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, 2016 |
☐ | 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
DETERMINE, 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.) |
615 West Carmel Drive, Suite 100, Carmel, IN 46032
(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, 2015, 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 $3.93 per share as reported by The NASDAQ Capital Market on that date, was $$32,242,757.
As of June 16, 2016, the registrant had 11,366,240 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 2016 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, 2016. 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.
DETERMINE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
MARCH 31, 2016
Table of Contents
| Part I |
Item 1 | Business | 1 |
Item 1A | Risk Factors | 8 |
Item 1B | Unresolved Staff Comments | 15 |
Item 2 | Properties | 15 |
Item 3 | Legal Proceedings | 15 |
Item 4 | Mine Safety Disclosures | 15 |
|
Part II |
Item 5 | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 15 |
Item 6 | Selected Financial Data | 18 |
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 23 |
Item 8 | Financial Statements and Supplementary Data | 23 |
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 54 |
Item 9A | Controls and Procedures | 54 |
Item 9B | Other Information | 55 |
|
Part III |
Item 10 | Directors, Executive Officers and Corporate Governance | 56 |
Item 11 | Executive Compensation | 56 |
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 56 |
Item 13 | Certain Relationships and Related Transactions, and Director Independence | 56 |
Item 14 | Principal Accounting Fees and Services | 56 |
|
Part IV |
Item 15 | Exhibits and Financial Statement Schedules | 56 |
| SIGNATURES | 58 |
Cautionary Statement Pursuant to Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995
The words “Determine”, “we”, “our”, “ours”, “us”, and the “Company” refer to Determine, 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 are a leading global provider of SaaS Source to Pay and Enterprise Contract Lifecyclem Management (ECLM) solutions. Our visionary technologies allow our customers to effectively manage the full scope of Source to Pay and ECLM using our Determine Cloud Platform. Our Source to Pay software suite includes strategic sourcing, supplier management, contract management and procure-to-pay applications.
The Determine Cloud Platform gives procurement, finance and legal professionals the ability to deliver profound insights through analysis of their supplier relationships and contractual requirements. Our customers leverage the Determine Cloud Platform to discover previously unseen supplier and spend data; make more informed and smarter business decisions; drive new revenue; control costs; improve workflow efficiencies; and mitigate risk.
We rebranded to formally combine the three legacy industry leaders and brands: Selectica, Iasta and b-pack under one new company – Determine, Inc. Over the last three years as the company has executed its strategic plan, it has evolved significantly from a predominantly contract lifecycle management solutions provider to a leading Source to Pay with an Enterprise Contract Lifecycle Management suite. A new brand was essential to encapsulate the new business vision. Determine integrated its acclaimed contract management, procurement and Source to Pay solutions and four collective decades of business acumen onto one platform, one brand and one customer promise: Vision. Insight. Control. Our mission is to enable businesses to transform their operational data and processes into unique insights to make informed decisions that drive value and mitigate risk.
We provide the next generation of agile, enterprise cloud software solutions for managing the needs of modern businesses. Using our intuitive applications, organizations can effectively manage the full scope of source to pay and enterprise contract lifecycle management requirements using the Determine platform.
The Determine platform is an open technology infrastructure based on smart process application models. The goal of our platform is to establish awareness of relevant data, manage business documents, create embed analytical tools, create a means for collaboration, and provide advanced process management tools for fully integrating business processes through an open application programming interface (API) infrastructure. Built on a unified and highly scalable platform, we deliver deep and innovative capabilities in strategic sourcing, supplier management, enterprise contract lifecycle management, e-procurement, invoicing, and other business operation areas.
In addition to our source to pay and enterprise contract lifecycle management solutions suite, we also provide a powerful, patented configuration engine solution, which Global 1000 companies use to increase revenue by facilitating the right combination of products, services, and price.
On July 2, 2014, the Company completed its acquisition of Iasta.com, Inc., an Indiana corporation, and Iasta Resources, Inc., an Indiana corporation. The acquisition of Iasta positions the Company to provide easier access to contract management, strategic sourcing, and spend management, and increases the Company’s market coverage in more locations worldwide to its customers.
On July 31, 2015, we completed the acquisition of b-pack SAS, a French société par actions simplifiée. b-pack empowers finance and procurement enterprise professionals with flexible, innovative and critical risk mitigation solutions. It provides source to pay solutions focusing on providing rich, end-to-end procurement capabilities, including eProcurement, purchase-to-pay, asset management, budget management, invoice management, and expense management.
Products
Determine’s platform offers best-in-class application capabilities including:
| | ● | Strategic Sourcing — Determine Strategic Sourcing takes the next step for organizations looking to effectively identify and source opportunities for optimizing spend. Combining project management and sourcing analysis, strategic sourcing provides the framework for executing next generation RFx and eAuction capabilities, while accelerating decision making during strategic bidding; this translates into a seamless and integrated process for savings identification, supplier selection, and award management. |
| | ● | Supplier Management — Determine’s Supplier Management provides an enterprise approach to support the upstream procurement needs of supplier on-boarding, profile management, and on-going supplier collaboration. By providing a supplier portal via Determine’s business network, Determine allows suppliers and customers to seamlessly interact, exchange information, and collaborate, ultimately helping our customers build and maintain relationships with their supply base that aligns with internal policies and regulatory requirements. |
| | ● | Contract Lifecycle Management — Determine Enterprise Contract Lifecycle Management is a single, enterprise-wide contract repository and authoring platform leveraging the platform’s common workflow engine, capable of supporting unique contract management processes for complex contract scenarios. Enterprise contract lifecycle management streamlines the entire contract lifecycle process, from request, authoring, negotiation, approval, and e-signature through ongoing obligations management, analysis, reporting, and renewals. |
| | ● | Procure to Pay — Determine Procure to Pay harnesses the downstream procurement process of purchasing through payment. Essential in the procure to pay (“P2P”) solution is the development of an intuitive shopping experience for corporate buyers of goods or services on Determine’s business network for an enhanced user experiences. For procurement teams, P2P establishes the governance and controls to manage against maverick buying outside of the system, ensuring cost savings against executed contractual agreements. Determine’s P2P capabilities also manages invoicing automation for allowing proper invoice matching and alignment of payments for goods and services rendered. |
| | ● | Business Applications — Based on bespoke requirements, Determine provides users access to additional areas using the common platform. Companies looking to add to existing functionality can leverage additional business applications on the Determine platform to manage their unique operational requirements in areas such as asset management, inventory management, and travel and expense. Using the Determine platform, organizations can also develop and configure custom electronic forms and workflows for managing unique requirements. |
| | ● | Analytics — Determine provides business intelligence insights and executive level reporting by combining spend data analytics, Big Data management, notifications and alerts, and customer data created within the Determine platform. The open API framework allows the Determine platform to communicate with other enterprise and external systems, such as ERP, CRM, or market data for bridging all data elements from multiple, disparate and external sources into KPI dashboard reporting. Users encounter dashboards that are developed from modern business intelligence approaches such as self-service analytics and an intuitive click-through design. |
| | ● | Business Network — Centered on supplier enablement and connectivity, Determine’s business network is the hub for coordinating buyers and suppliers looking to engage and collaborate on the Determine platform. The idea of interoperability is at the heart of the Determine platform as it is an open network that works within a wider technology ecosystem. The Determine platform integrates with focused providers in areas including CRM, e-signatures, document management, external market data, and other business platforms. |
| | ● | Configuration Solution — Determine’s patented Configuration engine consolidates 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 Configuration Solution makes it easy to recommend products and services to customers, enabling accurate pricing, and increasing sales of relevant bundles, discounts, and cross-sells. The Configurator application organizes sales information and makes it available in real-time to representatives and channel partners across the globe, so they can configure flawless deals on the fly. 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 solution helps companies to close sales faster, accelerate revenue generation, and enhance customer relationships. |
Determine also offers SmartContracts®, SmartSource® and SmartAnalytics®. SmartContracts® combines a single, enterprise-wide contract repository and authoring platform with a flexible workflow engine capable of supporting each organization’s unique contract management processes. SmartContracts® streamlines the contract processes, from request, authoring, negotiation, approval and e-signature through ongoing obligations management, analysis, reporting, and renewals. SmartContracts® helps companies take control of their contract processes by converting from paper-based to electronic documents 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 supply chain requirements.. 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.
