time technical writing specialists, as well as approximately 33 engineers contracted through our Odessa, Ukraine facility as noted below. Our team primarily works on product development, enhancements, documentation, and quality assurance. For the fiscal years ended March 31, 2014 and 2013, we incurred approximately $3.0 million and $3.7 million, respectively on research and development.
Enhancements to our existing products are released periodically to add new features, improve functionality and incorporate feedback and suggestions from our customers. These updates are usually provided as part of the product subscription or license arrangement.
International Operations
As of March 31, 2014 and 2013, we had two contractors performing sales services in Europe. During fiscal 2011, we entered into a relationship with a third party that opened a research and operations center in Odessa, Ukraine. This facility represents a significant investment for us as we continue to execute on our global expansion strategy. Our operations in Ukraine with our third-party partner have not been materially affected by the recent political events in that country, and we have put certain contingency plans in place to minimize any disruption.
Competition
The market for cloud-based software solutions in general, including our CLM and CPQ solutions, continues to rapidly change. Competitors vary in size and in the scope and breadth of the products and services offered. We encounter competition primarily from companies such as Oracle, IBM and SciQuest, as well as (i) software companies that offer integrated solutions or specific products that compete with our CLM or CPQ solutions, (ii) information systems departments of potential or current customers that internally develop custom software, and (iii) professional services organizations. Some of these competitors are larger than us and may only compete in a segment of ours.
We believe that the principal competitive factors affecting our market include product reputation, functionality, ease-of-use, ability to integrate with other products and technologies, quality, performance, price, customer service and support, and the vendors’ reputation. Although we believe that our products currently compete favorably with regard to such factors, we cannot assure you that we can maintain our competitive position against current and potential competitors. Increased competition may result in price reductions, less beneficial contract terms, reduced gross margins and loss of market share, any of which could materially and adversely affect our business, operating results and financial condition.
Intellectual Property and Other Proprietary Rights
We rely on a combination of trademark, trade secret and copyright law and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection for our technology. We currently hold five patents in the United States. In addition, we have various trademarks registered or pending registration in various jurisdictions. Our trademark applications might not result in the issuance of any trademarks. Our patents or any future issued patents or trademarks might be invalidated or circumvented or otherwise fail to provide us any meaningful protection. We seek to protect the source code for our software, documentation and other written materials under trade secret and copyright laws. We license our software pursuant to license agreements, which impose certain restrictions on the licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Our failure to adequately protect our intellectual property could have a material adverse effect on our business and operating results.
AVAILABLE INFORMATION
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding Selectica, Inc. and other companies that file materials with the SEC electronically. You may also obtain copies of reports filed with the SEC, free of charge, on our website at www.selectica.com.
Item 1A.Risk Factors
Set forth below and elsewhere in this Annual Report on Form 10-K, and in the other documents we file with the SEC, are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K. Prospective and existing investors are strongly urged to carefully consider the various cautionary statements and risks set forth in this annual report and our other public filings.
We have a history of losses and may incur losses in the future.
We incurred net losses of approximately $8.1 million and $4.7 million for the fiscal years ended March 31, 2014 and 2013, respectively. We had an accumulated deficit of approximately $275 million as of March 31, 2014. We may continue to incur losses in the future for a number of reasons, including uncertainty as to the level of our future revenues and the timing and impact of our cost reduction efforts. While we have made significant progress towards aligning our research and development, sales and marketing, and general and administrative expenses with revenue, given the size of our business relative to the costs associated with being a public reporting company, we will need to continue to control our expenses while maintaining and increasing revenue in order to achieve profitability. If our revenue fails to grow or grows more slowly than we currently anticipate or our operating expenses exceed our expectations, our losses may continue or increase, which would harm our business and operating results.
Our business could be seriously harmed if we lose the services of our key personnel.
Our success depends substantially on the contributions and abilities of our executive management team and other key employees. We believe that these individuals understand our operational strategies and priorities and the steps necessary to drive our long-term growth and stockholder value. The loss of services of one or more members of our management team or other key personnel could disrupt our operations and seriously harm our business.
We have relied and expect to continue to rely on orders from a relatively small number of customers for a substantial portion of our revenues, and the loss of any of these customers would significantly harm our business and operating results.
Our revenues are dependent on orders from a relatively small number of customers. We derived 25% of our revenues from our top three customers in fiscal year 2014, and 26% in fiscal year 2013. We expect that we will continue to depend upon a relatively small number of customers for a substantial portion of our revenues for the foreseeable future. As a result, if we fail to successfully sell our products and services to one or more large customers in any particular period or a large customer purchases fewer of our products or services, defers or cancels orders, or terminates its relationship with us, our business and operating results would be significantly harmed.
| | | 2014 | | | 2013 | |
| | | (in thousands, except percentages) | |
Revenues from Customer A | | $ | 2,263 | | | $ | 2,300 | |
Revenues from Customer B | | | - | | | | 1,216 | |
Revenues from Customer C | | | 964 | | | | 1,009 | |
Revenues from Customer D | | | 889 | | | | | |
Total revenues from Customer A, B and C | | $ | 4,116 | | | $ | 4,525 | |
| | | | | | | | | |
Total revenue | | $ | 15,789 | | | $ | 17,558 | |
Percentage of total revenues | | | 26 | % | | | 26 | % |
Our annual and quarterly revenues and operating results are inherently unpredictable and subject to fluctuations, and as a result, we may fail to meet the expectations of securities analysts and investors, which could cause volatility or adversely affect the trading price of our common stock.
The Company generates revenue by providing its SaaS solutions through subscription license arrangements and related professional services, as well as through perpetual and term licenses and related software maintenance and professional services. The Company recognizes revenue in accordance with generally accepted accounting standards for software and service companies.The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) fees are fixed or determinable and (4) collectability is probable. If we determine that any one of the four criteria is not met, we will defer recognition of revenue until all the criteria are met.
Our annual and quarterly recurring and non-recurring revenues may fluctuate due to our inability to perform services, achieve specific milestones and obtain formal customer acceptance of specific elements of the overall completion of a project. As we provide such services and products, the timing of delivery and acceptance, changed conditions with the customers and projects could result in changes to the timing of our revenue recognition, and thus, our operating results.
Likewise, if our customers do not renew maintenance services or purchase additional products, our operating results could suffer. Historically, we have derived and expect to continue to derive a significant portion of our total revenue from existing customers who purchase additional products or renew maintenance agreements. Our customers may not renew such maintenance agreements or expand the use of our products. In addition, as we introduce new products, our current customers may not require or desire the features of our new products. If our customers do not renew their subscriptions or maintenance agreements with us or choose not to purchase additional products, our operating results could suffer.
Because we rely on a limited number of customers, the timing of customer acceptance or milestone achievement, or the amount of services we provide to a single customer can significantly affect our operating results or the failure to replace a significant customer. Because expenses are relatively fixed in the near term, any shortfall from anticipated revenues could cause our quarterly operating results to fall below anticipated levels.
We may also experience seasonality in revenues. For example, our annual and quarterly results may fluctuate based upon our customers’ calendar year budgeting cycles. These seasonal variations may lead to fluctuations in our annual and quarterly revenues and operating results.
Our CLM customers license our software in a number of ways including subscription licenses and perpetual licenses, which may be hosted in our third-party hosting center or on the customer’s own facilities. Historically the bulk of our license revenues have come from perpetual licenses which, if revenue recognition requirements are met, are recognized upon execution or release of contingencies, if any. However, more recently with the increase in demand for our SaaS-based subscription CLM solution, starting in fiscal 2012, and continuing in fiscal 2014, we transitioned our business model to focus on subscription sales and expect this trend to continue. The trend towards our customers shifting to subscription licenses, which include maintenance and may include hosting, will likely continue to affect our short-term financial results since the larger payments associated with perpetual licenses are substituted with smaller but more frequently recurring payments from our customers.
Based upon the foregoing, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance. In some future period, our operating results may be below the expectations of public market analysts and investors, which could cause volatility or a decline in the price of our common stock.
Our future success depends on our proprietary intellectual property, and if we are unable to protect our intellectual property from potential competitors, our business may be significantly harmed.
We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection for our technology. We currently hold five patents in the United States. In addition, we have various trademarks registered or pending registration in various jurisdictions. Our trademark applications might not result in the issuance of any trademarks. Our patents or any future issued trademarks might be invalidated or circumvented or otherwise fail to provide us any meaningful protection. We seek to protect the source code for our software, documentation and other written materials under trade secret and copyright laws. We license our software pursuant to license agreements, which impose certain restrictions on the licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Our failure to adequately protect our intellectual property could have a material adverse effect on our business and operating results.
In addition, we have previously been subject to claims of third parties that our products and services infringe their intellectual property rights. For example, in October 2007 we agreed to settle a patent infringement lawsuit brought by Versata Enterprises, Inc. and a related party for a $10 million payment in October 2007 and an additional amount of not more than $7.5 million, which we paid in full in fiscal 2012. It is possible that in the future, other third parties may claim that our current or potential future products infringe their intellectual property rights. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert management’s time from developing our business, cause product shipment delays, require us to enter into royalty or licensing agreements or require us to satisfy indemnification obligations to our customers. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could seriously harm our business.
Our lengthy sales cycle for our products makes it difficult for us to forecast revenue and exacerbates the variability of quarterly fluctuations, which could cause our stock price to decline.
The sales cycle of our products has historically averaged between nine to twelve months, and may sometimes be significantly longer. We are generally required to provide a significant level of education regarding the use and benefits of our products, and potential customers tend to engage in extensive internal reviews before making purchase decisions. In addition, the purchase of our products typically involves a significant commitment by our customers of capital and other resources, and is therefore subject to delays that are beyond our control, such as customers’ internal budgetary procedures and the testing and acceptance of new technologies that affect key operations. In addition, because we target large companies, our sales cycle can be lengthier due to the decision process in large organizations. As a result of our products’ long sales cycles, we face difficulty predicting the quarter in which sales to expected customers may occur. If anticipated sales from a specific customer for a particular quarter are not realized in that quarter, our operating results for that quarter could fall below the expectations of financial analysts and investors, which could cause our stock price to decline.
Developments in the market for cloud-based software solutions, including our CLM and CPQ solutions, may harm our operating results, which could cause a decline in the price of our common stock.
The market for cloud-based software solutions, including CLM and CPQ solutions, is evolving rapidly. In view of changing market trends, including vendor consolidation, the competitive environment growth rate and potential size of the market are difficult to assess. The growth of the market is dependent upon the willingness of businesses and consumers to purchase complex goods and services over the Internet and the acceptance of the Internet as a platform for business applications. In addition, companies that have already invested substantial resources in other methods of Internet selling may be reluctant or slow to adopt a new approach or application that may replace, limit or compete with their existing systems. With the transition of our focus to a subscription sales SaaS model which may help address certain market challenges, the rapid change in the marketplace nonetheless poses a number of concerns. Any decrease in technology infrastructure spending may reduce the size of the market for our solutions. Our potential customers may decide to purchase more complete solutions offered by larger competitors instead of individual applications. If the market for our solutions is slow to develop, or if our customers purchase more fully integrated products, our business and operating results would be significantly harmed.
We face intense competition, which could reduce our sales, prevent us from achieving or maintaining profitability and inhibit our future growth.
The market for software and services that enable electronic commerce is intensely competitive and rapidly changing. We expect competition to persist and intensify, which could result in price reductions, reduced gross margins and loss of market share. Our principal competition comes from (i) publicly held and private software companies that offer integrated solutions or specific contract management and/or sales configuration solutions and (ii) internally developed solutions. Existing and potential competitors include public companies such as Oracle Corporation, Ariba, OpenText and SAP, as well as companies such as Oracle, IBM and SciQuest.
Our competitors may intensify their efforts in our market. In addition, other enterprise software and SaaS companies may offer competitive products in the future. Competitors vary in size, in the scope and breadth of the products and services offered. Although we believe we have advantages over our competitors including the comprehensiveness of our solution, our use of Java and mobile technology and our multi-threaded architecture, some of our competitors and potential competitors have significant advantages over us, including:
| • | a longer operating history; |
| • | preferred vendor status with our customers; |
| • | more extensive name recognition and marketing power; and |
| • | significantly greater financial, technical, marketing and other resources, giving them the ability to respond more quickly to new or changing opportunities, technologies, and customer requirements. |
Our competitors may also bundle their products in a manner that may discourage users from purchasing our products. Current and potential competitors may establish cooperative relationships with each other or with third parties, or adopt aggressive pricing policies to gain market share. Competitive pressures may require us to reduce the prices of our products and services. We may not be able to maintain or expand our sales if competition increases, and we are unable to respond effectively.
If we do not keep pace with technological change, including maintaining interoperability of our products with the software and hardware platforms predominantly used by our customers, our products may be rendered obsolete, and our business may fail.
Our industry is characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements and emerging industry standards. In order to achieve broad customer acceptance, our products must be compatible with major software and hardware platforms used by our customers. In addition, our products are required to interoperate with electronic commerce applications and databases. We must continually modify and enhance our products to keep pace with changes in these operating systems, applications and databases. Our configuration, pricing and quoting products are complex, and new products and product enhancements can require long development and testing periods. If our products were to be incompatible with a popular new operating system, electronic commerce application or database, our business would be significantly harmed. In addition, the development of entirely new technologies to replace existing software could lead to new competitive products that have better performance or lower prices than our products and could render our products obsolete and unmarketable.
Our failure to meet customer expectations on deployment of our products could result in negative publicity and reduced sales, both of which would significantly harm our business and operating results.
In the past, a small number of our customers have experienced difficulties or delays in completing implementation of our products. We may experience similar difficulties or delays in the future. Deploying our products typically involves integration with our customers’ legacy systems, such as existing databases and enterprise resource planning software as well adding their data to the system. Failing to meet customer expectations on deployment of our products could result in a loss of customers and negative publicity regarding us and our products, which could adversely affect our ability to attract new customers. In addition, time-consuming deployments may also increase the amount of service personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business and operating result.
If we are unable to maintain our direct sales force, sales of our products and services may not meet our expectations, and our business and operating results will be significantly harmed.
We depend on our direct sales force for a significant portion of our current sales, and our future growth depends in part on the ability of our direct sales force to develop customer relationships and increase sales to a level that will allow us to reach and maintain profitability. If we are unable to retain qualified sales personnel or if newly hired personnel fail to develop the necessary skills or to reach productivity when anticipated, we may not be able to increase sales of our products and services, and our results of operation could be significantly harmed.
If we are unable to successfully manage our professional services organization, we will be unable to provide our customers with technical support for our products, which could significantly harm our business and operating results.
Non-recurring revenues are comprised of revenues from professional services for system implementations, enhancements, and training and, to a lesser extent, perpetual license sales. Professional services generated 23% and 31% of our total revenues during the fiscal years ended March 31, 2014 and 2013, respectively. Our professional services revenues have incurred losses than license revenues and recurring revenues. We often charge for our professional services on a fixed-fee basis. If we are required to spend more hours than planned without being able to bill for customers, our cost of services revenues could exceed the fees charged to our customers on certain engagements and could cause us to recognize a loss on a contract, which would adversely affect our operating results. In addition, if we are unable to provide these professional services, we may lose sales or incur customer dissatisfaction, and our business and operating results could be significantly harmed.
If new versions and releases of our products contain errors or defects, we could suffer losses and negative publicity, which would adversely affect our business and operating results.
Complex software products such as ours often contain errors or defects, including errors relating to security, particularly when first introduced or when new versions or enhancements are released. In the past, we have discovered defects in our products and provided product updates to our customers to address such defects. Our products and other future products may contain defects or errors that could result in lost revenues, a delay in market acceptance or negative publicity, each which would significantly harm our business and operating results.
Demand for our products and services will decline significantly if our software cannot support and manage a substantial number of users.
Our strategy requires that our products be highly scalable. To date, only a limited number of our customers have deployed our products on a large scale. If our customers cannot successfully implement large-scale deployments, or if they determine that we cannot accommodate large-scale deployments, our business and operating results would be significantly harmed.
If we become subject to product liability litigation, it could be costly and time consuming to defend and could distract us from focusing on our business and operations.
Since our products are company-wide, mission-critical computer applications with a potentially strong impact on our customers’ sales, errors, defects or other performance problems could result in financial or other damages to our customers. Although our license agreements generally contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could negate such limitation of liability provisions. Product liability litigation, even if it were unsuccessful, would be time consuming and costly to defend.
Our results of operations will be reduced by charges associated with stock-based compensation.
We have in the past and expect in the future to incur a significant amount of charges related to securities issuances, which will negatively affect our operating results. We adopted the provisions of ASC 718, Compensation-Stock Compensation (ASC 718), using a modified prospective application. We use the Black-Scholes option pricing model to determine the fair value of our share-based payments and recognize compensation cost on a straight-line basis over the vesting periods. This pronouncement from the FASB provides for certain changes to the method for valuing stock-based compensation. Among other changes, ASC 718 applies to new awards and to awards that are outstanding which are subsequently modified or cancelled. Compensation expense calculated under ASC 718 will continue to negatively impact our operating results.