SmartSource® provides an enterprise scale solution to support the processes of supplier on-boarding, supplier selection and on-going supplier management. By providing a supplier portal available via the cloud, SmartSource® allows suppliers and our customers to seamlessly interact to exchange information and collaborate ultimately helping our customers to build and maintain relationships with their supply base that aligns with internal policies and regulatory requirements. The solution provides sophisticated optimization techniques utilized during the supplier selection process to allow customers to optimize their vendor selection process according to their business context taking into account criteria such as reliance on low-cost countries, exposure to risk, past performance and allocation for diverse spend. Once the supplier relationships have been established, the solution provides for on-going tracking of performance to ensure that the suppliers are delivering to their contractual service levels, KPI and quality.
SmartAnalytics® delivers powerful business insights and executive reporting by combining our industry knowledge, data analytics and expertise, customer data created SmartContracts® and Smartsource®, as well as in other enterprise systems, such as ERP, CRM and external market data. In addition, our customers have the ability to collaborate and share spend trends and the insights from enterprise-wide spend analysis activities.
Configuration Solution is a patented Configuration engine which 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 Configuration solution makes it easy to recommend products and services to customers, enabling accurate pricing, and increasing sales of relevant bundles, discounts, and cross-sells. The Configurator organizes sales information and makes it available in real-time to reps and channel partners across the globe, so they can configure flawless deals on the fly. 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.
We were incorporated in California in June 1996, under the name Selectica, Inc., and re-incorporated in Delaware in November 1999. The company changed its name to Determine, Inc. on October 15, 2015. The company’s principal executive office is located at 615 West Carmel Drive, Suite 100, Carmel, IN 46032, which we moved to from our prior principal executive offices located at 2121 South El Camino Real 10th Floor, San Mateo, California, 94403 during our first quarter of fiscal year 2017. Our website is www.determine.com.
Employees
As of March 31, 2016, we had a total of 140 employees, 9 of which are located in the United Kingdom, 51 of which are located in France, and 80 of which are located in the United States. Of the total, 35 are engaged in research and development, 53 are engaged in professional services, 35 are engaged in sales and marketing, and 17 are engaged in general and administrative. We also have 58 individuals contracted through our Odessa, Ukraine facility, with 18 in professional services, and 40 engineers in research and development. None of our employees are represented by a labor union and we consider our relations with our employees to be good.
Determine 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, strategic sourcing, procure to pay and 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, 2016, the Professional Services organization had 53 employees, as well as approximately 18 individuals contracted through our Odessa, Ukraine facility as noted below.
Sales and Marketing
We sell our cloud solutions primarily through our direct sales force along with strategic and OEM partners. As of March 31, 2016, our sales team consisted of 24 employees and our marketing team consisted 11 of employees.
Our 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, 2016, we had 35 full-time technical writing specialists, as well as approximately 39 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, 2016 and 2015, we incurred approximately $5.0 million and $3.7 million, respectively on research and development which includes $1.4 million of impairment of software development costs and $0.1 million of acquisition related costs.
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
Since fiscal 2011, we maintained a relationship with a third party operating 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.
As of March 31, 2016, as a result of our acquisition of b-pack on July 31, 2015 and Iasta and Iasta Resources on July 2, 2014, we have 9 employees working in the United Kingdom and 51 working in France. As of March 31, 2015, we had 8 employees working in the United Kingdom.
Competition
The market for cloud-based software solutions in general, including our Sourcing, Supplier Management, Procure to Pay, and Enterprise Contract Lifecycle Management and Configuration 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 SAP, Apptus, Coupa and IBM, as well as (i) software companies that offer integrated solutions or specific products that compete with our ECLM Configuration 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 eight 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 Determine, 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.determine.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 $14.0 million and $13.7 million for the fiscal years ended March 31, 2016 and 2015, respectively. We had an accumulated deficit of approximately $302.3 million as of March 31, 2016. 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. No customer was over 10% of our revenue in fiscal year 2016, and while one customer represent 16% of our revenue in fiscal year 2015. 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.
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 Software-as-a-Service (“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, the amount of services we provide to a single customer, or the failure to replace a significant customer can significantly affect our operating results. 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 ECLM 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.
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 eight 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.
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 ourECLM andConfigurationsolutions, 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 ECLM and Configuration 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, Apptus, Coupa, OpenText and SAP, as well as companies such as 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 21% and 22% of our total revenues during the fiscal years ended March 31, 2016 and 2015, respectively. Our professional services revenues have incurred losses more than 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 our customers for these overages, 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 may 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 use theBlack-Scholes-Merton 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.
We may fail to realize the anticipated benefits of our recent acquisitions.
On June 2, 2014, the Company entered into an Agreement and Plan of Merger, with Selectica Sourcing Inc., a Delaware corporation and wholly owned subsidiary of the Company, 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 pursuant to which the Company acquired Iasta on July 2, 2014 (the “Iasta Acquisition”). The combined company has less than two years of operations, and we may fail to realize the expected benefits of the Iasta Acquisition if we are not able to fully integrate the two businesses.
In addition, on March 30, 2015, the Company entered into an Agreement and Plan of Merger with Selectica France SAS, a French société par actions simplifiée (pending incorporation) and wholly owned subsidiary of the Company, b-pack SAS, a French société par actions simplifiée (“b-pack”), and the shareholders of b-pack, pursuant to which the Company acquired b-pack (the “b-pack Acquisition”) on July 31, 2015. The combined company has less than one year of operations, and we may fail to realize the expected benefits of the b-pack Acquisition if we are not able to fully integrate the two businesses.
Some of our customers are hosted by a third-party provider.
Some of our ECLM 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, as amended to date, 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 recent financing activities.
On March 11, 2015, the Company entered into a Junior Secured Convertible Note Purchase Agreement with Lloyd I. Miller, III (“Mr. Miller”), the Company’s largest stockholder, and MILFAM II L.P. and the Lloyd I. Miller Trust A-4, two affiliates of Mr. Miller (collectively the “Debt Investors”), pursuant to which the Company issued and sold junior secured convertible promissory notes (the “March 2015 Notes”) to the Debt Investors in the aggregate principal amount of $3 million. The March 2015 Notes are due on December 16, 2020. The Company has the option to pay any amounts of interest due under the March 2015 Notes by converting such interest into shares of common stock of the Company at a conversion price of $5.70 per share (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), based upon an interest rate amount calculated at 10% per year, provided that the Company is not then under default under the March 2015 Notes or related financing agreements. The outstanding principal and interest under the March 2015 Notes may be converted into shares of Company common stock at the sole option of the Debt Investors at any time prior to the maturity date, at a conversion price of $5.70 per share (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).
On December 16, 2015, the Company entered into a Junior Secured Convertible Note Purchase Agreement with Mr. Miller and MILFAM II L.P., the Lloyd I. Miller Trust A-4 and Alliance Semiconductor Corporation, a Delaware corporation, each an affiliate of Mr. Miller (collectively the “Additional Debt Investors” and, together with the Debt Investors, the Investors), pursuant to which the Company issued and sold junior secured convertible promissory notes (the “December 2015 Notes” and, together with the March 2015 Notes, the “Notes”) to the Additional Debt Investors in the aggregate principal amount of $2.5 million. The December 2015 Notes are due on December 16, 2020. The Company has the option to pay any amounts of interest due under the December 2015 Notes by converting such interest into shares of common stock of the Company, at a conversion price of $3.75 per share (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), based upon an interest rate amount calculated at 10% per year, provided that the Company is not then under default under the December 2015 Notes or related financing agreements and that the Company provides prior written notice thereof to the Investors at least 10 days in advance of the payment date.The outstanding principal and interest under the December 2015Notes may be converted into shares of Company common stock at the sole option of the Additional Debt Investors at any time prior to the maturity date, at a conversion price of $3.75 per share (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).
Assuming conversion in full all obligations under the Notes at the end of the term, approximately an additional 1.8 million shares of common stock will be issued and outstanding, diluting 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 the Warrants. Additionally, sales in the public market of the shares of common stock acquired upon conversion of the Notes, 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. Any additional equity or convertible debt financings in the future could result in further dilution to our stockholders.
The Investors have substantial voting power on matters submitted to a vote of stockholders.
Based on 11,192,500 shares of common stock outstanding as of February 9, 2016, the shares of common stock issued or issuable to the Investors upon conversion of the Notes would represent, in the aggregate, approximately 13.8% of the voting power of our stock. Additionally, Mr. Miller, together with his affiliated entities, participated in the debt financings described above and is the Company’s largest existing stockholder. Because the Investors 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 Investors of a substantial percentage of our total voting power could make it more difficult and expensive for a third party to pursue a change of control of the Company, even if a change of control would generally be beneficial to our stockholders.
Item 1B.Unresolved Staff Comments
Not applicable.
Item 2.Properties
Facilities
On May 15, 2014, 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.
In connection with the acquisition of Iasta, we assumed leases for offices in Carmel, Indiana and in London, United Kingdom. The lease in Indiana expired May 31, 2016. On April 7, 2016, the Company entered into a Lease Agreement with Atapco Carmel, Inc. for approximately 8,795 square feet of office space in a building located at 615 West Carmel Drive, Suite 100, in Carmel, Indiana. The term of the lease runs for approximately 51 months and carries a base rent of $1.33 per rentable square foot for the first year of the term of the lease (with three of the months of the first year term provided rent free), subject to annual adjustment thereafter.
In connection with the acquisition of b-pack, we assumed leases for offices in Paris, France and in Aix-en-Provence, France. The lease in Paris, dated May 4, 2011, is for approximately 1,572 square feet of office space located at 92 rue d’Amsterdam, Paris. It expires June 30, 2020 (but can be terminated June 30, 2017) and carries a base rent of $3.21 per rentable square foot. The lease in Aix-en-Provence, dated July 31, 2015 is for approximately 4,327 square feet of office space located at 220 rue Denis Papin, Aix-en-Provence. It expires July 31, 2024 (but can be terminated July 31, 2018) and carries a base rent of $1.92 per rentable square foot.
In connection with the acquisition of b-pack, we also assumed a lease for offices in Atlanta, Georgia. The lease in Georgia, dated August 1, 2014, is for approximately 1,742 square feet of office space, and was extended under the Fourth Amendment and expires July 31, 2019 and carries a base rent of $1.48 per rentable square foot.
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. Please refer to footnote 11.
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 “DTRM.” Our common stock began trading in March 2000 under the symbol “SLTC,” which was changed to DTRM effective October 19, 2015.
As of March 31, 2016, there were approximately 81 holders of record of our common stock. Brokers and other institutions hold many of such shares on behalf of stockholders. The table below sets forth the high and low sales price per share of our common stock for each quarter in the last two fiscal years.
| | | High | | | Low | |
Fiscal 2016 | | | | | | | | |
First Quarter | | $ | 7.47 | | | $ | 5.25 | |
Second Quarter | | $ | 5.23 | | | $ | 3.69 | |
Third Quarter | | $ | 4.57 | | | $ | 2.00 | |
Fourth Quarter | | $ | 2.43 | | | $ | 1.56 | |
Fiscal 2015 | | | | | | | | |
First Quarter | | $ | 6.88 | | | $ | 5.85 | |
Second Quarter | | $ | 6.61 | | | $ | 5.60 | |
Third Quarter | | $ | 6.11 | | | $ | 5.18 | |
Fourth Quarter | | $ | 6.82 | | | $ | 4.54 | |
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, 2016, certain information regarding our equity compensation plans.
| | | Number of Securities to be Issued Upon Exercise of Outstanding Options and RSU's | | | Weighted Average Exercise Price per Share of Outstanding Options and Rights | | | Number of Securities Available for Future Issuance Under Equity Compensation Plans | |
| | | (in thousands) | | | | | | | | | |
Equity compensation plans approved by stockholders | | | | | | | | | | | | |
1996 and 1999 Equity Incentive Plan | | | 324 | | | $ | 6.29 | | | | - | (1)(2) |
2015 Equity Incentive Plan | | | 1,512 | | | $ | 2.83 | | | | 80 | (1)(2) |
Equity compensation plans not approved by stockholders | | | | | | | | | | | | |
IASTA | | | 383 | | | $ | 6.61 | | | | - | |
Inducement Plan | | | 687 | | | $ | 4.32 | | | | - | |
NOLN Plan (1) | | | 100 | | | $ | 3.34 | | | | - | |
Total | | | 3,006 | | | $ | 4.02 | | | | 80 | |
(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. The Series F Convertible Preferred Stock (the “Series F Stock”) was not entitled to a liquidation or dividend preference. If the Series F Stock had not been converted into Common Stock following stockholder approval on May 5, 2015, beginning on May 15, 2015, the Series F Stock would have been entitled to 10% accruing dividends per annum. The dividends would have been payable quarterly in cash, beginning on June 30, 2015.
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 F Stock and warrants to purchase shares of common stock on February 6, 2015, as disclosed in our Current Report on Form 8-K previously filed on February 9, 2015, which is incorporated herein by reference.
Reference is made to the description of our sale and issuance of unregistered shares of common stock on July 31, 2015, as disclosed in our Current Report on Form 8-K previously filed on August 4, 2015, as amended by our Current Report on Form 8-K/A previously filed on October 16, 2015.