Failure to improve and maintain relationships with systems integrators and consulting firms, which assist us with the sale and installation of our products, would impede the acceptance of our products and the growth of our revenues.
Our strategy has been to rely in part upon systems integrators and consulting firms to recommend our products to their customers and to install and deploy our products. To date, we have had limited success in utilizing these firms as a sales channel or as a provider of professional services. To increase our revenues and implementation capabilities, we must continue to develop and expand our relationships with these systems integrators and consulting firms. If these systems integrators and consulting firms are unwilling to install and deploy our products, we may not have the resources to provide adequate implementation services to our customers, and our business and operating results could be significantly harmed.
We may fail to realize the anticipated benefits of our acquisition of Iasta.
On June 2, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Selectica Sourcing Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Selectica Sourcing”), Iasta.com, Inc., an Indiana corporation (“Iasta.com”), Iasta Resources, Inc., an Indiana corporation (“Iasta Resources” and, together with Iasta.com, “Iasta”) and the shareholders of Iasta (the “Shareholders”) pursuant to which the Company would acquire Iasta (the “Acquisition”). The Acquisition is anticipated to close during the Company’s second fiscal quarter of the 2015 fiscal year.
The success of the Acquisition will depend on, among other things, our ability to combine our business with the business of Iasta in a manner that does not materially disrupt existing relationships and that allows us to achieve anticipated operational synergies. We will face significant challenges in combining Iasta’s operations into our operations in a timely and efficient manner. The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in us not achieving the anticipated benefits of the Acquisition.
The closing of the Acquisition is subject to the satisfaction of a number of closing conditions, including certain third-party consents being obtained, the absence of a material adverse change to the assets, liabilities, results of operations or financial condition of Iasta, and the parties’ compliance with other customary requirements. A delay in the closing of the Acquisition or a failure to consummate the Acquisition may inhibit our ability to execute our business plan.
Additionally, we have made certain assumptions relating to the forecast level of cost savings, synergies and associated costs of the Acquisition, which assumptions may be inaccurate based on the information available to us, including as the result of the failure to realize the expected benefits of the Acquisition, higher than expected transaction and integration costs, as well as general economic and business conditions that may adversely affect the combined company following the completion of the Acquisition.
The combination of our business with the Iasta business will require significant management attention, and we expect to incur substantial costs because of integration challenges.
The combined company will be required to devote significant management attention and other resources to integrating the two businesses. We may not successfully complete the integration of our operations in a timely manner and may experience disruptions in relationships with customers, suppliers and employees as a result.
We expect to incur substantial costs integrating the companies’ operations, product offerings, and personnel, which cannot be estimated accurately at this time. Although we expect that the realization of efficiencies related to the integration of the business will offset incremental transaction, integration and restructuring costs over time, we cannot give any assurance that this net benefit will be achieved. If the total costs of the integration exceed the anticipated benefits of the Acquisition, our results of operations could be adversely affected.
Some of our customers are hosted by a third-party provider.
Some of our CLM customers’ licenses are hosted by a third-party data center provider under contract to us. Failure of the data center provider to maintain service levels as contracted could result in customer dissatisfaction, customer losses and potential product warranty or performance liabilities.
Anti-takeover defenses that we have in place could prevent or frustrate attempts by stockholders to change our board of directors or the direction of our company.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, Delaware law and our stockholder rights agreement, as amended to date, may make it more difficult for or prevent a third party from acquiring control of us without approval of our directors. These provisions include:
| • | requiring a majority vote in uncontested elections of directors; |
| • | restricting the ability of stockholders to call special meetings of stockholders; |
| • | prohibiting stockholder action by written consent; |
| • | establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; |
| • | granting our board of directors the ability to designate the terms of and issue new series of preferred stock without stockholder approval; and |
| • | issuing shareholders rights to purchase additional shares of stock in the event that any person, together with its affiliates and associates, (i) acquires beneficial ownership of 4.99% or more of our outstanding common stock or (ii) commences a tender offer for our shares if upon consummation of the tender offer such person would beneficially own 4.99% or more of the outstanding common stock, subject, in each case, to certain exceptions. |
These provisions may have the effect of entrenching our board of directors and may deprive or limit your strategic opportunities to sell your shares.
Restrictions on export of encrypted technology could cause us to incur delays in international product sales, which would adversely impact the expansion and growth of our business.
Our software utilizes encryption technology, the export of which is regulated by the United States government. If our export authority is revoked or modified, if our software is unlawfully exported or if the United States adopts new legislation restricting export of software and encryption technology, we may experience delay or reduction in shipment of our products internationally. Current or future export regulations could limit our ability to distribute our products outside of the United States. While we take precautions against unlawful exportation of our software, we cannot effectively control the unauthorized distribution of software across the Internet.
Unauthorized break-ins or other assaults on our computer systems could harm our business.
Our servers are vulnerable to physical or electronic break-ins and similar disruptions, which could lead to loss of data or public release of proprietary information. In addition, unauthorized persons may improperly access our data. These and other types of attacks could harm us. Actions of this sort may be very expensive to remedy and could adversely affect results of operations.
Increasing government regulation of the Internet could limit the market for our products and services, or impose greater tax burdens on us or liability for transmission of protected data.
As electronic commerce and the Internet continue to evolve, federal, state and foreign governments may adopt laws and regulations covering issues such as user privacy, taxation of goods and services provided over the Internet, pricing, content and quality of products and services. If enacted, these laws and regulations could limit the market for electronic commerce, and therefore the market for our products and services. Although many of these regulations may not apply directly to our business, we expect that laws regulating the solicitation, collection or processing of personal or consumer information could indirectly affect our business.
We are subject to international business uncertainties that could harm our business and results of operations or slow our growth.
Our ability to grow our business and our future success will depend in part on our ability to expand our operations and customer base worldwide. During fiscal 2011, we entered into a relationship with a third party that opened a research and operations center in Odessa, Ukraine. The Ukraine has experienced considerable political events recently, and while we have put certain contingency plans in place to minimize any disruption, such turmoil may impact our operations and, in turn, could compromise our ability to develop our products at the pace and cost that we desire.
Risk Related to Ownership of Common Stock
Our stock price could decline because of the potentially dilutive effect of the Acquisition and recent financing activity.
The aggregate purchase price for the Acquisition is 1,000,000 shares of common stock of the Company (the “Acquisition Shares”) and $7.0 million in cash. Following the closing of the Acquisition, the Company would issue options to certain Iasta employees to purchase up to an aggregate of 700,000 shares of Common Stock of the Company, as employment inducement awards (the “Inducement Grants”). Assuming the Acquisition is completed, the Acquisition Shares are issued in full and the Inducement Grants are exercised in full, an additional 1.7 million shares of common stock will be issued and outstanding, diluting our stockholders. Any additional acquisitions in the future using Company stock as consideration could result in further dilution to our stockholders.
Additionally, on June 5, 2014, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with certain institutional funds and other accredited investors (the “June 2014 Investors”) pursuant to which the Company agreed to sell, and the June 2014 Investors agreed to purchase, 124,890.5 shares of Series E Convertible Preferred Stock (the “Series E Stock”) for $60 per whole share, with total proposed proceeds to the Company of approximately $7.5 million (the “2014 Second Financing”). The sale and issuance of the Series E Stock is anticipated to close during the Company’s second fiscal quarter of the 2015 fiscal year. Following the closing of the 2014 Second Financing, the Series E Stock would be converted upon stockholder approval to 1,248,905 shares of Company common stock. In addition to the issuance of the Series E Stock, at the closing of the 2014 Second Financing the Company would issue to the June 2014 Investors warrants to purchase 312,223 shares of common stock (the “Warrants”).
The closing of the 2014 Second Financing is subject to the satisfaction of a number of closing conditions, including the closing of the Acquisition. The 2014 Second Financing may be delayed, or the 2014 Second Financing may not close at all, which would negatively impact our ability to carryout our business plan.
If the 2014 Second Financing is consummated, assuming exercise in full of all Warrants plus conversion of the Series E Stock (assuming stockholder approval is obtained), approximately an additional 1.6 million shares of common stock will be issued and outstanding, diluting our stockholders. Any additional equity or convertible debt financings in the future could result in further dilution to our stockholders.
Existing stockholders also will suffer significant dilution in ownership interests and voting rights and our stock price could decline as a result of potential future application of anti-dilution features of our Series E Stock and our Warrants, or dividend or redemption features of our Series E Stock. Additionally, sales in the public market of the Acquisition Shares or the shares of common stock acquired upon conversion of shares of the Series E Stock or exercise of the Warrants, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and impair our ability to raise funds in additional stock financings.
We will be responsible for having the resale of the shares of common stock underlying the Series E Stock and the Warrants to be issued in the 2014 SecondFinancing registered with the SEC within defined time periods and will incur liquidated damages if the shares are not registered with the SEC within those defined time periods.
Pursuant to the Registration Rights Agreement (the “Registration Rights Agreement”) to be entered into with the June 2014 Investors at the closing of the 2014 Second Financing, we would be obligated to: (i) file a registration statement covering the resale of the common stock underlying the Series E Stock and issuable upon the exercise of the Warrants with the SEC within 45 days following the closing of the 2014 Second Financing (the “Filing Deadline”); (ii) use commercially reasonable efforts to cause the registration statement to be declared effective (A) within 90 days following the date of the closing of the 2014 Second Financing (the “Required Effectiveness Date”); provided that, if the SEC reviews and has written comments to the registration statement, then the Required Effectiveness Date will be 120 days from the date of the closing of the 2014 Second Financing, or (B) within 5 business days following the date the SEC notifies us that it will not review the registration statement or that we may request effectiveness of the registration statement and (iii) use commercially reasonable best to keep the registration statement effective until the earlier of (x) the date on which all the securities covered by such registration statement have been sold, or (y) the date all of the securities covered by such registration statement may be sold without restriction pursuant to Rule 144 of the Securities Act of 1933, as amended.
If we fail to comply with these or certain other provisions under the Registration Rights Agreement, then we would be required to pay liquidated damages equal to one and one-half percent (1.5%) of the aggregate purchase price paid by the June 2014 Investors for their securities for each 30-day period (or pro rata for any portion thereof) following the Filing Deadline for which no registration statement is filed. The total liquidated damages under this provision are not capped. Any such payments could materially affect our ability to fund our operations.
The Certificate of Designation governing the Series E Stock would contain various covenants and restrictions which may limit our ability to operate our business.
Under the Certificate of Designations, Preferences and Rights of Series E Convertible Preferred Stock (the “Certificate of Designation”) to be filed by the Company with the Delaware Secretary of State with respect to the Series E Stock, we would not be permitted, without the affirmative vote or written consent of the holders of at least 66% of the shares of Series E Stock, directly or indirectly, to take or agree to take any of the following actions, to the extent the Series E Stock is not earlier converted into common stock by approval at the upcoming stockholders meeting:
| | ● | authorize, create, designate, establish or issue, whether by reclassification or otherwise, an increased number of shares of Series E Stock or any other class or series of capital stock ranking senior to or on parity with the Series E Stock as to dividends or upon liquidation; |
| | ● | adopt a plan for liquidation, dissolution or winding up of the Company or any recapitalization plan, or file any petition seeking protection under federal or state bankruptcy or insolvency law or make a general assignment for the benefit of creditors; |
| | ● | enter into any Change of Control Transaction (as defined in the Certificate of Designation); |
| | ● | incur or assume any indebtedness for borrowed money in excess of $500,000, other than under our existing Credit Facility, as defined in Note 16 of the Notes to Consolidated Financial Statements below; |
| | ● | amend, alter or repeal, whether by merger, consolidation or otherwise, the Company’s Certificate of Incorporation or Bylaws and the powers, preferences, privileges, relative, participating, optional and other special rights and qualifications, limitations and restrictions thereof, which would adversely affect any right, preference, privilege or voting power of the Series E Stock, or which would increase or decrease the amount of authorized shares of the Series E Stock or of any other series of preferred stock ranking senior to the Series E Stock, with respect to the payment of dividends or upon liquidation; |
| | ● | directly or indirectly, declare or pay any dividend (other than certain permitted dividends) or directly or indirectly purchase, redeem, repurchase or otherwise acquire any share of common stock, any securities or any other class or series of the Company’s capital stock (other than certain permitted repurchases); |
| | ● | materially change the nature or scope of the Company’s business; or |
| | ● | enter into any agreement or other arrangement that would, directly or indirectly, preclude us from complying with our redemption obligations or dividend payment obligations pursuant to the Series E Certificate of Designation. |
These restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities, any of which could have a material adverse impact on our business.
The June 2014Investors would have substantial voting power on matters submitted to a vote of stockholders.
Based on 5,474,067 shares of common stock outstanding as of June 19, 2014, the shares of Series E Stock issued to the June 2014 Investors would represent, in the aggregate, approximately 18.57% of the voting power of our stock. Additionally, two of the June 2014 Investors are two of the Company’s largest existing stockholders. Because the June 2014 Investors would own a significant percentage of our voting power, they may have considerable influence in determining the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including the election of directors and approval of mergers, consolidations and the sale of all or substantially all of our assets.
In addition, the ownership by the June 2014 Investors of a substantial percentage of our total voting power and the terms of the Series E Stock could make it more difficult and expensive for a third party to pursue a change of control of our company, even if a change of control would generally be beneficial to our stockholders.
The Series E Stock would be redeemable at the option of the holders under certain circumstances.
Assuming the 2014 Second Financing is consummated, on or after the first anniversary of the closing of the 2014 Second Financing, the holders of at least a majority of the then-outstanding shares of Series E Stock may require us to redeem all or any portion of the outstanding shares of Series E Stock, to the extent funds are legally available for such redemption and to the extent the Series E Stock is not earlier converted into common stock by approval at the upcoming stockholders meeting. The redemption price per share of the Series E Stock would be equal to the then current conversion price, plus any accrued and unpaid dividends up to, but not including, the redemption date. Depending on our cash resources at the time that this redemption right is exercised, we may or may not be able to fund the redemption from our available cash resources. If we were unable to fund the redemption from available cash resources we would need to find an alternative source of financing to do so. There can be no assurances that we would be able to raise such funds on favorable terms or at all if they are required.
We have agreed to give the holders of shares of the Series E Stock and Warrants the right to participate in subsequent stock issuances.
Under the terms of the 2014 Second Financing, we would agree that if we issue and sell any new equity securities, subject to certain exceptions, we would give the holders of the Series E Stock and the Warrants the right to purchase a portion of those new securities so as to permit each of them to maintain their proportional ownership in our stock. The existence of this right may make it more difficult for us to obtain financing from third parties that do not wish to have holders of Series E Stock or Warrants participating in their financing.
Item 1B.Unresolved Staff Comments
Not applicable.
Item 2.Properties
Facilities
In July 2011, we entered into a new lease for office space in San Mateo, California, to which we relocated our headquarters on October 1, 2011. The lease is for approximately 10,287 square feet of office space.
On May 15, 2014, Selectica, Inc. (the “Company”) entered into a First Amendment to Lease (the “Lease Amendment”) with SKBGS I, L.L.C. amending the Office Lease dated July 2011 to cover a 25 month period expiring January 31, 2017 and carries a base rent of $2.85 per rentable square foot, escalating 3% each year.
Item 3.Legal Proceedings
In the future we may be subject to 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.
Item 4.Mine Safety Disclosures
Not applicable.
PART II
Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded over the counter on The NASDAQ Capital Market (“NASDAQ”) under the symbol “SLTC.” Our common stock began trading in March 2000.
As of May 31, 2014, there were approximately 99 holders of record of our common stock. Brokers and other institutions hold many of such shares on behalf of stockholders.
| | | High | | | Low | |
Fiscal 2014 | | | | | | | | |
First Quarter | | $ | 9.17 | | | $ | 7.64 | |
Second Quarter | | $ | 9.00 | | | $ | 5.04 | |
Third Quarter | | $ | 7.06 | | | $ | 5.45 | |
Fourth Quarter | | $ | 7.18 | | | $ | 6.36 | |
Fiscal 2013 | | | | | | | | |
First Quarter | | $ | 4.21 | | | $ | 3.75 | |
Second Quarter | | $ | 5.49 | | | $ | 2.94 | |
Third Quarter | | $ | 7.00 | | | $ | 4.65 | |
Fourth Quarter | | $ | 10.50 | | | $ | 6.23 | |
The trading price of our common stock could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates or purchase recommendations by securities analysts and other events or factors. In addition, the stock market has experienced volatility that has affected the market prices of equity securities of many high technology companies and that often has been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock.