Reference is made to the description of our sale and issuance of junior secured convertible promissory notes on March 11, 2015, as disclosed in our Current Report on Form 8-K previously filed on March 16, 2015, and to the description of our sale and issuance of junior secured convertible promissory notes on December 16, 2015, as disclosed in our Current Report on Form 8-K previously filed on December 17, 2015.
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 enable growing companies to transform their operational data and processes into unique insights to make informed decisions that drive value and mitigate risk.
The Determine platform is an open technology infrastructure based on smart process application models. The goal of our platform is to establish awareness of relevant data, manage business documents, embed analytical tools, create a means for collaboration, and provide advanced process management tools for fully integrating business processes through an open API infrastructure. Built on a unified and highly scalable platform, we deliver deep and innovative capabilities in strategic sourcing, supplier management, enterprise contract lifecycle management, eprocurement, invoicing, and other business operation areas.
In addition to our source to pay and enterprise contract lifecycle management solutions suite, we also provide a powerful, patented configuration engine solution, which Global 1000 companies use to increase revenue by facilitating the right combination of products, services, and price.
Summary of Operating Results for Fiscal 2016
During the fiscal year ended March 31, 2016, our total revenues increased by 28% or $5.9 million, to $26.8 million compared with total revenues of $20.9 million for the fiscal year ended March 31, 2015. Recurring revenues, comprised of subscription license sales, maintenance revenues from previously sold perpetual licenses, manage application services, and hosting revenues, totaled $20.8 million or 78% of total revenues, representing an increase of $4.6 million, or 29% over fiscal 2015. Non-recurring revenues, comprised of revenues from professional services for system implementations, enhancements, and training, totaled $5.9 million, or 22%, of total revenues, representing an increase of $1.2 million or 26% over fiscal 2015. The increase in recurring and non-recurring revenues year over year resulted primarily from the acquisition of b-pack in the second quarter of fiscal 2016.
During the fiscal year ended March 31, 2016, our net loss increased by 2% or $0.3 million to $14.0 million compared to a net loss of $13.7 million for the fiscal year ended March 31, 2015. The most significant factors affecting the increase of our net loss were (i) restructuring costs of $0.5 million incurred in current year, and (ii) an increase in operating expenses in connection with the acquisition of b-pack and 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 through fiscal year 2016, 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 have increased 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, collectability of accounts receivable, 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
| | | 2016 | | | 2015 | | | Change | |
| | | (in thousands, except percentages) | |
Recurring revenues | | $ | 20,843 | | | $ | 16,207 | | | | 4,636 | |
Percentage of total revenues | | | 78 | % | | | 78 | % | | | 0 | % |
Non-recurring revenues | | $ | 5,917 | | | $ | 4,670 | | | | 1,247 | |
Percentage of total revenues | | | 22 | % | | | 22 | % | | | 0 | % |
Total revenues | | $ | 26,760 | | | $ | 20,877 | | | | 5,883 | |
Recurring revenues. Recurring revenues consist of subscription license sales, maintenance revenues from previously sold perpetual licenses, and hosting revenues. Our fiscal 2016 recurring revenues increased by $4.6 million from the prior year. Subscription revenue growth continued to drive the overall growth in recurring revenues. Subscription and hosting revenues grew to $15.8 million for fiscal year 2016, compared to $10.2 million for fiscal year 2015, representing a 54% increase year over year. These increases in recurring revenue were mainly due to the acquisition of b-pack and new customers we entered into contract with in this fiscal year. Maintenance revenues were $5.1 million for fiscal year 2016, compared $6.0 million for fiscal year 2015, representing a 15% decrease year over year. Recurring revenues continue to account for over 78% 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. Our fiscal 2016 non-recurring revenue increased by $1.2 million from the prior year. These increases in non-recurring revenue were mainly due to the acquisition of b-pack.
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:
| | | 2016 | | | 2015 | |
| | | (in thousands, except percentages | |
Revenues from Customer A | | $ | - | | | $ | 2,102 | |
Percentage of total revenues | | | - | | | | 10 | % |
Sales to foreign customers accounted for only 21% of total revenue, and only 15% of revenues were denominated in foreign currency in fiscal 2016. Sales to foreign customers accounted for only 13% of total revenue, and only 4% of revenues were denominated in foreign currency in fiscal 2015.
Cost of Revenues
| | | 2016 | | | 2015 | | | Change | |
Cost of recurring revenues | | $ | 6,846 | | | $ | 5,029 | | | | 1,817 | |
Percentage of total cost of revenue | | | 53 | % | | | 41 | % | | | 12 | % |
Cost of non-recurring revenues | | $ | 6,123 | | | $ | 7,274 | | | | (1,151 | ) |
Percentage of total cost of revenue | | | 47 | % | | | 59 | % | | | (12 | %) |
Total cost of revenues | | $ | 12,969 | | | $ | 12,303 | | | | 666 | |
Cost of recurring revenues. Cost of recurring 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 2016, cost of recurring revenues increased $1.8 million or 36% compared to the prior year primarily due to the acquisition of b-pack.
Cost of non-recurring revenues. Cost of non-recurring 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 2016, these costs decreased by approximately $1.2 million primarily due to the decrease in headcount.
Gross Profit and Margin
Gross profit was $13.8 million, or 52% of revenues, in fiscal 2016 compared with $8.6 million, or 41% of revenues, in fiscal 2015. The increase in gross profit percentage during fiscal year 2016 resulted from higher gross margins from our non-recurring revenues due to a decrease in cost of revenue in professional services during fiscal 2016.
Gross margins represent gross profit as a percentage of revenue. Gross margins in fiscal 2016 and 2015 were affected by the factors discussed above under “Revenues” and “Cost of Revenues.”
Operating Expenses
| | | 2016 | | | 2015 | |
Research and development | | $ | 3,612 | | | $ | 3,373 | |
Percentage of total revenues | | | 13 | % | | | 16 | % |
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 increase in research and development expenses of $0.2 million in fiscal 2016 compared to fiscal year 2015 was due to the acquisition of b-pack in fiscal 2016.
| | | 2016 | | | 2015 | |
Sales and marketing | | $ | 13,222 | | | $ | 12,697 | |
Percentage of total revenues | | | 49 | % | | | 61 | % |
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 2016, sales and marketing expenses increased $0.5 million primarily due to the acquisition of b-pack and $0.3 million in commission expense.
| | | 2016 | | | 2015 | |
General and administrative | | $ | 8,099 | | | $ | 7,073 | |
Percentage of total revenues | | | 30 | % | | | 34 | % |
General and Administrative. General and administrative expenses consist mainly of personnel and related costs for general corporate functions, including finance, accounting, legal, human resources, acquisition related costs, bad debt expense and certain allocated expenses. General and administrative expenses increase of $1.0 million in fiscal 2016 compared with fiscal 2015 primarily due to the acquisition of b-pack in fiscal 2016.
| | | 2016 | | | 2015 | |
Acquisition related costs | | $ | 912 | | | $ | 1,715 | |
Percentage of total revenues | | | 3 | % | | | 8 | % |
Acquisition related costs. Acquisition related expenses consist mainly of legal and accounting related costs. Acquisition related costs decrease of $0.8 million in fiscal 2016 compared with fiscal 2015 was primarily due to less outsourcing of the due diligence work for the acquisition of b-pack in fiscal 2016.
| | | 2016 | | | 2015 | |
Impairment of software development costs | | $ | 1,368 | | | $ | 340 | |
Percentage of total revenues | | | 5 | % | | | 2 | % |
Impairment of software development costs. Impairment of software development costs consist of compensation paid to engineering personnel and fees to outside contractors and consultants. Costs incurred internally in the development of our software products are expensed as incurred as R&D expenses until application development has been established, afterwhich production costs are capitalized as software development costs. Impairment of software development costs increase of $1.0 million in fiscal 2016 compared with fiscal 2015 was primarily due to the acquisition integration strategies associated with the b-pack acquisition.
| | | 2016 | | | 2015 | |
Restructuring costs | | $ | 451 | | | $ | - | |
Percentage of total revenues | | | 2 | % | | | 0 | % |
Restructuring costs. Restructuring costs consist mainly of employee severance costs. During the fourth quarter of fiscal year 2016, the Company incurred a one-time restructuring charge of $0.5 million related to severance costs.
Capitalized Software
The Company capitalizes costs for internal use software incurred during the application development stage that are included in research and development expenses. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Capitalized software will be amortized once the product is ready for its intended use, using the straight-line method over the estimated useful lives of the assets, which is three years. Management incurred impairment costs of $0.3 million in fiscal year ended March 31, 2015. During fiscal 2016, the Company continued to evaluate the capitalized software development costs across all products lines with the recent acquisition of b-pack. Given this conclusion, the Company impaired the investment previously made in what was to be a separate platform to hold all products, resulting in an impairment charge of $1.4 million in the fiscal year ended March 31, 2016.
Provision for Income Taxes
We recorded an income tax (benefit)/provision of ($545k) and ($2,950k) in fiscal 2016 and 2015. Our fiscal 2016 and 2015 effective tax rate differs from the federal statutory rate of 35% primarily due to the tax impact of changes in federal and state valuation allowances, R&D tax credits, uncertain tax positions, nondeductible expenses and foreign operations. 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 domestic and one French subsidiary’s foreign deferred tax assets. The remaining two French entities reflect a net foreign deferred tax liability due to intangibles arising from the acquisition offset by deferred tax assets, including net operating loss carryforwards. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.
Liquidity and Capital Resources
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
Cash, cash equivalents and short-term investments | | $ | 9,418 | | | $ | 13,178 | |
Working capital | | $ | (6,213 | ) | | $ | (117 | ) |
Net cash used for operating activities | | $ | (5,927 | ) | | $ | (11,635 | ) |
Net cash used for investing activities | | $ | (2,438 | ) | | $ | (6,464 | ) |
Net cash provided by financing activities | | $ | 4,631 | | | $ | 14,370 | |
Our primary sources of liquidity consisted of approximately $9.4 million in cash and cash equivalents as of March 31, 2016, $7.1 million of which was received from our short-term credit facility. This compares to approximately $13.2 million in cash and cash equivalents as of March 31, 2015, $7.4 million of which was received from our short-term credit facility.
Net cash used for operating activities was $5.9 million for the fiscal year ended March 31, 2016, resulting primarily from our net loss of $14.0 million, adjusted for non-cash expenses totaling $6.4 million, which included amortization and depreciation, impairment charge, and stock-based compensation expense.
Net cash used for operating activities was $11.6 million for the fiscal year ended March 31, 2015, resulting primarily from our net loss of $13.7 million, adjusted for non-cash expenses totaling $4.5 million, which included amortization and depreciation, impairment charge, and stock-based compensation expense.
Net cash used for investing activities was $2.3 million for the fiscal year ended March 31, 2016, resulting primarily from the acquisition of b-pack.
Net cash used for investing activities was $6.5 million for the fiscal year ended March 31, 2015, resulting primarily from the acquisition of Iasta.
Net cash provided by financing activities was $4.6 million for the fiscal year ended March 31, 2016, resulting primarily from $2.5 million received from the issuance of the December 2015 Notes offset by $0.4 million of payment of credit facility.
Net cash provided by financing activities was $14.4 million for the fiscal year ended March 31, 2015, resulting primarily from$3.0 million received from the issuance of debt and $12.3 million received from sale of preferred stock and warrants offset by $0.7 million of payment of credit facility and note inherited from the acquisition of Iasta.
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. 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.
While we have made significant progress in reducing our expenditures, our current cash on hand and future cash flows provided by operating activities may not be sufficient to fund our working capital and general corporate needs and the non-discretionary capital expenditures without increasing cash flows through our operating activities, raising additional funds through the sale and issuance of additional securities, reducing expenditures, borrowing additional funds under our credit facility or debt arrangements, or a combination of the foregoing. There can be no guarantee that additional equity financing will be available to us at this time or in the future, that any available equity financing will be on terms favorable to the Company and its stockholders or that additional funds will be available under our credit facility.
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of March 31, 2016 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:
| | | Payments Due by Period (in thousands) | |
| Contractual Obligations | | Total | | | Less than 1 Year | | | 1-3 Years | | | 3-5 years | | | More than 5 Years | |
Operating lease—real estate | | $ | 646 | | | $ | 498 | | | $ | 148 | | | $ | - | | | $ | - | |
Customer Settlement payments | | | 575 | | | | 575 | | | | - | | | | - | | | | - | |
Loan from Lloyd I. Miller, III | | | 7,400 | | | | - | | | | 1,900 | | | | 5,500 | | | | - | |
France Coface Loan | | | 407 | | | | 407 | | | | - | | | | - | | | | - | |
Credit facility | | | 7,100 | | | | 7,100 | | | | - | | | | - | | | | - | |
Total | | $ | 16,128 | | | $ | 8,580 | | | $ | 2,048 | | | $ | 5,500 | | | $ | - | |
Our contractual obligations and commercial commitments at March 31, 2016 were approximately $16.1 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 | 22 |
Consolidated Balance Sheets as of March 31, 2016 and 2015 | 23 |
Consolidated Statements of Operations and Comprehensive Loss—Years ended March 31, 2016 and 2015 | 24 |
Consolidated Statements of Redeemable Convertible Preferred Stock and Equity—Years ended March 31, 2016 and 2015 | 25 |
Consolidated Statements of Cash Flows—Years ended March 31, 2016 and 2015 | 26 |
Notes to Consolidated Financial Statements | 27 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Determine, Inc.