Equity Compensation Plan Information
The following table sets forth as of March 31, 2014, certain information regarding our equity compensation plans.
| | | A | | | B | | | C | |
Plan category | | Number of securities to be issued upon exercise of outstanding options warrants and rights | | | Weighted-average exercise price of outstanding options warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A) | |
| | | (in thousands, except for per share amounts below) | |
Equity compensation plans approved by stockholders | | | 838 | | | $ | 6.44 | | | $ | 371 | (1)(2) |
Equity compensation plans not approved by stockholders | | | 187 | | | $ | 6.28 | | | $ | 185 | |
Total | | | 1,025 | | | $ | 6.40 | | | $ | 556 | |
(1) | These plans permit the grant of options, stock appreciation rights, shares of restricted stock and stock units. | |
(2) | Effective November 7, 2012 there is no provision to automatically increase the number of shares reserved for issuance under our equity compensation plans approved by stockholders. |
Stock Option Plans—Not Required to be Approved by Stockholders
2001 Supplemental Plan
We adopted the 2001 Supplemental Plan (the “Supplemental Plan”) on May 30, 2001; the Supplemental Plan did not require stockholder approval. A total of approximately 250,000 shares of common stock have been reserved for issuance under the Supplemental Plan. With limited restrictions, if shares awarded under the Supplemental Plan are forfeited, those shares will again become available for new awards under the Supplemental Plan. The Supplemental Plan permits the grant of non-statutory options and shares of restricted stock. Employees and consultants, who are not officers or members of the Board of Directors, are eligible to participate in the Supplemental Plan. Options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the Supplemental Plan have a maximum term of ten years.
The Compensation Committee of the Board of Directors administers the Supplemental Plan and has complete discretion to make all decisions relating to the interpretation and operation of the Supplemental Plan. The Compensation Committee has the discretion to determine which eligible persons are to receive an award, and to determine the type, number, vesting requirements and other features and conditions of each award. The exercise price of options may be paid with: cash, outstanding shares of common stock, the cashless exercise method through a designated broker, a pledge of shares to a broker or a promissory note. The purchase price for newly issued restricted shares may be paid with: cash, a promissory note or the rendering of past or future services. The Compensation Committee may reprice options and may modify, extend or assume outstanding options. The Compensation Committee may accept the cancellation of outstanding options in return for the grant of new options. The new option may have the same or a different number of shares and the same or a different exercise price. If a merger or other reorganization occurs, the agreement of merger or reorganization shall provide that outstanding options and other awards under the Supplemental Plan shall be assumed or substituted with comparable awards by the surviving corporation or its parent or subsidiary, shall be continued by the Company if it is the surviving corporation, shall have accelerated vesting and then expire early or shall be cancelled for a cash payment. If a change in control occurs, awards will become fully exercisable and fully vested if the awards do not remain outstanding, are not assumed by the surviving corporation or its parent or subsidiary and if the surviving corporation or its parent or subsidiary does not substitute its own awards that have substantially the same terms for the awards granted under the Supplemental Plan. If a change in control occurs and a plan participant is involuntarily terminated within 12 months following this change in control, then the vesting of awards held by the participant will accelerate, as if the participant provided another 12 months of service. A change in control includes: a merger or consolidation after which the then-current stockholders own less than 50% of the surviving corporation, a sale of all or substantially all of the assets, a proxy contest that results in replacement of more than one-half of the directors over a 24-month period or an acquisition of 50% or more of the outstanding stock by a person other than a person related to the Company, including a corporation owned by the stockholders. The Board of Directors may amend or terminate the Supplemental Plan at any time. The Supplemental Plan will continue in effect indefinitely unless the Board of Directors decides to terminate the plan earlier.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. Whether or not a dividend will be paid in the future will be determined by our Board of Directors. Subject to the closing of the 2014 Second Financing, beginning on August 31, 2014, the Series E Stock would be entitled to 10% accruing dividends per annum, to the extent such shares are not earlier converted into common stock. Such dividends are payable quarterly in cash, beginning on September 30, 2014, out of funds legally available therefor.
Recent Sales of Unregistered Securities
Reference is made to the description of our sale and issuance of unregistered shares of common stock, shares of Series D Stock and Warrants on January 24, 2014 as disclosed in our Current Report on Form 8-K previously filed on January 27, 2014, which is incorporated herein by reference.
Item 6.Selected Financial Data.
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 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the “Forward-Looking Statements” set forth above.
Overview
We provide cloud-based software solutions that help growing companies to close deals faster, more profitably, and with lower risk.
Selectica’s Contract Lifecycle Management (CLM) cloud solution combines a single, company-wide contract repository with a flexible workflow engine capable of supporting each organization’s unique contract management processes. Our cloud-based solution streamlines contract processes, from request, authoring, negotiation, and approval through ongoing obligations management, analysis, reporting, and renewals. It helps companies take control of their contract management processes by converting from paper-based to electronic repositories and by unlocking multiple layers of critical business data, making it available for the evaluation of risk, the exposure of lost revenue, the evaluation of supplier performance, and other purposes. The solution helps to improve the customer buying experience for sales organizations, improve the control of risk and decrease time spent drafting, monitoring and managing contracts, and gain access to previously hidden discounts through the exposure and elimination of unfavorable agreements for procurement and sourcing organizations.
Selectica’s Configure Price Quote (CPQ) is a cloud solution that streamlines the management and dissemination of complex product information enabling companies to streamline the opportunity-to-order process for manufacturers, service providers, and financial services companies. Our CPQ solution can be seamlessly integrated with leading CRM systems, as well as ERP systems like Oracle and SAP, to ensure that the latest product, customer, and pricing data is always being used. This helps to simplify and automate the configuration, pricing, and quoting of complex products and services. By empowering customers, product management, marketing, sales leadership, sales operations, salespeople, and channel partners to generate error-free sales proposals for their unique requirements, we believe our cloud solution helps companies to close sales faster, accelerate revenue generation and enhance customer relationships.
Summary of Operating Results for Fiscal 2014
During the fiscal year ended March 31, 2014, our total revenues decreased by 10%, or $1.8 million, to $15.8 million compared with total revenues of $17.6 million for the fiscal year ended March 31, 2013. Recurring revenues, comprised of subscription license sales, maintenance revenues from previously sold perpetual licenses, and hosting revenues, totaled $12.2 million, or 77% of total revenues, representing an increase of $0.4 million, or 4%, over fiscal 2013 Non-recurring revenues, comprised of perpetual license sales and revenues from professional services for system implementations, enhancements, and training, totaled $3.6 million, or 23% of total revenues, representing a decrease of $2.2 million, or 38%, over fiscal 2013. The increase in recurring revenues year over year resulted primarily from new subscription license customers reflecting the shift in business focus and strategy during the fiscal year ended March 31, 2013 to emphasize our cloud-based solutions. The decrease in non-recurring revenue was primarily due to several customers who had large consulting projects which, together, generated $1.2 million and were mostly completed in the prior year. In addition, three of our large consulting projects customers terminated their consulting projects prior to completion resulting in losses.
During the fiscal year ended March 31, 2014, our net loss increased by 71%, or $3.4 million, to $8.2 million compared to a net loss of $4.7 million for the fiscal year ended March 31, 2013. The most significant factors affecting the increase in our net loss were (i) a decrease of $2.2 million in gross margin related to non-recurring revenues, and (ii) an increase in operating expenses which reflect our ongoing investments in new and differentiated product offerings and additional headcount.
Shift in Business Model
In response to market demand, beginning in fiscal 2012, and continuing in fiscal 2014, we have shifted our primary business focus from the sale of perpetual licenses to subscription license arrangements for our cloud-based solutions.Our business and revenue model is now focused on recurring revenues. This shift has adversely affected our short-term financial results and cash flows since the financial terms of the subscription arrangements typically require smaller periodic payments over the term of the arrangement versus the larger, initial payments we have historically received under the perpetual license arrangements. However, we believe that the subscription licensing arrangements will help to increase our ability to attract new customers and improve the predictability of our revenues and cash flows by reducing our dependency on the larger, perpetual licensing arrangements. Despite the shift in our business model to focus more on oursubscription licensing arrangements,which has had the corresponding effect of increasing our recurring revenue, our customers have varied preferences for how they want to deploy our solutions. As such, we will continue to offer and support the traditional software license model that some of our customers still prefer.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in notes accompanying the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. The preparation of the consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the consolidated financial statements apply critical accounting policies described in the notes to our consolidated financial statements.
We consider our recognition of revenue, calculation of liabilities and stock-based compensation to be the most critical judgments that are involved in the preparation of the consolidated financial statements.
Results of Operations
Revenues
| | | 2014 | | | 2013 | | | Change | |
| | | (in thousands, except percentages) | |
Recurring revenues | | $ | 12,210 | | | $ | 11,773 | | | $ | 437 | |
Percentage of total revenues | | | 77 | % | | | 67 | % | | | 4 | % |
Non-recurring revenues | | $ | 3,579 | | | $ | 5,786 | | | $ | -2,207 | |
Percentage of total revenues | | | 23 | % | | | 33 | % | | | -38 | % |
Total revenues | | $ | 15,789 | | | $ | 17,559 | | | $ | -1,770 | |
Recurring revenues. Recurring revenues consist of subscription license sales, maintenance revenues from previously sold perpetual licenses, and hosting revenues. Our fiscal 2014 recurring revenues increased by $0.4 million from the prior year. Subscription revenue growth continued to drive the overall growth in recurring revenues. Subscription and hosting revenues grew to $5.3 million for fiscal year 2014, compared to $4.4 million for fiscal year 2013, representing a 20% increase year over year. This result reflects the shift in business focus and strategy to emphasize our cloud-based solutions. Maintenance revenues was $6.9 million for fiscal year 2014, compared $7.4 million for fiscal year 2013, representing a 7% decrease over last year. Recurring revenues continue to account for over 77% of our total revenues and we expect this trend to continue going forward.
Non-recurring revenues. Non-recurring revenues are comprised of professional services for system implementations, enhancements, and training. The decrease in non-recurring revenue was primarily due to several customers who had large consulting projects which, together, generated $1.2 million and were mostly completed in the prior year. In addition, three of our large consulting projects customers terminated their consulting projects prior to completion resulting in losses.
We expect non-recurring revenues to continue to fluctuate in future periods as a percentage of total revenues and in absolute dollars. This will depend on new license revenue and the number and size of new software implementations and follow-on services to our existing customers. We expect recurring revenues to fluctuate in absolute dollars and as a percentage of total revenues with respect to the number of maintenance renewals, and number and size of new subscription license contracts. In addition, maintenance renewals are extremely dependent upon economic conditions, customer satisfaction and the level of need to make changes or upgrade versions of our software by our customers. Fluctuations in revenue are also due to timing of revenue recognition, achievement of milestones, customer acceptance, changes in scope or renegotiated terms, and additional services.
Factors Affecting Operating Results
A small number of customers account for a significant portion of our total revenues. We expect that our revenue will continue to depend upon a limited number of customers. If we were to lose a customer, it would have a significant impact upon future revenue. Customers who accounted for at least 10% of total revenues were as follows:
| | | 2014 | | | 2013 | |
| | | (in thousands, except percentages) | |
Revenues from Customer A | | $ | 2,263 | | | $ | 2,300 | |
Total revenue | | $ | 15,789 | | | $ | 17,558 | |
Percentage of total revenues | | | 14 | % | | | 13 | % |
We do not have significant foreign activities. Sales to foreign customers accounted for only 10% of total revenue, and only 1% of revenues were denominated in foreign currency in fiscal 2014. We anticipate that any exposure to foreign currency fluctuations will not be significant in the foreseeable future.
Cost of Revenues
| | | 2014 | | | 2013 | | | Change | |
Cost of recurring revenues | | $ | 2,673 | | | $ | 2,006 | | | $ | 667 | |
Percentage of total cost of revenue | | | 32 | % | | | 27 | % | | | 33 | % |
Cost of non-recurring revenues | | $ | 5,738 | | | $ | 5,419 | | | $ | 319 | |
Percentage of total cost of revenue | | | 68 | % | | | 73 | % | | | 6 | % |
Total cost of revenues | | $ | 8,411 | | | $ | 7,425 | | | $ | 986 | |
Recurring cost of revenues. Recurring cost of revenues consist of costs associated with supporting our data center, a fixed allocation of our research and development costs, and salaries and related expenses of our support organization. During fiscal 2014, recurring cost of revenues increased $0.7 million or 33% compared to the prior year primarily due to a corresponding increase in infrastructure spending in hosting and support costs during fiscal 2014.
We expect recurring cost of revenues to increase in absolute dollars in fiscal 2015.
Non-recurring cost of revenues. Non-recurring cost of revenues is comprised mainly of salaries and related expenses of our services organization, fees paid to resellers, costs of purchased third party licenses sold to customers as part of a bundled arrangement, and certain allocated corporate expenses. During fiscal 2014, these costs increased by approximately $0.3 million primarily due to the increase in headcount, as well as some additional costs incurred in certain projects that were not billable to customers.
We expect non-recurring cost of revenues to increase in absolute dollars in fiscal 2015.
Gross Profit and Margin
Gross profit was $7.4 million, or 47% of revenues, in fiscal 2014 compared with $10.1 million, or 58% of revenues, in fiscal 2013. The decrease in gross profit percentage during fiscal year 2014 resulted from lower gross margins from our non-recurring revenues due to decrease in revenue in professional services during fiscal 2014.
Gross Margin—Gross margins represent gross profit as a percentage of revenue. Gross margins in fiscal 2014 and 2013 were affected by the factors discussed above under “Revenues” and “Cost of Revenues.”
We expect that our overall gross margins will continue to fluctuate primarily due to the timing of service revenue recognized and will continue to be adversely affected by lower margins associated with service revenues. The impact on our gross margin will depend on the mix of services we provide, whether the services are performed by our professional services employees or third party consultants, and the overall utilization rates of our professional services organization.
Operating Expenses
| | | 2014 | | | 2013 | | | Change | |
Total research and development | | $ | 2,993 | | | $ | 3,706 | | | $ | (713 | ) |
Percentage of total revenues | | | 19 | % | | | 21 | % | | | (19 | %) |
Research and Development. Research and development expenses consist mainly of salaries and related costs of our engineering, quality assurance, technical publications efforts, and certain allocated expenses. The decrease in research and development expenses of $0.7 million in fiscal 2014 compared to fiscal year 2013 was primarily due to the aggregate capitalization of $0.8 million of software development costs.
We expect research and development expenditures to remain relatively flat in fiscal 2015.
| | | 2014 | | | 2013 | | | Change | |
Sales and marketing | | $ | 8,313 | | | $ | 6,708 | | | $ | 1,605 | |
Percentage of total revenues | | | 53 | % | | | 38 | % | | | 24 | % |
Sales and Marketing. 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. In fiscal 2014, sales and marketing expenses increased $1.6 million primarily due to increased marketing costs of $1.6 million in trade shows, advertising, online marketing and marketing seminars. We expect increases in sales and marketing expenses in fiscal 2015 compared to fiscal 2014 both in absolute dollars and as a percentage of total revenues.
| | | 2014 | | | 2013 | | | Change | |
General and administrative | | $ | 4,984 | | | $ | 3,618 | | | $ | 1,366 | |
Percentage of total revenues | | | 32 | % | | | 21 | % | | | 38 | % |
General and Administrative. 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 increased $1.4 million in fiscal 2014 compared with fiscal 2013 primarily due to a $0.4 million increase in legal costs as discussed below and a $0.7 million increase in bad debt expense in fiscal 2014. We expect modest increases in general and administrative expenses in fiscal 2015 compared to fiscal 2014 in absolute dollars, primarily due to stock-based compensation expense due to restricted stock grants made in fiscal 2014 and hiring of additional employees.
Capitalized Software
The Company capitalizes software development costs upon achieving technological feasibility of the related products. Software development costs incurred prior to achieving technological feasibility are charged to engineering and product development expense as incurred.
Capitalized software will be amortized once the product is available for general release, using the straight-line method over the estimated useful lives of the assets, which is three years. The recoverability of capitalized software is evaluated for recoverability based on estimated future gross revenues reduced by the associated costs. If gross revenues were to be significantly less than estimated, the net realizable value of the capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software.
Loss on Early Extinguishment of Note Payable
Loss on early extinguishment of note payable in fiscal 2013 relates to a $0.5 million charge resulting from the Versata note payoff, as discussed further in Notes 9 and 15 of the Notes to Consolidated Financial Statements.
Provision for Income Taxes
Due to our net loss, we did not record income tax expense for fiscal 2014 or 2013. As of March 31, 2014, we had federal and state net operating loss carryforwards of approximately $198 million and $92.7 million, respectively. As of March 31, 2014, we also had federal and state research and development tax credit carryforwards of approximately $3.1 million and $0.1 million, respectively.
The fiscal 2014 and 2013 tax provisions vary from the expected provision or benefit at the U.S. federal statutory rate due to the recording of valuation allowances against our U.S. operating loss carryforwards and the effects of different tax rates in our foreign jurisdictions. Given our history of operating losses and our inability to achieve profitable operations, it is difficult to accurately forecast how results will be affected by the realization of net operating loss carryforwards.
Based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.
Liquidity and Capital Resources
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Cash, cash equivalents and short-term investments | | $ | 16,907 | | | $ | 12,098 | |
Working capital | | $ | 6,158 | | | $ | 1,866 | |
Net cash used for operating activities | | $ | (9,362 | ) | | $ | (3,421 | ) |
Net cash used for investing activities | | $ | (1,031 | ) | | $ | (60 | ) |
Net cash (used for) provided by financing activities | | $ | 15,202 | | | $ | (298 | ) |
Our primary sources of liquidity consisted of approximately $16.9 million in cash and cash equivalents as of March 31, 2014, $6.9 million of which was received from our short-term credit facility. This compares to approximately $12.1 million in cash, cash equivalents and short-term investments as of March 31, 2013, $6.0 million of which was received from our short-term credit facility.
Net cash used for operating activities was $9.4 million for the twelve months ended March 31, 2014, resulting primarily from our net loss of $8.1 million, adjusted for non-cash expenses totaling $1.3 million, which included depreciation and stock-based compensation expense.
Net cash used for operating activities was $3.4 million for the twelve months ended March 31, 2013, resulting primarily from our net loss of $4.7 million, adjusted for non-cash expenses totaling $1.3 million, which included depreciation and stock-based compensation expense.
Net cash used for investing activities was $1.0 million for the fiscal year ended March 31, 2014, resulting primarily from the purchase of capital assets and short-term investments.
Net cash used for investing activities was $0.1 million for the fiscal year ended March 31, 2013 resulting primarily from the purchase of capital assets offset by proceeds from maturities of short-term investments.
Net cash provided by financing activities was $15.2 million for the fiscal year ended March 31, 2014, resulting primarily from $14.2 million received from the sale of common stock, preferred stock and warrants, $0.9 million borrowed from our credit facility and $0.3 million received from issuing common stock under our employee stock plan, offset by $0.2 million resulting primarily from repurchase of common stock from employees.
Net cash used in financing activities was $0.3 million for the fiscal year ended March 31, 2013, resulting primarily from repurchases of common stock from employees.
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, internally generated funds, and our short-term credit facility. We have no outside debt other than our short-term credit facility, and do not have any plans to enter into any additional borrowing arrangements. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenues, and our ability to manage costs.
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of March 31, 2014 and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):
| | | Payments Due by Period | |
Contractual Obligations | | Total | | | Less than 1 Year | | | 1-3 Years | | | 3-5 years | | | More than 5 Years | |
Operating lease—real estate | | $ | 925 | | | $ | 253 | | | $ | 672 | | | $ | — | | | $ | — | |
Credit facility | | | 6,949 | | | | 6,949 | | | | — | | | | — | | | | — | |
Total | | $ | 7,874 | | | $ | 7,202 | | | $ | 672 | | | $ | — | | | $ | — | |
Our contractual obligations and commercial commitments at March 31, 2014 were approximately $7.9 million.
Off-balance sheet arrangements
We have no off-balance sheet arrangements or transactions with unconsolidated limited purpose entities, nor do we have any undisclosed material transactions or commitments involving related persons or entities.
Item 7A.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 8.Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm | |
Consolidated Balance Sheets as of March 31, 2014 and 2013 | |
Consolidated Statements of Operations—Years ended March 31, 2014 and 2013 | |
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity—Years ended March 31, 2014 and 2013 | |
Consolidated Statements of Cash Flows—Years ended March 31, 2014 and 2013 | |
Notes to Consolidated Financial Statements | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Selectica, Inc.
We have audited the accompanying consolidated balance sheets of Selectica, Inc. (the “Company”) as of March 31, 2014 and 2013, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity, and cash flows for each of the fiscal years then ended. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in Item 15b. These consolidated financial statements and related financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal controls over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Selectica, Inc. at March 31, 2014 and March 31, 2013, and the consolidated results of their operations and their cash flows for each of the fiscal years then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material aspects, the information set forth therein.
/s/ ARMANINO LLP
San Jose, California
June 27, 2014
SELECTICA, INC.
CONSOLIDATED BALANCE SHEETS
| | | March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands, except par value) | |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 16,907 | | | $ | 12,098 | |
Accounts receivable, net of allowance for doubtful accountsof $247 and $111 as of March 31, 2014 and 2013, respectively | | | 3,006 | | | | 3,455 | |
Prepaid expenses and other current assets | | | 689 | | | | 853 | |
Total current assets | | | 20,602 | | | | 16,406 | |
| | | | | | | | | |
Property and equipment, net | | | 312 | | | | 407 | |
Capitalized software | | | 856 | | | | - | |
Other assets | | | 30 | | | | 39 | |
Total assets | | $ | 21,800 | | | $ | 16,852 | |
| | | | | | | | | |
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Credit facility | | $ | 6,949 | | | $ | 6,000 | |
Accounts payable | | | 1,371 | | | | 1,010 | |
Accrued payroll and related liabilities | | | 648 | | | | 982 | |
Accrued restructuring costs | | | - | | | | 232 | |
Other accrued liabilities | | | 345 | | | | 163 | |
Deferred revenue | | | 5,131 | | | | 6,153 | |
Total current liabilities | | | 14,444 | | | | 14,540 | |
| | | | | | | | | |
Long-term deferred revenue | | | 618 | | | | 1,772 | |
Other long-term liabilities | | | - | | | | 20 | |
Total liabilities | | | 15,062 | | | | 16,332 | |
| | | | | | | | | �� |
Commitments and contingencies (See Notes 8 and 9) | | | | | | | | |
Series D redeemable convertible preferred stock, $.0001 par value, designated, issued and outstanding shares: 680,047 shares at March 31, 2014 | | | 3,653 | | | | - | |
Stockholder's Equity: | | | | | | | | |
Common stock, $0.0001 par value: Authorized: 15,000 shares at March 31, 2013 and 2012; Issued: 4,722 and 2,983 shares at March 31, 2014 and 2013, respectively; Outstanding: 4,626 and 2,887 shares at March 31, 2014 and 2013, respectively | | | 4 | | | | 4 | |
Additional paid-in capital | | | 278,083 | | | | 267,339 | |
Treasury stock at cost - 96 shares at March 31, 2014 and 2013 | | | (472 | ) | | | (472 | ) |
Accumulated deficit | | | (274,530 | ) | | | (266,351 | ) |
Total stockholders' equity | | | 3,085 | | | | 520 | |
Total liabilities, redeemable convertible preferred stock and stockholders' equity | | $ | 21,800 | | | $ | 16,852 | |
The accompanying notes are an integral part of these consolidated financial statements.
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands, except per share amounts) | |
Revenues: | | | | | | | | |
Recurring revenues | | $ | 12,210 | | | $ | 11,773 | |
Non-recurring revenues | | | 3,579 | | | | 5,786 | |
Total revenues | | | 15,789 | | | | 17,559 | |
| | | | | | | | | |
Cost of revenues: | | | | | | | | |
Cost of recurring revenues | | | 2,673 | | | | 2,006 | |
Cost of non-recurring revenues | | | 5,738 | | | | 5,419 | |
Total cost of revenues | | | 8,411 | | | | 7,425 | |
| | | | | | | | | |
Gross profit: | | | | | | | | |
Recurring gross profit | | | 9,537 | | | | 9,767 | |
Non-recurring gross profit | | | (2,159 | ) | | | 367 | |
Total gross profit | | | 7,378 | | | | 10,134 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | |
Research and development | | | 2,993 | | | | 3,706 | |
Sales and marketing | | | 8,313 | | | | 6,708 | |
General and administrative | | | 4,984 | | | | 3,618 | |
Restructuring costs | | | 227 | | | | 331 | |
Fees related to comprehensive settlement agreement | | | -- | | | | 500 | |
Total operating expenses | | | 16,517 | | | | 14,863 | |
Loss from operations | | | (9,139 | ) | | | (4,729 | ) |
| | | | | | | | | |
Decrease in fair value of warrant liability | | | 982 | | | | -- | |
Other income (expense), net | | | (22 | ) | | | (20 | ) |
Loss before provision for income taxes | | | (8,179 | ) | | | (4,749 | ) |
Provision for income taxes | | | -- | | | | -- | |
Net loss | | $ | (8,179 | ) | | $ | (4,749 | ) |
Series C and D redeemable preferred stock accretion | | $ | 3,513 | | | | -- | |
Net loss attributable to common stockholders | | $ | (11,692 | ) | | $ | (4,749 | ) |
| | | | | | | | | |
Basic and diluted net loss per common share attributable to common stockholders | | $ | (2.18 | ) | | $ | (1.68 | ) |
| | | | | | | | | |
Weighted-average shares of common stock used in computing basicand diluted net loss per share attributable to common stockholders | | | 3,756 | | | | 2,827 | |
The accompanying notes are an integral part of these consolidated financial statements.
SELECTICA, INC.
CONSOLIDATED STATEMENTS OFREDEEMABLECONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(In thousands)
| | | Convertible Redeemable Preferred Shares | | | Common Stock | | | Additional Paid-In | | | Treasury Stock | | | Accumulated | | | Total Stockholders' | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Shares | | | Amount | | | Deficit | | | Equity | |
Balance at March 31, 2012 | | | — | | | | — | | | | 2,892 | | | $ | 4 | | | $ | 266,508 | | | | (96 | ) | | $ | 472 | | | $ | (261,602 | ) | | $ | 4,438 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 1,129 | | | | — | | | | — | | | | — | | | | 1,129 | |
Issuance of common stock | | | — | | | | — | | | | 5 | | | | — | | | | (36 | ) | | | — | | | | — | | | | — | | | | (36 | ) |
Issuance of restricted stock, net of repurchase | | | — | | | | — | | | | 86 | | | | — | | | | (262 | ) | | | — | | | | — | | | | — | | | | (262 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | $ | (4,749 | ) | | | (4,749 | ) |
Balance at March 31, 2013 | | | — | | | | — | | | | 2,983 | | | $ | 4 | | | | 267,339 | | | | (96 | ) | | $ | 472 | | | $ | (266,351 | ) | | | 520 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock, redeemable convertible Series C preferred stock, and warrants through a private placement, net of issuance costs of $437,000 | | | 232 | | | | 846 | | | | 578 | | | | — | | | | 3,567 | | | | — | | | | — | | | | — | | | | 4,145 | |
Value of benefical conversion feature in Series C preferred stock | | | — | | | | (846 | ) | | | — | | | | — | | | | (846 | ) | | | — | | | | — | | | | — | | | | (846 | ) |
Accretion of preferred Series C stock to redemption value | | | — | | | | 1,621 | | | | — | | | | — | | | | (775 | ) | | | — | | | | — | | | | — | | | | (775 | ) |
Conversion of Series C redeemable preferred stock to common stock | | | (232 | ) | | | (1,621 | ) | | | 232 | | | | — | | | | 1,621 | | | | — | | | | — | | | | — | | | | 1,621 | |
Reclassification of warrants from liability to equity upon modification | | | — | | | | — | | | | — | | | | — | | | | 1,286 | | | | — | | | | — | | | | — | | | | 1,286 | |
Issuance of common stock, redeemable convertible Series D preferred stock, and warrants through a private placement, net of issuance costs of $286,000 | | | 680 | | | | 3,106 | | | | 777 | | | | — | | | | 3,495 | | | | — | | | | — | | | | — | | | | 4,272 | |
Value of benefical conversion feature in Series D preferred stock | | | — | | | | (1,345 | ) | | | | | | | | | | | 1,345 | | | | | | | | | | | | | | | | 1,345 | |
Accretion of preferred Series D stock to redemption value | | | — | | | | 1,892 | | | | — | | | | — | | | | (1,892 | ) | | | — | | | | — | | | | — | | | | (1,892 | ) |
Warrants to purchase common stock issued in connection with Series D private placement | | | — | | | | — | | | | — | | | | — | | | | 1,789 | | | | — | | | | — | | | | — | | | | 1,789 | |
ESPP purchase | | | — | | | | — | | | | 38 | | | | — | | | | 257 | | | | — | | | | — | | | | — | | | | 257 | |
Issuance of restricted stock, net of repurchase | | | — | | | | — | | | | 15 | | | | — | | | | (233 | ) | | | — | | | | — | | | | — | | | | (233 | ) |
Exercise of stock options | | | — | | | | — | | | | 4 | | | | — | | | | (19 | ) | | | — | | | | — | | | | — | | | | (19 | ) |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 1,149 | | | | — | | | | — | | | | — | | | | 1,149 | |
Net Loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8,179 | ) | | | (8,179 | ) |
Balance at March 31, 2014 | | | 680 | | | $ | 3,653 | | | | 4,626 | | | $ | 4 | | | $ | 278,083 | | | | (96 | ) | | $ | 472 | | | $ | (274,530 | ) | | $ | 3,085 | |
The accompanying notes are an integral part of these consolidated financial statements.
SELECTICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Operating activities | | | | | | | | |
Net loss | | $ | (8,179 | ) | | $ | (4,749 | ) |
Adjustments to reconcile net loss to net cash used inoperating activities: | | | | | | | | |
Depreciation | | | 246 | | | | 214 | |
Loss on disposition of property and equipment | | | 23 | | | | — | |
Stock-based compensation expense | | | 1,149 | | | | 1,129 | |
Change in fair value of warrant liability | | | (982 | ) | | | — | |
Changes in assets and liabilities: | | | | | | | | |
Accounts receivable (net) | | | 449 | | | | (1,009 | ) |
Prepaid expenses and other current assets | | | 164 | | | | (322 | ) |
Other assets | | | 9 | | | | — | |
Accounts payable | | | 359 | | | | 615 | |
Accrued restructuring costs | | | (232 | ) | | | 232 | |
Accrued payroll and related liabilities | | | (334 | ) | | | (789 | ) |
Other accrued liabilities and long term liabilities | | | 162 | | | | 54 | |
Deferred revenue | | | (2,177 | ) | | | 1,204 | |
Net cash used in operating activities | | | (9,343 | ) | | | (3,421 | ) |
| | | | | | | | | |
Investing activities | | | | | | | | |
Purchase of property and equipment | | | (121 | ) | | | (259 | ) |
Capitalized software | | | (910 | ) | | | — | |
Proceeds from maturities of short-term investments | | | - | | | | 199 | |
Net cash used in investing activities | | | (1,031 | ) | | | (60 | ) |
| | | | | | | | | |
Financing activities | | | | | | | | |
Issuance of common stock under employee stock plan | | | 239 | | | | — | |
Proceeds from sale of common stock, preferred stockand warrants, net of issuance costs | | | 14,227 | | | | — | |
Borrowings under credit facility, net | | | 949 | | | | — | |
Employee taxes paid in exchange for restricted stock awards forefeited | | | (232 | ) | | | (298 | ) |
Net cash (used in) provided by financing activities | | | 15,183 | | | | (298 | ) |
Net increase/(decrease) in cash and cash equivalents | | | 4,809 | | | | (3,779 | ) |
Cash and cash equivalents at beginning of the period | | | 12,098 | | | | 15,877 | |
Cash and cash equivalents at end of the period | | $ | 16,907 | | | $ | 12,098 | |
| | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 35 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Business
Selectica, Inc. (the “Company” or “Selectica”) is a market and technology leader in cloud-based solutions that helps growing companies to close deals faster, more profitably, and with lower risk. Selectica is committed to making its customers successful by developing innovative software that the world’s most successful companies rely on to improve the effectiveness of their sales and contracting processes. Founded in 1996, the Company was originally organized to provide configuration, pricing management and quoting solutions for automating customers’ opportunity to order process. In May 2005, the Company purchased Determine Software, Inc. and entered the contract management software business. The Company's software solutions are based on patented technologies delivered through the cloud, making it easy for customers in industries like high-tech, telecommunications, manufacturing, healthcare, financial services, and government contracting to overcome product and channel complexity, increase deal value, and accelerate time to revenue.
2. Summary of Significant Policies
Principles of Consolidation
The consolidated financial statements include all accounts of the Company and those of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Fair value of financial instruments
The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their fair values.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and accounts receivable. The Company places its short-term investments in high-credit quality financial institutions. The Company is exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the balance sheet. The Company’s cash balances periodically exceed the FDIC insured amounts. Investments are not protected by FDIC insurance. Accounts receivable are derived from revenue earned from customers primarily located in the United States. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses, and historically, such losses have not been significant.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash equivalents consist of money market funds, certificates of deposits, and commercial paper. Fair values of cash equivalents approximated original cost due to the short period of time to maturity. The cost of securities sold is based on the specific identification method. The Company’s investment policy limits the amount of credit exposure to any one issuer of debt securities.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company monitors its investments for impairment on a quarterly basis and determines whether a decline in fair value is other-than-temporary by considering factors such as current economic and market conditions, the credit rating of the issuers, the length of time an investment has been below the Company’s carrying value, and the Company’s ability and intent to hold the investment to maturity. If a decline in fair value, caused by factors other than changes in interest rates, is determined to be other-than-temporary, an adjustment is recorded and charged to operations.
Accounts Receivable and Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. When the Company believes a collectability issue exists with respect to a specific receivable, the Company records an allowance to reduce that receivable to the amount that it believes to be collectible. In making the evaluations, the Company will consider the collection history with the customer, the customer’s credit rating, communications with the customer as to reasons for the delay in payment, disputes or claims filed by the customer, warranty claims, non-responsiveness of customers to collection calls, and feedback from the responsible sales contact. In addition, the Company will also consider general economic conditions, the age of the receivable and the quality of the collection efforts.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives. The estimated useful lives for computer software and equipment is three years, furniture and fixtures is five years, and leasehold improvements is the shorter of the applicable lease term or estimated useful life.