We have audited the accompanying consolidated balance sheets of Determine, Inc. (the “Company”) as of March 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and equity, and cash flows for each of the fiscal years in the two-year period ended March 31, 2016. 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 and financial statement schedule referred to above present fairly, in all material respects, the financial position of Determine, Inc. at March 31, 2016 and March 31, 2015, and the consolidated results of their operations and their cash flows for each of the fiscal years in the two-year period ended March 31, 2016, 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 Francisco, California
July 1, 2016
DETERMINE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| | | March 31, | | | March 31, | |
| | | 2016 | | | 2015 | |
| | | | | | | | | |
ASSETS | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 9,418 | | | $ | 13,178 | |
Accounts receivable, net of allowance for doubtful accountsof $407 and $205 as of March 31, 2016 and March 31, 2015, respectively | | | 7,031 | | | | 5,203 | |
Restricted cash | | | 34 | | | | 34 | |
Prepaid expenses and other current assets | | | 1,551 | | | | 1,647 | |
Total current assets | | | 18,034 | | | | 20,062 | |
| | | | | | | | | |
Property and equipment, net | | | 136 | | | | 290 | |
Capitalized software development costs, net | | | 1,699 | | | | 2,258 | |
Goodwill | | | 14,490 | | | | 7,702 | |
Other intangibles, net | | | 8,011 | | | | 6,453 | |
Other assets | | | 1,843 | | | | 521 | |
Total assets | | $ | 44,213 | | | $ | 37,286 | |
| | | | | | | | | |
| | | | | | | | | |
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Credit facility | | $ | 7,100 | | | $ | 7,447 | |
Accounts payable | | | 1,973 | | | | 1,535 | |
Accrued payroll and related liabilities | | | 1,655 | | | | 910 | |
Other accrued liabilities | | | 2,396 | | | | 1,877 | |
Deferred revenue | | | 10,299 | | | | 8,410 | |
Income tax payable | | | 14 | | | | - | |
COFACE loan | | | 407 | | | | - | |
Accrued restructuring | | | 403 | | | | - | |
Total current liabilities | | | 24,247 | | | | 20,179 | |
| | | | | | | | | |
Long-term deferred revenue | | | 67 | | | | 22 | |
Convertible note, net of debt discount | | | 5,420 | | | | 2,900 | |
Other long-term liabilities | | | 3,282 | | | | 167 | |
Deferred tax liability, non-current | | | 290 | | | | - | |
Total liabilities | | | 33,306 | | | | 23,268 | |
| | | | | | | | | |
Commitments and contingencies (Notes 10 and 11): | | | | | | | | |
Redeemable Convertible Preferred Stock: | | | | | | | | |
Series F redeemable convertible preferred stock, $0.0001 par value, designated, issued and outstanding shares: 0 shares at March 31, 2016 and 119 shares at March 31, 2015 | | | - | | | | 4,895 | |
| | | | | | | | | |
Common stock, $0.0001 par value: Authorized: 15,000 shares at March 31, 2015 and 2014; Issued: 11,387 and 8,019 shares at March 31, 2016 and 2015, respectively; Outstanding: 11,291 and 7,923 shares at March 31, 2016 and 2015, respectively | | | 5 | | | | 5 | |
Additional paid-in capital | | | 313,674 | | | | 297,866 | |
Treasury stock at cost - 96 shares at March 31, 2016 and 2015 | | | (472 | ) | | | (472 | ) |
Accumulated deficit | | | (302,297 | ) | | | (288,276 | ) |
Accumulated other comprehensive loss | | | (116 | ) | | | - | |
Total Determine, Inc. stockholders' equity | | | 10,794 | | | | 9,123 | |
Non-controlling interest | | | 113 | | | | - | |
Total equity | | | 10,907 | | | | 9,123 | |
Total liabilities, redeemable convertible preferred stock and equity | | $ | 44,213 | | | $ | 37,286 | |
The accompanying notes are an integral part of these consolidated financial statements.
DETERMINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
| | | Fiscal Years Ended March 31, | |
| | | 2016 | | | 2015 | |
| | | | | | | | | |
| | | | | | | | | |
Revenues: | | | | | | | | |
Recurring revenues | | $ | 20,843 | | | $ | 16,207 | |
Non-recurring revenues | | | 5,917 | | | | 4,670 | |
Total revenues | | | 26,760 | | | | 20,877 | |
| | | | | | | | | |
Cost of revenues: | | | | | | | | |
Cost of recurring revenues | | | 6,846 | | | | 5,029 | |
Cost of non-recurring revenues | | | 6,123 | | | | 7,274 | |
Total cost of revenues | | | 12,969 | | | | 12,303 | |
| | | | | | | | | |
Gross profit: | | | | | | | | |
Recurring gross profit | | | 13,997 | | | | 11,178 | |
Non-recurring gross loss | | | (206 | ) | | | (2,604 | ) |
Total gross profit | | | 13,791 | | | | 8,574 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | |
Research and development | | | 3,612 | | | | 3,373 | |
Sales and marketing | | | 13,222 | | | | 12,697 | |
General and administrative | | | 8,099 | | | | 7,073 | |
Acquisition related costs | | | 912 | | | | 1,715 | |
Impairment of software development costs | | | 1,368 | | | | 340 | |
Restructuring costs | | | 451 | | | | - | |
Total operating expenses | | | 27,664 | | | | 25,198 | |
| | | | | | | | | |
Loss from operations | | | (13,873 | ) | | | (16,624 | ) |
| | | | | | | | | |
Other income (expense), net | | | (700 | ) | | | (72 | ) |
| | | | | | | | | |
Net loss before income taxes | | | (14,573 | ) | | | (16,696 | ) |
Benefit from income taxes | | | 545 | | | | 2,950 | |
Net loss | | | (14,028 | ) | | | (13,746 | ) |
| | | | | | | | | |
Net loss attributed to non-controlling interest | | | 7 | | | | - | |
Net loss attributable to Determine, Inc. | | | (14,021 | ) | | | (13,746 | ) |
| | | | | | | | | |
Redeemable preferred stock accretion | | | 1,120 | | | | 3,691 | |
Net loss attributable to common stockholders | | $ | (15,148 | ) | | $ | (17,437 | ) |
| | | | | | | | | |
Basic and diluted net loss per share (Note 15) | | $ | (1.34 | ) | | $ | (1.89 | ) |
| | | | | | | | | |
Weighted-average shares of common stock used in computing basicand diluted net loss per share attributable to common stockholders | | | 10,482 | | | | 7,277 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Statements of Comprehensive Loss: | | | | | | | | |
Net loss | | $ | (14,028 | ) | | $ | (13,746 | ) |
Foreign currency translation adjustments, net | | | (116 | ) | | | - | |
Comprehensive loss | | | (14,144 | ) | | | (13,746 | ) |
Less: Net loss attributable to noncontrolling interest | | | 7 | | | | - | |
Comprehensive loss attributable to Determine, Inc | | $ | (14,137 | ) | | $ | (13,746 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
DETERMINE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY
(In thousands, except share data)