Revenue Recognition
The Company generates revenues by providing its SaaS solutions through subscription license arrangements and related professional services, as well as through perpetual and term licenses and related software maintenance and professional services. The Company presents revenue net of sales taxes and any similar assessments.
Customer Concentrations
A limited number of customers have historically accounted for a substantial portion of the Company’s revenues. The following table presents customers that accounted for more than 10% of revenue for the last two fiscal years:
| | | 2014 | | | 2013 | |
Customer A | | | 14 | % | | | 13 | % |
Customers who accounted for at least 10% of gross accounts receivable were as follows:
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
Customer B | | | 29 | % | | | 22 | % |
Revenue recognition criteria.The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) fees are fixed or determinable and (4) collectability is probable. If we determine that any one of the four criteria is not met, the Company will defer recognition of revenue until all the criteria are met.
Multiple-Deliverable Arrangements. The Company enters into arrangements with multiple-deliverables that generally include subscription, support and professional services. If a deliverable has standalone value, and delivery is probable and within the Company’s control, the Company accounts for the deliverable as a separate unit of accounting. Subscription services have standalone value as such services are often sold separately, primarily through renewals. Professional services have standalone value as such services are often sold separately, and are available from other vendors.
Upon separating the multiple-deliverables into separate units of accounting, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on its vendor-specific objective evidence of selling price (“VSOE”), if available, or its best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third-party pricing information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.
For professional services, the Company has established VSOE as a consistent number of standalone sales of this deliverable have been priced within a reasonably narrow range. The Company has not established VSOE for its subscription services due to lack of pricing consistency, and other factors. Accordingly, the Company uses its BESP to determine the relative selling price.
The Company determined BESP by considering its price list, as well as overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, contract prices per user, the size and volume of the Company’s transactions, the customer demographic, and its market strategy.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Recurring revenues. Recurring revenues consist of subscription license sales, maintenance revenues from previously sold perpetual licenses, and hosting revenues. Recurring revenues are recognized ratably over the stated contractual period.
Non-recurring revenues. Non-recurring revenues are comprised of revenues from professional services for system implementations, enhancements, and training, and perpetual license sales prior to fiscal 2014. For professional services arrangements billed on a time-and-materials basis, services are recognized as revenue as the services are rendered. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting and estimates the proportional performance utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. The Company recognizes a loss for a fixed-fee professional service if the total estimated project costs exceed project revenues. Perpetual license sales are recognized upon delivery of the product, assuming all the other conditions for revenue recognition have been met.
In certain arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria are satisfied. Reimbursements, including those related to travel and out-of-pocket expenses are included in non-recurring revenues, and an equivalent amount of reimbursable expenses is included in non-recurring cost of revenues.
Non-recurring revenues in fiscal year 2014 were comprised of $3.6 million in professional services revenues and zero perpetual license revenues. Non-recurring revenues in fiscal year 2013 were comprised of $5.4 million in professional services and $0.4 million in perpetual license revenues.
Customer Concentrations
A limited number of customers have historically accounted for a substantial portion of the Company’s revenues. The following table presents customers that accounted for more than 10% of revenue for the last two fiscal years:
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Advertising Expense
The cost of advertising is expensed as incurred. Advertising expense for the years ended March 31, 2014 and 2013 was approximately $209,000 and $118,000 respectively.
Software Development Costs
Software development costs incurred prior to the establishment of technological feasibility are included in research and development expenses. The Company defines establishment of technological feasibility as the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the products are capitalized, if material, after consideration of various factors, including net realizable value.
Stock-Based Compensation
The Company recognizes stock-based compensation expense for only those awards ultimately expected to vest on a straight-line basis over the requisite service period of the award, net of an estimated forfeiture rate. The Company estimates the fair value of stock options using a Black-Scholes valuation model, which requires the input of highly subjective assumptions, including the option’s expected term and stock price volatility. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Geographic Information:
International revenues are attributable to countries based on the location of the customers. For the fiscal years ended March 31, 2014 and 2013, sales to international locations were derived primarily from Canada, India, New Zealand, Switzerland and the United Kingdom.
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands, except percentages) | |
International Revenues | | | 10 | % | | | 12 | % |
Domestic Revenues | | | 90 | % | | | 88 | % |
Total Revenues | | | 100 | % | | | 100 | % |
For the years ended March 31, 2014 and 2013, the Company held long-lived assets outside of the United States with a net book value of approximately $67,000 and $126,000, respectively. These assets were located in Odessa, Ukraine.
Treasury Stock
There were no stock repurchases other than from employees during fiscal year 2014.
The Company had 96,000 shares of treasury stock as of March 31, 2014 and March 31, 2013.
Recent Accounting Pronouncements
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued, ASU 2014-09 (Topic 606) Revenue from Contracts with Customers. The guidance substantially converges final standards on revenue recognition between the FASB and IASB providing a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. The ASU is effective for annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 to determine the impact, if any, it may have on our current practices.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Private Placement Funding with Redeemable Convertible Preferred Stock and Warrants
On May 31, 2013, in connection with the first closing of a private placement equity financing (the “2013 Financing”), the Company sold and issued 577,105 shares of our common stock (the “Common Shares”), and 231,518 shares of our newly created redeemable Series C Convertible Preferred Stock (the “Series C Stock”), to certain institutional funds and other accredited investors (“2013 Investors”) at a purchase price of $7.00 per share. The Series C Stock automatically converted into 231,518 shares of common stock upon stockholder approval at the annual meeting on September 10, 2013. Had the Series C Stock not converted into common stock, the Series C Stock would have been redeemable at the option of the holder and was therefore recorded in temporary equity until September 10, 2013. In addition, the Company issued to the 2013 Investors Series A Warrants to purchase common stock, as amended on September 4, 2013 (the “Series A Warrants”), initially exercisable for 404,309 shares of common stock. The exercise price of the Series A Warrants is $7.75 per share. The Series A Warrants have a five-year term and first became exercisable on November 30, 2013, six months following the date of issuance. Prior to amendment on September 4, 2013, the Series A Warrants had an exercise price of $8.75 per share and had a potential adjustment to the warrant exercise price that could result in the event we issued securities at a price below the then current exercise price. In addition, the amendment removed a cash settlement provision in the case of a Fundamental Transaction, as defined in the Warrant agreement.
On September 12, 2013, in connection with the second closing (the “Second Closing”) of the 2013 Financing, the Company sold and issued 91,144 shares of its common stock at a purchase price per share of $7.00 to certain members of management and the Board of Directors of the Company (the “Second Closing Investors”). The $0.6 million aggregate gross purchase price was received in cash and recorded in stockholders’ equity. In addition, at the Second Closing the Company issued to each Second Closing Investor a Series B warrant to purchase common stock (the “Series B Warrants”), initially exercisable for 45,571 shares of common stock. The exercise price of the Series B Warrants is $7.75 per share. The warrants have a five-year term, and are not exercisable for the first six months following the date of issuance. The Company has evaluated the Series B Warrants issued in the Financing and has concluded that equity classification is appropriate as all such warrants are considered to be indexed to the Company’s equity and there are no settlement provisions that would result in classification as a debt instrument.
On January 24, 2014, in connection with the closing of an additional private placement equity financing (the “January 2014 Financing”), the Company sold and issued 765,605 shares of its common stock and 680,047 shares of its newly created Series D Convertible Preferred Stock (“Series D Stock”) to certain institutional funds and other accredited investors (including certain of the 2013 Investors) (the “2014 Investors”) at a purchase price of $6.00 per Common Share and $60.00 per whole share of Series D Stock (or $6.00 per one-tenth (1/10) of a share of Series D Stock, which would convert into one share of Common Stock as described below). In addition, the Company issued to the 2014 Investors warrants to purchase common stock, initially exercisable for an aggregate of 723,030 shares of common stock (the “2014 Warrants”). The exercise price of the 2014 Warrants is $7.00 per share. The 2014 Warrants have a five-year term and will become exercisable on July 24, 2014, six months following the date of issuance.
In connection with the 2013 Financing and January 2014 Financing, the Company issued to Lake Street Capital Markets, LLC, who served as the placement agent in both financings, 20,833 shares of its common stock and warrants to purchase an aggregate of 37,679 shares of common stock.
| (a) | Presentation of Series A and 2014 Warrants |
Prior to amendment on September 4, 2013, the potential adjustment to the Series A Warrant exercise price precluded the warrants from meeting the criteria set forth in ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s own Stock” to be considered indexed to the Company’s own stock. Accordingly, the fair value of the Series A Warrants was initially recorded as a liability. We estimated the fair value of these warrants at the May 31, 2013 issuance date using the Black-Scholes model and revalued the Series A Warrants as of June 30, 2013 and upon amendment on September 4, 2013 when the Series A Warrants were no longer required to be reported as a liability and were reclassified to equity using the September 4, 2013 Black-Sholes value of $1.3 million. The Black-Scholes model requires the input of highly subjective assumptions, including the warrant’s risk free rate and stock price volatility. The change in the fair value of the Series A Warrants was recognized in the statements of operations within non-operating income (expense).
The Company has evaluated the 2014 Warrants and has concluded that equity classification is appropriate as all such 2014 Warrants are considered to be indexed to the Company’s equity and there are no settlement provisions that would result in classification as a debt instrument.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
| (b) | Presentation of Redeemable Convertible Preferred Stock |
Because the Series C Stock was redeemable at the option of the holder (had the stockholders not approved conversion on September 10, 2013 as discussed above), the Company recorded the Series C Stock in temporary equity until conversion on September 10, 2013 when the redemption value of $1.6 million was reclassified to stockholders’ equity.
Pursuant to the Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock filed by the Company with the Delaware Secretary of State on January 23, 2014 (the “Certificate of Designation”), after stockholder approval, each whole share of Series D Stock converted automatically into ten shares of Common Stock at a conversion price of $6.00 per share of Common Stock.
The Series D Stock was not entitled to a liquidation or dividend preference. If the Series D Stock had not been converted into Common Stock following stockholder approval in April 2014, beginning on April 15, 2014, the Series D Stock would have been entitled to 10% accruing dividends per annum. The dividends would have been payable quarterly in cash, beginning on June 30, 2014. The shares of Series D Stock were also redeemable by the Company upon the request of the holders of at least a majority of the then outstanding Series D Stock. The redemption price would have been equal to the product of (i) the number of shares or fraction of a share of Series D Preferred Stock to be redeemed from each such holder multiplied by (ii) ten (10) times the conversion price then in effect, plus any accrued and unpaid dividends up to, but not including, the redemption date.
The holders of Series D Stock had the right to vote together with the holders of the Company’s Common Stock as a single class on any matter on which the holders of Common Stock were entitled to vote, except that the holders of Series D Stock were not eligible to vote their shares of Series D Stock on the proposal submitted to the Company’s stockholders for approval of the issuance and sale of the securities in the Financing and the conversion of the Series D Stock. Holders of Series D Stock were entitled to cast a fraction of one vote for each share of Common Stock issuable to such holder on the record date for the determination of stockholders entitled to vote at a conversion rate the numerator of which was $60.00 and the denominator of which was the closing bid price per share of the Common Stock on January 24, 2014, as reported by Bloomberg Financial Markets.
On April 10, 2014, following approval by the Company’s stockholders, each whole share of Series D Stock converted automatically into ten shares of Common Stock at an initial conversion price of $6.00 per share of Common Stock, for a total of 690,274 shares of Common Stock issued upon such conversion (including the conversion of the shares of Series D Stock issued to Lake Street as described above). Because the Series D Stock was redeemable at the option of the holder, the Company has recorded it in temporary equity as of March 31, 2014.
| (c) | Beneficial Conversion Feature (“BCF”) |
The Series C and Series D Stock was assessed under ASC 470, “Debt,” and the Company determined that the conversion to common stock qualifies as a BCF since it had a nondetachable conversion feature that was in the money at the commitment date. The BCF computation compares the carrying value of the preferred stock after the value of any derivatives has been allocated from the proceeds (in this case, the warrant liability) to the transaction date value of the number of shares that the holder can convert into. The calculation resulted in a BCF of $0.5 million. The BCF was recorded in additional paid-in capital.
The proceeds of the 2013 Financing were allocated first to the fair value of the warrants and then to the common stock and Series C Stock sold on a pro rata basis. The Company accreted the Series C Stock to its redemption value, which was $1.6 million based upon the 231,518 shares sold multiplied by the $7.00 per share redemption price. Accretion was calculated through September 10, 2013 the earliest possible redemption date. The proceeds of the 2014 Financing for Series D Stock were allocated to the common stock, the 2014 Warrants and Series D Stock sold on a pro rata basis.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following table shows the allocation of proceeds from the 2013 Investors and 2014 Investors and carrying value of the Series C Stock and Series D Stock. Series C Stock was reclassified to stockholders’ equity upon conversion to common stock on September 10, 2013 (in thousands, except per share amounts):
Gross proceeds on May 31, 2013 | | $ | 5,660 | |
Fair value of warrants on May 31, 2013 | | | (2,268 | ) |
Gross proceeds to allocate to common stock and Series C Stock | | $ | 3,392 | |
| | | | | |
Gross proceeds allocated to common shares sold | | $ | 2,421 | |
Related transaction costs allocated | | | (313 | ) |
Net value allocated to common shares sold | | $ | 2,108 | |
| | | | | |
Gross proceeds allocated to Series C Stock sold on May 31, 2013 | | $ | 971 | |
Related transaction costs allocated | | | (125 | ) |
Net value allocated to Series C Stock sold prior to BCF | | | 846 | |
Calculated BCF value | | | (846 | ) |
Accretion of Series C Stock through September 10, 2013 | | | 1,621 | |
Carrying value of Series C Stock recalssified upon conversion to common stock | | $ | 1,621 | |
| | | | | |
Gross proceeds on January 24, 2014 | | $ | 8,676 | |
Fair value of warrants on January 24,2014 | | | (1,789 | ) |
Gross proceeds to allocate to common stock and Series D Stock | | $ | 6,887 | |
| | | | | |
Gross proceeds allocated to common shares sold | | $ | 3,646 | |
Related transaction costs allocated | | | (151 | ) |
Net value allocated to common shares sold | | $ | 3,495 | |
| | | | | |
Gross proceeds allocated to Series D Stock sold on January 24, 2014 | | $ | 3,241 | |
Related transaction costs allocated | | | (135 | ) |
Net value allocated to Series D Stock sold prior to BCF | | | 3,106 | |
Calculated BCF value | | | (1,345 | ) |
Accretion of Series D Stock through March 31, 2014 | | | 1,892 | |
Carrying value of Series D Stock as of March 31, 2014 | | $ | 3,653 | |
4. Property and Equipment
Property and equipment consist of the following:
| | | March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Computers and software | | $ | 2,381 | | | $ | 2,962 | |
Furniture and equipment | | | 774 | | | | 734 | |
Leasehold improvements | | | 117 | | | | 115 | |
| | | | 3,272 | | | | 3,811 | |
Less: accumulated depreciation | | | (2,960 | ) | | | (3,404 | ) |
| | | | | | | | | |
Total property and equipment, net | | $ | 312 | | | $ | 407 | |
Depreciation expense related to property and equipment was approximately $158,000 and $214,000 for the years ended March 31, 2014 and 2013, respectively.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Capitalized Software
The Company capitalizes software development costs upon achieving technological feasibility of the related products. Software development costs incurred prior to achieving technological feasibility are charged to engineering and product development expense as incurred.
Capitalized software will be amortized once the product is available for general release, using the straight-line method over the estimated useful lives of the assets, which is three years. The recoverability of capitalized software is evaluated for recoverability based on estimated future gross revenues reduced by the associated costs. If gross revenues were to be significantly less than estimated, the net realizable value of the capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software.
Amortization expense was $0.01 million for the year ended March 31, 2014 and is included in the product cost of revenue. Prior to the year ended March 31, 2014, these costs were not capitalized due to the short length of time between technological feasibility and general availability of software versions. The unamortized balance of capitalized software was $0.9 million as of March 31, 2014.
6. Accrued and Other Liabilities
As of March 31, 2014 and 2013, accrued payroll and deferred revenue consisted of the following:
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Accrued payroll and related liabilities: | | | | | | | | |
Accrued vacation | | $ | 371 | | | $ | 359 | |
Accrued bonus | | | 164 | | | | 287 | |
Accrued salaries and wages | | | 92 | | | | 86 | |
Accrued commissions | | | 21 | | | | 250 | |
Total | | $ | 648 | | | $ | 982 | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Deferred revenue: | | | | | | | | |
License | | $ | — | | | $ | — | |
Hosting | | | 85 | | | | 84 | |
Consulting | | | 138 | | | | 296 | |
Subscription | | | 2,482 | | | | 2,126 | |
Maintenance | | | 2,426 | | | | 3,647 | |
Total | | $ | 5,131 | | | $ | 6,153 | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Long-term deferred revenue: | | | | | | | | |
Subscription | | $ | 168 | | | $ | 766 | |
Maintenance | | | 450 | | | | 1,006 | |
Total | | $ | 618 | | | $ | 1,772 | |
7. Restructuring
During the second quarter of fiscal 2014, the Company initiated a restructuring plan to reorganize its operations. The Company incurred $0.2 million in severance costs under this plan, all of which was paid in fiscal 2014.
During the fourth quarter of fiscal 2013, the Company initiated a restructuring plan to reorganize its operations in-line with its conversion to a SaaS model. The Company incurred $0.3 million in severance costs under this plan, of which $0.1 million was paid in fiscal 2013 and $0.2 million was paid during the first nine months of fiscal 2014.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. Operating Lease Commitments
On May 15, 2014, Selectica, Inc. (the “Company”) entered into a First Amendment to Lease (the “Lease Amendment”) with SKBGS I, L.L.C. amending the Office Lease dated July 8, 2011 whereby the Company is leasing approximately 10,516 square feet of office space at a premises located at 2121 South El Camino Real, Suite 1000, San Mateo, California where the Company maintains its headquarters. The Lease Amendment extends the lease term to cover a 25 month period expiring January 31, 2017 and carries a base rent of $2.85 per rentable square foot, escalating 3% each year.
Rental expenses for the office space and equipment were approximately $0.2 million for both years ended March 31, 2014 and 2013. Minimum payments under our operating leases agreements are $0.2 million in fiscal 2015, $0.4 million in fiscal 2016 and $0.3 million in fiscal 2017.
9. Contingencies
Legal Matters
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, Trilogyincreased 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 Agreement 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 was filed with the Delaware Supreme Court. On October 11, 2010, the Delaware Supreme Court issued an opinion that affirmed the Court of Chancery’s ruling in the Company’s favor, confirming the validity of the actions the Board of Directors and its special committee took to preserve the Company’s net operating losses. On November 11, 2010, the Company filed suit in the Delaware Court of Chancery against Trilogy seeking a declaratory judgment that the Company is not obligated to pay more than $1 million in fees demanded by Trilogy in connection with an alleged “investigation” into the Company’s corporate governance policies and procedures. On January 13, 2011, Trilogy answered the Company’s complaint and asserted a counterclaim for such fees. The Company filed a reply on February 2, 2011. On September 20, 2011, the Company and Trilogy entered into a Comprehensive Settlement Agreement (the “Settlement Agreement”) providing for both the settlement of existing claims as well as the restriction of future claims between the parties. The Settlement Agreement provides for, among other things, (i) the repayment by the Company of all outstanding amounts payable to Trilogy under the previous Settlement, Release and License Agreement dated October 5, 2007 entered into between the Company and Versata (the “2007 Settlement Agreement”), (ii) the purchase by the Company of all shares of Company common stock held by Versata and related standstill requirement whereby Versata would not be able to purchase any further shares of Company common stock for a 25 year period and (iii) the entry into a consulting agreement between the Company and one of Versata’s affiliated entities whereby the Company could utilize certain services of such entity. Each party provided a general release of claims to the other party with respect to any and all claims that such party (or any of its affiliates) may have against the other party occurring before the date of the Settlement Agreement, and the parties entered into a covenant not to sue each other. As a result of the Settlement Agreement, the claims and counterclaims referenced above were dismissed by the parties.
As the costs of this litigation and related legal work are directly related to the issuance of shares under the Company’s Rights Agreement, 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. As of March 31, 2014, there are no longer anticipated recoveries reflected in prepaid expenses and other current assets on the Company’s balance sheet.
Warranties and Indemnifications
The Company’s products are generally warranted to perform substantially in accordance with the functional specifications set forth in the associated product documentation for a period of 90 days. In the event there is a failure of such warranties, the Company generally is obligated to correct the product to conform to the product documentation or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or service. The Company has not provided for a warranty accrual as of March 31, 2014 and 2013. To date, the Company has not refunded any amounts in relation to the warranty.
The Company generally agrees to indemnify its customers against legal claims that the Company’s software infringes certain third-party intellectual property rights. In the event of such a claim, the Company is obligated to defend its customer against the claim and to either settle the claim at the Company’s expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of the infringement, the Company agrees to modify or replace the infringing product, or, if those options are not reasonably possible, to refund the purchase price of the software. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers. As such, the Company has not provided for an indemnification accrual as of March 31, 2014 and 2013.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Stockholders’ Equity
Common Stock Reserved for Future Issuance
At March 31, 2014, shares of common stock reserved for future issuance were as follows:
| | | | |
Equity incentive plans: | | | | |
Awards outstanding | | | 639,000 | |
Options outstanding | | | 386,000 | |
Reserved for future grants | | | 555,000 | |
Total common stock reserved for future issuance | | | 1,580,000 | |
The effect of recording stock-based compensation expense for each of the periods presented was as follows:
| | | Fiscal Years Ended March 31, (in thousands) | |
| | | 2014 | | | 2013 | |
Cost of revenues | | $ | 250 | | | $ | 134 | |
Research and development | | | 167 | | | | 171 | |
Sales and marketing | | | 345 | | | | 284 | |
General and administrative | | | 385 | | | | 540 | |
| | | | | | | | | |
Impact on net loss | | $ | 1,149 | | | $ | 1,129 | |
As of March 31, 2014, the unrecorded share-based compensation balance related to stock options outstanding excluding estimated forfeitures was $0.6 million and will be recognized over an estimated weighted average amortization period of 2.80 years. As of March 31, 2014, the unrecorded share-based compensation balance related to stock awards outstanding excluding estimated forfeitures was $3.1 million and will be recognized over an estimated weighted average amortization period of 2.84 years. The amortization period is based on the expected remaining vesting term of the options or awards.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1999 Employee Stock Purchase Plan (“ESPP”)
In fiscal year 2014, the price paid for the Company’s common stock purchased under the ESPP was 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 fiscal year ended March 31, 2014 was $114,000. During the fiscal year ended March 31, 2014 there were 37,553 shares issued under the ESPP at a weighted average purchase price of $0.00 per share.move391498097
Redeemable ConvertiblePreferred Stock
The Company is authorized to issue 1 million shares of preferred stock at a par value of $0.0001 per share. There were 680,047 shares of Series D redeemable convertible Stock issued and outstanding at March 31, 2014 and no preferred stock issued and outstanding at March 31, 2013.
The Board of Directors has the authority, without action by the stockholders, to designate and issue the preferred stock in one or more series and to fix the rights, preferences, privileges, and related restrictions, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of the series.
The Series D Stock was not entitled to a liquidation or dividend preference. If the Series D Stock had not been converted into Common Stock following stockholder approval in April 2014, beginning on April 15, 2014, the Series D Stock would have been entitled to 10% accruing dividends per annum. The dividends would have been payable quarterly in cash, beginning on June 30, 2014. The shares of Series D Stock were also redeemable by the Company upon the request of the holders of at least a majority of the then outstanding Series D Stock. The redemption price would have been equal to the product of (i) the number of shares or fraction of a share of Series D Preferred Stock to be redeemed from each such holder multiplied by (ii) ten (10) times the conversion price then in effect, plus any accrued and unpaid dividends up to, but not including, the redemption date.
The holders of Series D Stock had the right to vote together with the holders of the Company’s Common Stock as a single class on any matter on which the holders of Common Stock were entitled to vote, except that the holders of Series D Stock were not eligible to vote their shares of Series D Stock on the proposal submitted to the Company’s stockholders for approval of the issuance and sale of the securities in the Financing and the conversion of the Series D Stock. Holders of Series D Stock were entitled to cast a fraction of one vote for each share of Common Stock issuable to such holder on the record date for the determination of stockholders entitled to vote at a conversion rate the numerator of which was $60.00 and the denominator of which was the closing bid price per share of the Common Stock on January 24, 2014, as reported by Bloomberg Financial Markets.
On April 10, 2014, following approval by the Company’s stockholders, each whole share of Series D Stock converted automatically into ten shares of Common Stock at an initial conversion price of $6.00 per share of Common Stock, for a total of 690,274 shares of Common Stock issued upon such conversion (including the conversion of the shares of Series D Stock issued to Lake Street as described above). move391498099Because the Series D Stock was redeemable at the option of the holder (prior to the shareholders approving conversion on April 10, 2014 as discussed above), we have recorded it in temporary equity as of March 31, 2014.
Stock Option Plans—Approved by Stockholders
1996 Plan
The Company adopted the 1996 Stock Plan as amended and restated March 28, 2001 (the “1996 Plan”). A total of approximately 815,000 shares of common stock have been reserved under the 1996 Plan. With limited restrictions, if shares awarded under the 1996 Plan are forfeited, those shares will again become available for new awards under the 1996 Plan. The 1996 Plan permits the grant of options, stock appreciation rights, shares of restricted stock, and stock units. The types of options include incentive stock options that qualify for favorable tax treatment for the optionee under Section 422 of the Internal Revenue Code of 1986, and non-statutory stock options not designed to qualify for favorable tax treatment. Employees, non-employee members of the board and consultants are eligible to participate in the 1996 Plan. Incentive stock options are granted at an exercise price of not less than 100% of the fair market value per share of the common stock on the date of grant, and non-statutory stock options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the 1996 Plan have a maximum term of ten years.
1999 Equity Incentive Plan
The Company adopted the 1999 Equity Incentive Plan (the “1999 Plan”) on November 18, 1999. The 1999 Plan was amended in May 2010, such that the number of shares reserved for issuance is no longer automatically increased, and a total of 1,551,000 shares were reserved for future issuance. With limited restrictions, if shares awarded under the 1999 Plan are forfeited, those shares will again become available for new awards under the 1999 Plan. The 1999 Plan permits the grant of options, stock appreciation rights, shares of restricted stock, and stock units. The types of options include incentive stock options that qualify for favorable tax treatment for the optionee under Section 422 of the Internal Revenue Code of 1986 and non-statutory stock options not designed to qualify for favorable tax treatment. Employees, non-employee members of the Board of Directors and consultants are eligible to participate in the 1999 Plan. Each eligible participant is limited to being granted options or stock appreciation rights covering no more than 33,000 shares per fiscal year, except in the first year of employment where the limit is 66,000 shares. Incentive stock options are granted at an exercise price of not less than 100% of the fair market value per share of the common stock on the date of grant, and non-statutory stock options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the 1999 Plan have a maximum term of ten years.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
On December 3, 2012, the Compensation Committee of the Board of Directors of the Company adopted a Long Term Performance Incentive Plan (the “LTPIP”) within the 1999 Equity Incentive Plan (the “1999 Plan”), under which restricted stock units would be granted to the Company’s executives. Under the LTPIP, sixty percent (60%) of the restricted stock units will vest based upon achievement of contracted monthly recurring revenue targets over a period of three years, with fifty percent (50%) of the amount withheld from vesting until the Company achieves profitability, and forty percent (40%) vest based upon operating profit targets over a period of three years. The restricted stock units granted under the LTPIP include 420,000 shares granted to the Company’s executives, under which the Company’s Chief Executive Officer received a grant of 220,000 restricted stock units, and the Company’s Chief Financial Officer, Chief Strategy Officer, Chief Operating Officer and Chief Commercial Officer each received a grant of 50,000 restricted stock units. The Company is amortizing the related compensation expense on a straight-line basis over the expected vesting period. The compensation expense was $0.1 million and $0.4 million for the years as of March 31, 2014 and2013, respectively.
1999 Employee Stock Purchase Plan
On November 18, 1999, the Company’s Board of Directors approved the adoption of the 1999 Employee Stock Purchase Plan (the “Purchase Plan”) and the Company’s stockholders have approved of the Purchase Plan. The Purchase Plan was amended and restated on February 1, 2008 and amended and restated on November 7, 2012. A total of 100,000 shares of common stock were initially reserved for issuance under the Purchase Plan. The November 7, 2012 amendment and restatement of the Purchase Plan provided a reserve of 553,000 shares of common stock available for issuance under the Purchase Plan.
The Compensation Committee of the Board of Directors administers this plan. The Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee’s cash compensation, at a purchase price equal to the lower of 85% of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each purchase period. Employees who work more than five months per year and more than twenty hours per week are eligible to participate in the Purchase Plan. Stockholders who own more than 5% of the Company’s outstanding common stock are excluded from participating in the Purchase Plan. Each eligible employee cannot purchase more than 5,000 shares per purchase date (10,000 shares per year) and, generally, cannot purchase more than $25,000 of stock per calendar year. Eligible employees may begin participating in the Purchase Plan at the start of an offering period. Each offering period lasts six months beginning on January 31 and July 31 of each calendar year with an additional one-time offering period beginning on or about November 1, 2012 and terminating on or about January 1, 2013. Employees may end their participation in the Purchase Plan at any time. Participation ends automatically upon termination of employment. The Board of Directors may amend or terminate the Purchase Plan at any time. If not terminated earlier, the Purchase Plan has a term of twenty years. If the Board of Directors increases the number of shares of common stock reserved for issuance under the Purchase Plan, other than any share increase resulting from the formula described in the previous paragraph, it must seek the approval of the Company’s stockholders.
2001 Supplemental Plan
We adopted the 2001 Supplemental Plan (the “Supplemental Plan”) on May 30, 2001; the Supplemental Plan did not require stockholder approval. A total of approximately 250,000 shares of common stock have been reserved for issuance under the Supplemental Plan. With limited restrictions, if shares awarded under the Supplemental Plan are forfeited, those shares will again become available for new awards under the Supplemental Plan. The Supplemental Plan permits the grant of non-statutory options and shares of restricted stock. Employees and consultants, who are not officers or members of the Board of Directors, are eligible to participate in the Supplemental Plan. Options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the Supplemental Plan have a maximum term of ten years.
The Compensation Committee of the Board of Directors administers the Supplemental Plan and has complete discretion to make all decisions relating to the interpretation and operation of the Supplemental Plan. The Compensation Committee has the discretion to determine which eligible persons are to receive an award, and to determine the type, number, vesting requirements and other features and conditions of each award. The exercise price of options may be paid with: cash, outstanding shares of common stock, the cashless exercise method through a designated broker, a pledge of shares to a broker or a promissory note. The purchase price for newly issued restricted shares may be paid with: cash, a promissory note or the rendering of past or future services. The Compensation Committee may reprice options and may modify, extend or assume outstanding options. The Compensation Committee may accept the cancellation of outstanding options in return for the grant of new options. The new option may have the same or a different number of shares and the same or a different exercise price. If a merger or other reorganization occurs, the agreement of merger or reorganization shall provide that outstanding options and other awards under the Supplemental Plan shall be assumed or substituted with comparable awards by the surviving corporation or its parent or subsidiary, shall be continued by the Company if it is the surviving corporation, shall have accelerated vesting and then expire early or shall be cancelled for a cash payment. If a change in control occurs, awards will become fully exercisable and fully vested if the awards do not remain outstanding, are not assumed by the surviving corporation or its parent or subsidiary and if the surviving corporation or its parent or subsidiary does not substitute its own awards that have substantially the same terms for the awards granted under the Supplemental Plan. If a change in control occurs and a plan participant is involuntarily terminated within 12 months following this change in control, then the vesting of awards held by the participant will accelerate, as if the participant provided another 12 months of service. A change in control includes: a merger or consolidation after which the then-current stockholders own less than 50% of the surviving corporation, a sale of all or substantially all of the assets, a proxy contest that results in replacement of more than one-half of the directors over a 24-month period or an acquisition of 50% or more of the outstanding stock by a person other than a person related to the Company, including a corporation owned by the stockholders. The Board of Directors may amend or terminate the Supplemental Plan at any time. The Supplemental Plan will continue in effect indefinitely unless the Board of Directors decides to terminate the plan earlier.
In fiscal 2014, under the 2001 Long-Term Equity Incentive Plan, the Company provided issuance of stock appreciation rights to the Odessa consultants in Ukraine. To date, the Company has issued 11,350 shares under stock appreciation rights for the exercise price of $6.98. The shares will vest over four years starting from the grant date of January 21, 2014. The contractors will get 50 more shares at every anniversary of their employment. The Company reserves the right to modify this over time. The Company did not book any expense for the year ended as of March 31, 2014 as the financial impact was immaterial.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following table summarizes activity under the equity incentive plans for the indicated periods:
| | | | | | | Options and Restricted Stock Units Outstanding | |
| | | Shares Available for Grant | | | Number of Shares | | | Exercise Price Per Share | | | Weighted- Average Exercise Price Per Share | |
| | | (in thousands except for per share amounts) | |
Balance at March 31, 2012 | | | 1,233 | | | | 476 | | | $3.70 | - | $42.40 | | | $ | 7.48 | |
Options granted | | | — | | | | — | | | | | | | | $ | — | |
Options cancelled | | | 53 | | | | (53 | ) | | | | | | | $ | 7.42 | |
Restricted stock units granted | | | (707 | ) | | | 707 | | | | | | | | $ | — | |
Restricted stock units released | | | — | | | | (86 | ) | | | | | | | $ | — | |
Restricted stock units cancelled | | | 104 | | | | (142 | ) | | | | | | | $ | — | |
Balance at March 31, 2013 | | | 673 | | | | 885 | | | $3.70 | - | $42.40 | | | $ | 7.76 | |
Shares Added | | | 187 | | | | — | | | | | | | | $ | — | |
Options granted | | | (316 | ) | | | 316 | | | | | | | | $ | 6.28 | |
Options exercised | | | — | | | | (43 | ) | | | | | | | $ | 5.32 | |
Options cancelled | | | 48 | | | | (48 | ) | | | | | | | $ | 11.14 | |
Restricted stock units granted | | | (530 | ) | | | 530 | | | | | | | | $ | — | |
Restricted stock units released | | | — | | | | (122 | ) | | | | | | | $ | — | |
Restricted stock units cancelled | | | 493 | | | | (493 | ) | | | | | | | $ | — | |
Balance at March 31, 2014 | | | 555 | | | | 1,025 | | | | | | | | $ | 6.40 | |
Vested and expected to vest | | | | | | | 683 | | | $3.70 | - | $34.00 | | | $ | 6.44 | |
Options outstanding and exercisable at March 31, 2014 were in the following exercise price ranges:
| | | | | Options Outstanding | | | Options Vested and Exercisable | |
| Range of Exercise | Number | | | Weighted- | | | Number | | | | Weighted- | |
| Prices Per Share | of Shares | | | Average | | | of Shares | | | | Average | |
| | | | | | | | Remaining | | | | | | | Exercise Price | |
| | | | | | | | Contractual | | | | | | | Per Share | |
| | | | | | | | Life (Years) | | | | | | | | |
| | | | (in thousands except for per share amounts) | | | | | | | | |
$3.70 | – | $5.72 | | 106 | | | 8.11 | | | 57 | | | $ | 5.22 | |
$6.28 | – | $6.28 | | 187 | | | 9.68 | | | — | | | $ | 0.00 | |
$6.30 | – | $6.83 | | 79 | | | 9.79 | | | 4 | | | $ | 6.83 | |
$7.20 | – | $31.30 | | 12 | | | 4.24 | | | 12 | | | $ | 12.08 | |
$34.00 | – | $34.00 | | 2 | | | 0.8 | | | 2 | | | $ | 34.00 | |
$3.70 | – | $34.00 | | 386 | | | 9.06 | | | 75 | | | $ | 7.01 | |
The weighted average remaining contractual term for exercisable options is 6.93 years. The intrinsic value is calculated as the difference between the market value as of March 31, 2014 and the exercise price of the shares. The market value of the Company’s common stock as of March 31, 2014 was $6.66 as reported by the NASDAQ Capital Market. There was $219,000 of aggregate intrinsic value of stock options outstanding at March 31, 2014 and there was $509,000 of aggregate intrinsic value of stock options outstanding at March 31, 2013.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following table summarizes values for options granted during the respective years:
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Weighted average grant date fair value | | $ | 672 | | | $ | — | |
Intrinsic value of options exercised | | $ | 48 | | | $ | 83 | |
Fair value of shares vesting during the year | | $ | 346 | | | $ | 821 | |
The following table summarizes activity for awards for therespective years:
| | | Shares | | | Grant Date Fair Value Per Share | | | Aggregate Intrinsic Value | |
(in thousands except for per share amounts) | | |
Balance at March 31, 2012 | | | 246 | | | $ | 5.01 | | | $ | 939 | |
Awards granted | | | 707 | | | $ | 5.51 | | | $ | — | |
Awards vested/released | | | (86 | ) | | $ | 4.96 | | | $ | — | |
Awards cancelled/forfeited | | | (142 | ) | | $ | 4.9 | | | $ | — | |
Balance at March 31, 2013 | | | 725 | | | $ | 5.53 | | | $ | 6,553 | |
Awards granted | | | 530 | | | $ | 6.91 | | | $ | — | |
Awards vested/released | | | (122 | ) | | $ | 6.74 | | | $ | — | |
Awards cancelled/forfeited | | | (494 | ) | | $ | 5.72 | | | $ | — | |
Balance at March 31, 2014 | | | 639 | | | $ | 6.66 | | | $ | 4,255 | |
The effect of recording stock-based compensation expense for each of the periods presented was as follows:
| | | Fiscal Years Ended March 31, (in thousands) | |
| | | 2014 | | | 2013 | |
Cost of revenues | | $ | 250 | | | $ | 134 | |
Research and development | | | 167 | | | | 171 | |
Sales and marketing | | | 345 | | | | 284 | |
General and administrative | | | 385 | | | | 540 | |
| | | | | | | | | |
Impact on net loss | | $ | 1,149 | | | $ | 1,129 | |
There were no rights granted under the employee stock purchase plan during fiscal 2013. During fiscal 2014, the fair value of rights granted under the employee stock purchase plan were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
| | | Fiscal Year Ended March 31, 2014 | |
Risk-free interest rate | | | 0.09 | % |
Dividend yield | | | 0.00 | % |
Expected volatility | | | 58.28 | % |
Expected term in years | | | 0.50 | |
Weighted average fair value at grant date | | $ | 2.81 | |
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
There were no stock options granted during fiscal 2013. During fiscal 2014, the fair value of options granted under employee stock option plans were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
| | | Fiscal Year Ended March 31, 2014 | |
Risk-free interest rate | | | 0.88 | % |
Dividend yield | | | 0.00 | % |
Expected volatility | | | 58.43 | % |
Expected term in years | | | 3.21 | |
Weighted average fair value at grant date | | $ | 2.52 | |
Equity Compensation Plan Information
The table below demonstrates the number of options and awards issued and the number of options and awards available for issuance, respectively, under the Company’s current equity compensation plans as of March 31, 2014:
| | | Number of Securities to be Issued upon Exercise of Outstanding Options, and Rights | | | Weighted- Average Exercise Price Per Share of Outstanding Options and Rights | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | |
| | | (in thousands, except for per share amount) | |
Plans Approved by Stockholders | | | | | | | | | | | | |
1996 Stock Plan | | | 1 | | | $ | 31.30 | | | | 147 | |
1999 Equity Incentive Plan | | | 838 | | | $ | 6.44 | | | | 224 | |
Plans Not Required to be Approved by Stockholders | | | | | | | | | | | | |
2001 Supplemental Plan | | | -- | | | $ | -- | | | | 185 | |
Grant to CEO Blaine Mathieu (1) | | | 187 | | | $ | 6.28 | | | | -- | |
Total | | | 1,025 | | | $ | 6.40 | | | | 556 | |
All vested shares granted under all Plans are exercisable; however, shares exercised but not vested under the 1996 Stock Plan are subject to repurchase.
(1) Represents an option to purchase 187 thousand shares of our Common Stock granted to Mr. Mathieu outside of the 1996 and 1999 Stock Plan. The grant of this option did not require approval by our stockholders due to its qualification under the "inducement grant exception" provided by Nasdaq Listing Rule 5635(c)(4).
11. 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:
| | | Fiscal Years Ended | |
| | | March 31, | |
| | | 2014 | | | 2013 | |
Options | | | 94 | | | | 44 | |
Unvested restricted stock units | | | 572 | | | | 399 | |
Warrants | | | 454 | | | | 723 | |
Total common stock equivalents excluded from diluted net loss per common share | | | 1,120 | | | | 1,166 | |
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. Income Taxes
The provision for income taxes is based upon loss before income taxes as follows:
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Domestic pre-tax loss | | $ | (8,148 | ) | | $ | (4,738 | ) |
Foreign pre-tax loss | | | (31 | ) | | | (11 | ) |
Total pre-tax loss | | $ | (8,179 | ) | | $ | (4,749 | ) |
| | | Fiscal Years Ended March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Federal tax at statutory rate | | $ | (2,735 | ) | | $ | (1,593 | ) |
Computed state tax | | | (148 | ) | | | (255 | ) |
Foreign rate differential | | | (11 | ) | | | 4 | |
Losses not benefited | | | 3,089 | | | | (186 | ) |
Change in tax reserve | | | 152 | | | | (161 | ) |
NOL expiration | | | — | | | | 890 | |
Non-deductible expenses | | | (275 | ) | | | (28 | ) |
Change in tax rate | | | — | | | | 1,613 | |
Research and development tax credits | | | (72 | ) | | | (274 | ) |
Income tax provision | | $ | — | | | $ | — | |
ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based on the weight of available evidence, which includes the Company's historical operation performance and the reported cumulative net losses in all prior years, the Company has provided a full valuation allowance against its net deferred tax assets.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows (in thousands):
| | | March 31, | |
| | | 2014 | | | 2013 | |
| | | (in thousands) | |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforwards | | $ | 72,646 | | | $ | 68,809 | |
Intangible assets | | | 11,535 | | | | 12,221 | |
Tax credit carryforwards | | | 5,060 | | | | 5,079 | |
Reserves and accruals | | | 155 | | | | 225 | |
Depreciation | | | 14 | | | | 57 | |
Stock compensation | | | 398 | | | | 354 | |
Deferred revenue | | | 523 | | | | 472 | |
Total net deferred tax asset | | | 90,331 | | | | 87,217 | |
Valuation allowance | | | (90,331 | ) | | | (87,217 | ) |
Net deferred tax assets | | $ | — | | | $ | — | |
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance that increased by $3.1 million and decreased by $0.1 million during 2014 and 2013 respectively.
As of March 31, 2014 the Company had federal and state net operating loss carryforwards of approximately $198.0 million and $92.7 million respectively. As of March 31, 2014, the Company also had federal and state research and development tax credit carryforwards of approximately $3.5 million and $4.9 million, respectively.
The federal net operating loss and credit carryforwards expire in various amounts between fiscal years ending March 31, 2019 through 2034, if not utilized. The state net operating loss carryforwards expire in various amounts between fiscal year ending March 31, 2015 through various dates, if not utilized. The state tax credit carryforwards have no expiration date.
The Internal Revenue Code Section 382 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event the Company has had a change in ownership, utilization of the carryforwards could be restricted.
Based on its most recently performed study, the Company has concluded it has not had a prior ownership change, as defined by Section 382 of the Internal Revenue Code (IRC), which could limit the future realization of its net operating loss carryforwards since June 1999. Based on this recent study, the Company believes that the application of Section 382 will not result in the forfeiture of any net operating loss carryforward for federal income tax purposes and any net operating loss carryforward for California income tax purposes. Please note the net operating loss carryforwards above take into account this belief. Applicable taxing authorities could disagree if and when an income tax return is filed that utilizes some or all of these net operating loss carryforwards.
In addition, based on this recent study, the Company has concluded that none of the federal and California research tax credit carryforwards, respectively, would be subject to forfeiture due to Section 382 ownership changes under IRC Section 383 and/or possible credit amount reduction upon audit, but as noted above this is subject to review by the applicable taxing authority. Please note the research and development tax credit carryforwards above take into account this reduction.
The Company is required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. At March 31, 2014, there was no liability for unrecognized tax benefits.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
A reconciliation of the beginning and ending unrecognized tax benefit amounts for fiscal year 2014 are as follows (in thousands):
| | | Amount | |
Balance at April 1, 2013 | | $ | 2,121 | |
Increases related to current year tax positions | | | 26 | |
Decreases related to expiration of tax credits and statute of limitations | | | (38 | ) |
Balance at March 31, 2014 | | $ | 2,109 | |
The Company's federal, state and foreign tax returns are subject to examination by the tax authorities from 1999 to 2014 due to net operating loss and tax carryforwards unutilized from such years.
13. 401(k) Benefit Plan
The Company offers a tax-deferred savings plan, the Selectica 401(k) Plan (the 401(k) Plan), for the benefit of qualified employees. The 401(k) Plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) Plan on a monthly basis. Starting in fiscal 2012, the 401(k) Plan requires the Company to match the first 1% of all employee contributions. For the fiscal years ended March 31, 2014 and 2013, the Company contributed $56,000 and $42,000, respectively, to the 401(k) Plan. Administrative expenses relating to the 401(k) Plan are insignificant.
14. Segment Information
The Company operates as one business segment and therefore segment information is not presented.
15. Versata Note Payable
Pursuant to the Settlement Agreement, as of March 31, 2012, the Company has paid to Versata the following payments: (i) $4.5 million for the repayment of all outstanding amounts payable under the 2007 Settlement Agreement, (ii) $472,000 for the repurchase of the Company common stock held by Versata and (iii) $500,000 for the consulting services to be provided by Versata’s affiliated entity, with an additional $500,000 payable within five business days after the one year anniversary of the Settlement Agreement.
The Company recorded a $0 and $500,000 charge relating to the consulting services paid as part of the Settlement Agreement in both fiscal 2014 and 2013, respectively.
16. Credit Facility
On September 29, 2011, the Company entered into a Business Financing Agreement with Bridge Bank, National Association, which was modified during fiscal 2013 (as amended, the “Credit Facility”). The Credit Facility provides a revolving receivables financing facility in an amount up to $3.0 million (the “Receivables Financing Facility”) and a revolving cash secured financing facility in an amount up to $4.0 million (the “Working Capital Facility”), for an aggregate revolving credit facility of up to $7.0 million.
The Receivables Financing Facility may be drawn in amounts up to $3.0 million in the aggregate, subject to a minimum borrowing base requirement equal to 80% of the Company’s eligible accounts receivable as determined under the Credit Facility. The Working Capital Facility may be drawn in such amounts as requested by the Company, not to exceed $4.0 million in the aggregate. The Credit Facility terminates on February 20, 2014, provided, however, that in the event of an early termination by the Company, a penalty of 1.0% of the total credit facility would be triggered.
All amounts borrowed under the Credit Facility are secured by a general security interest on the assets of the Company and are subject to a 1.75 Current Ratio of (i) cash and cash equivalents plus all eligible receivables in relation to (ii) the Company’s current liabilities excluding current deferred revenue.
Except as otherwise set forth in the Credit Facility, borrowings made under the Receivables Financing Facility will bear interest at a rate equal to the prime rate or 3.25%, whichever is greater, plus 0.25%, and borrowings made under the Working Capital Facility will bear interest at a rate equal to the financial institution’s certificate of deposit 30-day rate plus 200 basis points, with the total minimum monthly interest to be charged being $2,000.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
As of March 31, 2014 and March 31, 2013, the Company owed $6.9 million and $6.0 million, respectively, under the Credit Facility, and no amounts were available for future borrowings.
17. Subsequent Events
Entry into a Material Definitive Agreement
On May 15, 2014, Selectica, Inc. (the “Company”) entered into a First Amendment to Lease (the “Lease Amendment”) with SKBGS I, L.L.C. amending the Office Lease dated July 8, 2011 whereby the Company is leasing approximately 10,516 square feet of office space at a premises located at 2121 South El Camino Real, Suite 1000, San Mateo, California where the Company maintains its headquarters. The Lease Amendment extends the lease term to cover a 25 month period expiring January 31, 2017 and carries a base rent of $2.85 per rentable square foot, escalating 3% each year.
Conversion of Series D Stock
At a special meeting of the stockholders of the Company on April 10, 2014, the stockholders approved the issuance of the shares of Common Stock, Series D Stock and 2014 Warrants issued in the 2014 Financing. Pursuant to the Company’s Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock filed by the Company with the Delaware Secretary of State on January 23, 2014, upon such stockholder approval, each whole share of Series D Stock converted automatically into ten (10) shares of common stock at a conversion price of $6.00 per share of common stock, for a total of 690,274 conversion shares.
Entry into an Agreement to Acquire Iasta
On June 2, 2014, the Company entered into the Merger Agreement with Selectica Sourcing, Iasta and the Shareholders pursuant to which the Company would acquire Iasta. Subject to the terms and conditions of the Merger Agreement, to effect the Acquisition, Iasta will be merged with and into Selectica Sourcing, with Selectica Sourcing continuing as a wholly owned subsidiary of the Company.
The aggregate purchase price for the Acquisition will be the Acquisition Shares and $7.0 million in cash (together with the Acquisition Shares, the “Purchase Price”), including amounts related to the repayment of indebtedness and payment of transaction costs. The Acquisition is not conditioned upon receipt of financing by the Company or Selectica Sourcing. The Purchase Price will be subject to certain adjustments and to a $1.4 million cash escrow (the “Escrow”) to cover any post-closing adjustments to the Purchase Price and indemnification obligations of the Shareholders. The Escrow will be deposited with Wells Fargo Bank, National Association, as escrow agent, pursuant to an Escrow Agreement to be entered into by the parties at the closing of the Acquisition. A portion of the Escrow will be released on the 12-month anniversary of the closing of the Acquisition, and the remainder of the Escrow will be released on the 18-month anniversary of the closing of the Acquisition, in each case after deducting any claims or adjustments.
The Merger Agreement contains customary representations and warranties as well as covenants by each of the parties, including non-competition covenants made by the principal Shareholders for the benefit of the Company. Subject to certain limitations, the Company will be indemnified for damages resulting from breaches or inaccuracies by Iasta or the Shareholders of their respective representations, warranties and covenants in the Merger Agreement as well as other specified matters. The Shareholders will be indemnified by the Company for damages resulting from breaches or inaccuracies by the Company of its representations, warranties and covenants in the Merger Agreement.
The Merger Agreement contains a “no shop” provision that, in general, prohibits Iasta from soliciting third-party acquisition proposals, provide information to or engage in discussions or negotiations with third parties that have made or might make an acquisition proposal. The Merger Agreement also contains certain termination rights by the parties.
The Acquisition is anticipated to close during the Company’s second fiscal quarter of fiscal year 2015, subject to the satisfaction of customary closing conditions. As a condition to the closing of the Acquisition, the Company will enter into employment agreements with certain key employees of Iasta. Following the closing of the Acquisition, the Company will issue options to certain Iasta employees to purchase up to an aggregate of 700,000 shares of Common Stock of the Company, which awards will be employment inducement awards pursuant to NASDAQ Listing Rule 5635(c)(4).
The Acquisition Shares to be issued to the Shareholders at the closing of the Acquisition have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. At the closing of the Acquisition, the Company and the Shareholders will enter into a Registration Rights Agreement with respect to registration of the resale of the Acquisition Shares.
SELECTICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Entry into a Financing Agreement
Purchase Agreement
On June 5, 2014, the Company entered into the Purchase Agreement with the June 2014 Investors pursuant to which the Company agreed to sell, and the June 2014 Investors agreed to purchase, 124,890.5 shares of Series E Stock, at a purchase price of $60.00 per whole share (or $6.00 per one-tenth (1/10) of a share of Series E Stock, which would convert into one share of the Company’s common stock),which Series E Stock would be converted upon stockholder approval to 1,248,905 shares of Common Stock (subject to adjustment as described below). The total proceeds raised in the 2014 Second Financing would aggregate to approximately $7.5 million. The 2014 Second Financing is anticipated to close during the Company’s second fiscal quarter, subject to the satisfaction of certain closing conditions.
Certificate of Designation for Series E Stock
Pursuant to a Certificate of Designations, Preferences and Rights of Series E Convertible Preferred Stock to be filed by the Company with the Delaware Secretary of State (the “Certificate of Designation”) at the closing of the 2014 Second Financing, after stockholder approval, each whole share of Series E Stock would be converted automatically into ten shares of Common Stock at an initial conversion price of $6.00 per share of Common Stock, subject to broad-based weighted-average anti-dilution adjustment in the event the Company issues securities, other than certain excepted issuances and subject to certain limitations, at a price below the then current conversion price.
The Series E Stock would not be entitled to a liquidation or dividend preference. Beginning on August 31, 2014, the Series E Stock would be entitled to 10% accruing dividends per annum. The dividends are payable quarterly in cash, beginning on September 30, 2014. Beginning on June 5, 2015, the shares of Series E Stock would be redeemed by the Company upon the request of the holders of at least a majority of the then outstanding Series E Stock, to the extent funds are legally available for such redemption. The redemption price would be equal to the product of (i) the number of shares or fraction of a share of Series E Preferred Stock to be redeemed from each such holder multiplied by (ii) ten (10) times the conversion price then in effect, plus any accrued and unpaid dividends up to, but not including, the redemption date.
The holders of Series E Stock would have the right to vote together with the holders of the Company’s Common Stock as a single class on any matter on which the holders of Common Stock are entitled to vote, except that the holders of Series E Stock would not be eligible to vote their shares of Series E Stock on the proposal to be submitted to the Company’s stockholders for approval of the issuance and sale of the securities in the 2014 Second Financing and the conversion of the Series E Stock. Holders of Series E Stock would be entitled to cast a fraction of one vote for each share of Common Stock that would be issuable to such holder on the record date for the determination of stockholders entitled to vote at a conversion rate the numerator of which is $60.00 (as may be adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or similar event occurring prior to such record date) and the denominator of which is the closing bid price per share of the Common Stock on June 5, 2014, as reported by Bloomberg Financial Markets.
Warrants
In addition to the issuance of the Series E Stock, at the closing of the 2014 Second Financing, the Company would issue to each June 2014 Investor a Warrant. The Warrants would be initially exercisable for an aggregate of 312,223 share of Common Stock. The exercise price of the Warrants would be $7.00 per share. The Warrants would have a five-year term, would not be exercisable for the first six months following the date of issuance and would include a cashless exercise provision which is only applicable if the Common Stock underlying the Warrants is not subject to an effective registration statement or otherwise cannot be sold without restriction pursuant to Rule 144.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.Controls and Procedures.
Management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the rule and forms of the SEC. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures for each fiscal quarter during the year ended March 31, 2014. Based on its evaluation, our management concluded that our disclosure controls and procedures were effective as of March 31, 2014.
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting means a process designed by, or under the supervision of, our principal executive and principal financial officers (or persons performing similar functions), and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Our management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2014 based on the guidelines established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based upon our evaluation of internal control over financial reporting as of March 31, 2014, our management concluded that our internal control over financial reporting was effective as of March 31, 2014.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting in the year ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Principal Executive Officer and Principal Financial Officer (or persons performing those functions), do not expect that our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B.Other Information.
None.
PART III
Item 10.Directors, Executive Officers and Corporate Governance.
The information required by this item is included under the captions “Directors, Executive Officers and Corporate Governance” in the fiscal year 2014 Proxy Statement and incorporated herein by reference.
Item 11.Executive Compensation.
The information required by this item is included under the captions “Executive Compensation and Related Information” in the fiscal year 2014 Proxy Statement and incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is included under the captions “Common Stock Ownership of Certain Beneficial Owners and Management” and “Executive Compensation—Equity Compensation Plan Information” in the fiscal year 2014 Proxy Statement and is incorporated herein by reference.
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by this item is included under the captions “Certain Relationships and Related Transactions” and “Corporate Governance—Independence of Directors” in the fiscal year 2014 Proxy Statement and is incorporated herein by reference.
Item 14.Principal Accounting Fees and Services.
The information required by this item is included under the caption “Independent Public Accountants” in the fiscal year 2014 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15.Exhibits and Financial Statement Schedules.
The following documents are filed as part of this report:
(a)Financial Statements: See Index to Consolidated Financial Statements in Part II, Item 8.
(b)Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Schedule II: Valuation and Qualifying Accounts
Accounts Receivable Allowance for Doubtful Accounts
The following describes activity in the accounts receivable allowance for doubtful accounts for the years ended March 31, 2014 and 2013, respectively:
| | | Balance at Beginning of Period | | | Increase (decrease) to Costs and Expenses | | | Write Offs | | | Reversal Benefit to Revenue | | | Balance at End of Period | |
Allowance for doubtful accounts (in $000’s): | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Fiscal year ended March 31, 2013 | | $ | 50 | | | $ | 123 | | | $ | (62 | ) | | $ | — | | | $ | 111 | |
Fiscal year ended March 31, 2014 | | $ | 111 | | | $ | 773 | | | $ | (637 | ) | | $ | — | | | $ | 247 | |
(c)Exhibits: See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of San Mateo, State of California, on the day of June 27, 2014.
| | | SELECTICA, INC. Registrant |
| | | /s/ BLAINE MATHIEU |
| | | Blaine Mathieu President and Chief Executive Officer |
| | | |
| | | |
| | | /s/ TODD SPARTZ |
| | | Todd Spartz Chief Financial Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Blaine Mathieu and Todd Spartz and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signature | | Title | | Date | |
| | | | | | |
| /s/ BLAINE MATHIEU | | President, Chief Executive Officer | | June 27, 2014 | |
| Blaine Mathieu | | (Principal Executive Officer) and Director | | | |
| | | | | | |
| /s/ TODD SPARTZ | | Chief Financial Officer (Principal Financial Officer | | June 27, 2014 | |
| Todd Spartz | | and Principal Accounting Officer) and Secretary | | | |
| | | | | | |
| /s/ ALAN HOWE | | Director | | June 27, 2014 | |
| Alan Howe | | | | | |
| | | | | | |
| /s/ LLOYD SEMS | | Director | | June 27, 2014 | |
| Lloyd Sems | | | | | |
| | | | | | |
| /s/ MICHAEL CASEY | | Director | | June 27, 2014 | |
| Michael Casey | | | | | |
| | | | | | |
| /s/ J. MICHAEL GULLARD | | Director | | June 27, 2014 | |
| J. Michael Gullard | | | | | |
| | | | | | |
| /s/ MICHAEL BRODSKY | | Director | | June 27, 2014 | |
| Michael Brodsky | | | | | | | |
EXHIBIT INDEX
Exhibit No. | | Description |
3.1(12) | | The Second Amended and Restated Certificate of Incorporation, as amended. |
| | |
3.2(2) | | Certificate of Designation of Series A Junior or Participating Preferred Stock. |
| | |
3.3(12) | | Amended and Restated Bylaws, as amended. |
| | |
3.4(4) | | Certificate of Designation of Series B Junior or Participating Preferred Stock. |
| | | |
3.5(26) | | Certificate of Designations, Preferences and Rights of Series E Convertible Preferred Stock. |
| | |
4.1 | | Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4. |
| | |
4.2(1) | | Form of Registrant’s Common Stock certificate. |
| | |
4.4(4) | | Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A., as Rights Agent, dated January 2, 2009. |
| | |
4.5(5) | | Amendment dated as of January 26, 2009, to the Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A. as Rights Agent, dated January 2, 2009. |
| | |
4.6(8) | | Amendment 2, dated as of April 27, 2009, between Registrant and Wells Fargo Bank, N.A., as Rights Agent, to the Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A., dated January 2, 2009, as amended. |
| | |
4.7(13) | | Amendment 3, dated as of December 28, 2011, between Registrant and Wells Fargo Bank, N.A., as Rights Agent, to the Amended and Restated Rights Agreement between Registrant and the Rights Agent, dated January 2, 2009, as amended. |
| | | |
10.1(1) | | Form of Indemnification Agreement. |
| | |
10.2(1)* | | 1996 Stock Plan. |
| | |
10.20(3)* | | 1999 Equity Incentive Plan Stock Option Agreement. |
| | |
10.21(3)* | | 1999 Equity Incentive Plan Stock Option Agreement (Initial Grant to Directors). |
| | |
10.22(3)* | | 1999 Equity Incentive Plan Stock Option Agreement (Annual Grant to Directors). |
| | |
10.27(9) | | 1999 Employee Stock Purchase Plan, as amended and restated February 1, 2008. |
| | |
10.28(9) | | Form of Stock Unit Agreement for issuance of restricted stock units pursuant to the Registrant’s 1999 Equity Incentive Plan to plan participants, including named executive officers. |
| | |
10.30(9) | | Registrant Compensation Program for Non-Employee Directors effective May 20, 2009. |
| | |
10.32(9) | | Settlement, Release and License Agreement between Registrant and Versata Software Inc., a corporation f/k/a Trilogy Software, Inc., dated October 5, 2007. |
| | |
10.34(10) | | Amended and Restated Severance Agreement by and between the Registrant and Todd Spartz, dated as of October 25, 2011. |
| | |
10.35(10) | | Employment Letter Agreement by and between the Registrant and Todd Spartz, dated as of October 25, 2011. |
| | |
10.38(11)* | | 1999 Equity Incentive Plan, as amended May 2010. |
| | |
10.39(14) | | Office Lease by and between 2121 El Camino Investors, LLC and the Registrant, executed July 28, 2011, and effective as of July 8, 2011. |
| | | |
10.40(15) | | Comprehensive Settlement Agreement by and between the Registrant and Versata Software, Inc., dated September 20, 2011. |
| | | |
10.41(16) | | Business Financing Agreement by and between the Registrant and Bridge Bank, National Association, executed as of September 29, 2011, and effective as of September 27, 2011. |
| | | |
10.46(17) | | 1999 Employee Stock Purchase Plan, as amended and restated effective November 7, 2012 |
| | | |
10.47(18) | | Amendment to Business Financing Agreement by and between the Registrant and Bridge Bank, National Association, dated September 25, 2012 |
| | | |
10.50(19) | | Registration Rights Agreement, dated as of May 31, 2013. |
| | | |
10.51(19) | | Form of Series A Warrant to Purchase Common Stock, dated as of May 31, 2013. |
| | | |
10.52(20) | | Form of Series B Warrant to Purchase Common Stock, dated as of September 12, 2013, as modified. |
| | | |
10.53(21) | | Amendment to the Series A Warrants dated as of September 4, 2013. |
| | | |
10.54(22) | | Employment Offer Letter dated August 6, 2013 by and between the Registrant and Michael Brodsky. |
| | | |
10.55(23) | | Amendment to Offer Letter, dated December 4, 2013, by and between the Registrant and Michael Brodsky. |
| | | |
10.56(23) | | Offer Letter of Employment, dated as of December 4, 2013, by and between the Registrant and Blaine Mathieu. |
| | | |
10.57(23) | | Severance Agreement, dated as of December 4, 2013, by and between the Registrant and Blaine Mathieu. |
| | | |
10.58(24) | | Form of Registration Rights Agreement, dated as of January 24, 2014. |
| | | |
10.59(24) | | Form of Warrant to Purchase Common Stock, dated as of January 24, 2014. |
| | | |
10.60(25) | | First Amendment to Lease, effective as of May 15, 2014, by and between the Registrant and SKBGS I, L.L.C. |
| | | |
10.61(26) | | Agreement and Plan of Merger, dated as of June 2, 2014. |
| | | |
10.62(26) | | Purchase Agreement, dated as of June 5, 2014. |
| | | |
10.62(26) | | Registration Rights Agreement, dated as of June 5, 2014. |
| | | |
10.62(26) | | Form of Warrant to Purchase Common Stock. |
| | | |
10.62(26) | | Forms of Voting Agreement. |
| | | |
21.1(27) | | Subsidiaries. |
| | |
23.1*** | | Consent of Independent Registered Public Accounting Firm. |
| | |
24.1*** | | Power of Attorney (contained in the signature page to this Annual Report on Form 10-K). |
31.1** | | Certification of President and Chief Executive 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 Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
32.2** | | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
99.1(7) | | Trust Agreement, dated January 27, 2009, between Registrant and Wilmington Trust Company, as trustee. |
101.INS | | XBRL Instance |
| | | |
101.SCH | | XBRL Taxonomy Extension Schema |
| | | |
101.CAL | | XBRL Taxonomy Extension Calculation |
| | | |
101.DEF | | XBRL Taxonomy Extension Definition |
| | | |
101.LAB | | XBRL Taxonomy Extension Labels |
| | | |
101.PRE | | XBRL Taxonomy Extension Presentation |
(1) | Previously filed in the Company’s Registration Statement (No. 333-92545) declared effective on March 9, 2000. |
(2) | Previously filed in the Company’s report on Form 10-K filed on June 30, 2003. |
(3) | Previously filed in the Company’s report on Form 10-K filed on June 29, 2005. |
(4) | Previously filed in the Company’s report on Form 8-K filed on January 5, 2009. |
(5) | Previously filed in the Company’s report on Form 8-K filed on January 28, 2009. |
(6) | Previously filed in the Company’s report on Form 8-K filed on February 4, 2009. |
(7) | Previously filed in the Company’s report on Form 8-K filed on April 7, 2009. |
(8) | Previously filed in the Company’s report on Form 8-K filed on April 29, 2009. |
(9) | Previously filed in the Company’s report on Form 10-K filed on July 9, 2009. |
(10) | Previously filed in the Company’s report on Form 8-K filed on October 28, 2011. |
(11) | Previously filed in the Company’s report on Form 10-K filed on June 29, 2010. |
(12) | Previously filed on the Company’s report on Form 10-Q filed on February 14, 2011. |
(13) | Previously filed in the Company’s report on Form 8-K filed on December 29, 2011. |
(14) | Previously filed in the Company’s report on Form 8-K filed on August 8, 2011. |
(15) | Previously filed in the Company’s report on Form 8-K filed on September 21, 2011. |
(16) | Previously filed in the Company’s report on Form 8-K filed on October 5, 2011. |
(17) | Previously filed in the Company’s proxy statement filed on October 9, 2012. |
(18) | Previously filed in the Company’s report on Form 10-Q filed on February 14, 2013. |
(19) | Previously filed in the Company’s report on Form 8-K/A filed on June 4, 2013. |
(20) | Previously filed in the Company’s report on Form 8-K filed on September 12, 2013. |
(21) | Previously filed in the Company’s report on Form 8-K filed on September 4, 2013. |
(22) | Previously filed in the Company’s report on Form 10-Q filed on August 14, 2013. |
(23) | Previously filed in the Company’s report on Form 8-K filed on December 10, 2013. |
(24) | Previously filed in the Company’s report on Form 8-K filed on January 27, 2014. |
(25) | Previously filed in the Company’s report on Form 8-K filed on May 20, 2014. |
(26) | Previously filed in the Company’s report on Form 8-K/A filed on June 11, 2014. |
| (27) | Previously filed in the Company’s report on Form 10-K filed on June 17, 2013. |
* | Represents a management agreement or compensatory plan. |
| |
** | This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Selectica, Inc. specifically incorporates it by reference. |
| | |
*** | Filed herewith. |
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