| | | Redeemable Convertible Preferred Stock | | | Common Stock | | | Additional Paid-In | | | Treasury Stock | | | Accumulated | | | Accumulated Other Comprehensive | | | Total Determine Stockholders’ | | | Non- controlling | | | Total | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Shares | | | Amount | | | Deficit | | | Loss | | | Equity | | | Interest | | | Equity | |
Balance at March 31, 2014 | | | 680,470 | | | $ | 3,653 | | | | 4,790,463 | | | $ | 4 | | | $ | 278,083 | | | | (95,653 | ) | | $ | (472 | ) | | $ | (274,530 | ) | | | — | | | $ | 3,085 | | | | — | | | $ | 3,085 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of Series D redeemable preferred stock to common stock, net of issuance costs of $53 | | | (680,470 | ) | | | (3,653 | ) | | | 690,274 | | | | — | | | | 3,653 | | | | — | | | | — | | | | — | | | | — | | | | 3,653 | | | | — | | | | 3,653 | |
Issuance of common stock, redeemable convertible Series E preferred stock, and warrants through a private placement, net of issuance costs of $100 | | | 124,891 | | | | 6,419 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Value of benefical conversion feature in Series E preferred stock | | | — | | | | (1,571 | ) | | | — | | | | — | | | | 1,571 | | | | — | | | | — | | | | — | | | | — | | | | 1,571 | | | | — | | | | 1,571 | |
Accretion of preferred Series E stock to redemption value | | | — | | | | 2,645 | | | | — | | | | — | | | | (2,645 | ) | | | — | | | | — | | | | — | | | | — | | | | (2,645 | ) | | | — | | | | (2,645 | ) |
Warrants to purchase common stock issued in connection with Series E private placement | | | — | | | | — | | | | — | | | | — | | | | 809 | | | | — | | | | — | | | | — | | | | — | | | | 809 | | | | — | | | | 809 | |
Conversion of Series E redeemable preferred stock to common stock, net of issuance costs | | | (124,891 | ) | | | (7,493 | ) | | | 1,248,905 | | | | 1 | | | | 7,492 | | | | — | | | | — | | | | — | | | | — | | | | 7,493 | | | | — | | | | 7,493 | |
Issuance of stock in consideration of Merger | | | — | | | | — | | | | 1,000,000 | | | | — | | | | 6,610 | | | | — | | | | — | | | | — | | | | — | | | | 6,610 | | | | — | | | | 6,610 | |
Issuance of redeemable convertible Series F preferred stock, and warrants through a private placement, net of issuance costs of $350 | | | 118,829 | | | | 4,413 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Value of benefical conversion feature in Series F preferred stock | | | — | | | | (564 | ) | | | — | | | | — | | | | 564 | | | | — | | | | — | | | | — | | | | — | | | | 564 | | | | — | | | | 564 | |
Accretion of preferred Series F stock to redemption value | | | — | | | | 1,046 | | | | — | | | | — | | | | (1,046 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,046 | ) | | | — | | | | (1,046 | ) |
Warrants to purchase common stock issued in connection with Series F private placement | | | — | | | | — | | | | — | | | | — | | | | 678 | | | | — | | | | — | | | | — | | | | — | | | | 678 | | | | — | | | | 678 | |
Beneficial conversion feature for convertible note | | | — | | | | — | | | | | | | | | | | | 100 | | | | — | | | | — | | | | — | | | | — | | | | 100 | | | | — | | | | 100 | |
ESPP purchase | | | — | | | | — | | | | 48,833 | | | | — | | | | 215 | | | | — | | | | — | | | | — | | | | — | | | | 215 | | | | — | | | | 215 | |
Exercise of stock options | | | — | | | | — | | | | 1,718 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Issuance of restricted stock, net of witholding employee taxes | | | — | | | | — | | | | 238,375 | | | | — | | | | (756 | ) | | | — | | | | — | | | | — | | | | — | | | | (756 | ) | | | — | | | | (756 | ) |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 2,538 | | | | — | | | | — | | | | — | | | | — | | | | 2,538 | | | | — | | | | 2,538 | |
Net Loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (13,746 | ) | | | — | | | | (13,746 | ) | | | — | | | | (13,746 | ) |
Balance at March 31, 2015 | | | 118,829 | | | $ | 4,895 | | | | 8,018,568 | | | $ | 5 | | | $ | 297,866 | | | | (95,653 | ) | | $ | (472 | ) | | $ | (288,276 | ) | | | — | | | $ | 9,123 | | | | — | | | $ | 9,123 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of redeemable convertible Series F preferred stock, and warrants through a private placement | | | 6,596 | | | | 250 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Value of benefical conversion feature in Series F preferred stock | | | — | | | | (370 | ) | | | — | | | | — | | | | 370 | | | | — | | | | — | | | | — | | | | — | | | | 371 | | | | — | | | | 371 | |
Accretion of preferred Series F stock to redemption value | | | — | | | | 1,120 | | | | — | | | | — | | | | (1,120 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,120 | ) | | | — | | | | (1,120 | ) |
Warrants to purchase common stock issued in connection with Series F private placement | | | — | | | | — | | | | — | | | | — | | | | 60 | | | | — | | | | — | | | | — | | | | — | | | | 60 | | | | — | | | | 60 | |
Conversion of Series F redeemable preferred stock to common stock, net of issuance costs of $18 | | | (125,425 | ) | | | (5,895 | ) | | | 1,254,246 | | | | — | | | | 5,877 | | | | — | | | | — | | | | — | | | | — | | | | 5,877 | | | | — | | | | 5,877 | |
Issuance of stock in consideration of Merger | | | — | | | | — | | | | 1,841,244 | | | | — | | | | 7,954 | | | | | | | | | | | | | | | | | | | | 7,954 | | | | 120 | | | | 8,075 | |
Stock issued in connection with interest on convertible note | | | | | | | | | | | 69,731 | | | | - | | | | 365 | | | | | | | | | | | | | | | | | | | | 365 | | | | | | | | 365 | |
ESPP purchase | | | — | | | | — | | | | 64,178 | | | | — | | | | 171 | | | | — | | | | — | | | | — | | | | — | | | | 171 | | | | — | | | | 171 | |
Issuance of restricted stock, net of witholding employee taxes | | | — | | | | — | | | | 138,898 | | | | — | | | | (259 | ) | | | — | | | | — | | | | — | | | | — | | | | (259 | ) | | | — | | | | (259 | ) |
Stock-based compensation expense | | | — | | | | — | | | | — | | | | — | | | | 2,389 | | | | — | | | | — | | | | — | | | | — | | | | 2,389 | | | | — | | | | 2,389 | |
Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (116 | ) | | | (116 | ) | | | — | | | | (116 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (14,021 | ) | | | — | | | | (14,021 | ) | | | (7 | ) | | | (14,028 | ) |
Balance at March 31, 2016 | | | - | | | $ | 0 | | | | 11,386,865 | | | $ | 5 | | | $ | 313,674 | | | | (95,653 | ) | | $ | (472 | ) | | $ | (302,297 | ) | | $ | (116 | ) | | $ | 10,794 | | | $ | 113 | | | $ | 10,907 | |
The accompanying notes are an integral part of these consolidated financial statements.
DETERMINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Fiscal Years Ended March 31, | |
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
Operating activities | | | | | | | | |
Net loss | | $ | (14,021 | ) | | $ | (13,746 | ) |
Adjustments to reconcile net loss to net cash used inoperating activities: | | | | | | | | |
Depreciation and amortization | | | 2,680 | | | | 1,530 | |
Gain on disposition of property and equipment | | | (13 | ) | | | - | |
Deferred tax liability | | | (46 | ) | | | 1,270 | |
Accrued restructuring costs | | | 403 | | | | - | |
Impairment of capitalized software | | | 1,368 | | | | 340 | |
Stock-based compensation expense | | | 2,389 | | | | 2,538 | |
Changes in assets and liabilities, net of business combination: | | | | | | | | |
Accounts receivable, net | | | (154 | ) | | | 421 | |
Restricted cash | | | - | | | | (34 | ) |
Prepaid expenses and other current assets | | | 200 | | | | (505 | ) |
Other assets | | | (1,061 | ) | | | (2 | ) |
Accounts payable | | | 199 | | | | (195 | ) |
Accrued payroll and related liabilities | | | (202 | ) | | | (421 | ) |
Other accrued liabilities and long term liabilities | | | 1,265 | | | | 158 | |
Deferred revenue | | | 1,066 | | | | (2,989 | ) |
Net cash used in operating activities | | | (5,927 | ) | | | (11,635 | ) |
| | | | | | | | | |
Investing activities | | | | | | | | |
Purchase of property and equipment | | | (6 | ) | | | (51 | ) |
Capitalized software | | | (1,383 | ) | | | (1,962 | ) |
Minority shareholder payment | | | (133 | ) | | | - | |
Purchase of business acquired, net of cash | | | (826 | ) | | | (4,451 | ) |
Net cash used in investing activities | | | (2,348 | ) | | | (6,464 | ) |
| | | | | | | | | |
Financing activities | | | | | | | | |
Proceeds from sale of preferred stock with warrants, net of issuance costs | | | 260 | | | | 12,319 | |
Employee taxes paid in exchange for restricted stock awards forefeited | | | (175 | ) | | | (578 | ) |
Issuance of common stock under employee stock plan | | | 171 | | | | 215 | |
Credit facility borrowing | | | - | | | | 496 | |
Credit facility payment | | | (347 | ) | | | (655 | ) |
Repayment of loan | | | (47 | ) | | | (277 | ) |
Fees paid in connection with conversion of preferred stock to common stock | | | (17 | ) | | | - | |
Issuance of convertible note, net | | | 4,786 | | | | 3,000 | |
Cost associated with promissory note | | | - | | | | (150 | ) |
Net cash provided by financing activities | | | 4,631 | | | | 14,370 | |
| | | | | | | | | |
Effect of exchange rate changes on cash | | | (116 | ) | | | - | |
| | | | | | | | | |
| | | | | | | | | |
Net decrease in cash and cash equivalents | | | (3,760 | ) | | | (3,729 | ) |
Cash and cash equivalents at beginning of the period | | | 13,178 | | | | 16,907 | |
Cash and cash equivalents at end of the period | | $ | 9,418 | | | $ | 13,178 | |
| | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | |
Cash paid for interest | | $ | 105 | | | $ | 35 | |
Beneficial conversion feature for convertible redeemable preferred stock | | $ | 370 | | | $ | 2,135 | |
Accretion of preferred series stock to redemption value | | $ | 1,120 | | | $ | 3,691 | |
Conversion of redeemable preferred stock to common stock | | $ | 5,877 | | | $ | 11,145 | |
Issuance of shares in business combination | | $ | 7,954 | | | $ | 6,610 | |
Assumption of debt in connection with business combination | | $ | 587 | | | $ | 932 | |
| Stock issued in connection with interest on convertible note | | $ | 365 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Business
Determine, Inc. (the “Company” or “Determine”) is a leading provider of enterprise contract management, supply management, and configuration solutions. Since 1996, Determine has helped global companies actively manage their contracts throughout the sales, procurement, and legal life cycle. Determine’s contract lifecycle management, strategic sourcing, and purchasing solutions drive business value by assisting organizations in managing contracts profitably, effectively accelerating revenue opportunities, and minimizing risk through compliance. Our patented technology assists customers across a myriad of industries—including high-tech, telecommunications, manufacturing, healthcare, and financial services—to accelerate and streamline contract management, sales processes, spend analysis, procurement intelligence, sourcing, and supplier lifecycle management. Determine also provides a powerful configuration engine, which Fortune 500 companies use to increase revenue by facilitating the right combination of products, services, and price.
On October 15, 2015, the Company amended its certificate of incorporation to change our name from Selectica, Inc. to Determine, Inc., which change became effective immediately. Effective October 15, 2015, the Company also amended and restated our Bylaws to change our name from Selectica, Inc. to Determine, Inc., which change became effective immediately. The Company’s common stock trades under the ticker symbol “DTRM” effective October 19, 2015.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.It also includes non-controlling interest, which is the portion of equity in a subsidiary not attributable to a parent. The non-controlling interest of the Company and its subsidiaries are not considered to be permanent equity. Non-controlling interest’s share of subsidiary earnings is reflected as net income attributable to non-controlling interest in the consolidated statements of operations and comprehensive loss.
Liquidity
The Company has incurred significant historical losses and negative cash flows from operations and has an accumulated deficit of $302.3 million at March 31, 2016. Until the Company can generate significant cash from operations, its ability to continue as a going concern is dependent upon obtaining additional financing. Management intends to raise additional funds through equity and/or debt offerings until the Company has positive operating cash flows. There is no assurance that the Company will be successful in generating or raising funds, if necessary, to sustain its operations for twelve months or beyond. Should the Company be unable to generate funds or obtain future financing, the Company may have to curtail operations by delaying development programs or relinquishing employees, which may have a material adverse effect on the Company's financial position and results of operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Non-Controlling Interest
On July 31, 2015, the Company completed its acquisition of b-pack and its subsidiaries resulting in Determine SAS continuing as a wholly-owned subsidiary of the Company. Determine SAS is headquartered in Paris, France, and has the following subsidiaries: b-pack Software, in charge of the sales and marketing, b-pack Services, incorporated in Aix-en-Provence, France and b-pack, Inc. incorporated in Atlanta, Georgia that primarily operates as a sales office in the US. b-pack, Inc. became a subsidiary of Determine, Inc. and was then merged into Determine, Inc. b-pack Software became a subsidiary of Determine SAS and was then merged into Determine SAS. As of March 31, 2016 neither b-pack, Inc. nor b-pack Software existed. The consolidated financial statements include the financial position and results of operations of b-pack Services in which the Company owns 82%, maintaining a controlling interest.A summary of b-pack Services is as follows as of and for the year ended March 31, 2016:
Total assets | | $ | 517,000 | |
Total liabilities | | $ | (822,000 | ) |
Loss before income taxes | | $ | (72,000 | ) |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Change in Presentation of Financial Statements
During the fiscal year ended March 31, 2016, the Company changed the presentation of its consolidated financial statements to separate the impairment of capitalized software development costs and acquisition related costs from operating expenses. Previously, these costs were included in research and development expenses of $0.3 million and general and administrative expenses of $1.7 million, respectively, to conform to the current year’s presentation. This reclassification of the prior period amounts did not change the previously reported operating loss or net loss.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and allowance for doubtful accounts, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, and accounts receivable. 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. 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
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 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.
Restricted Cash
The Company’s restricted cash consist of certificates of deposits for our credit card for our office in the UK.
Accounts Receivable, Net of 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, Net
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 lease term or estimated useful life.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Business Combinations
The Company accounts for acquisitions using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of an acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Criticalestimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships and acquired patents and developed technology; and discount rates. Management’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Intangible Assets and Impairment of Long-Lived Assets
Intangible assets consist of customer relationships, trade names, and acquired technology. Intangible assets are recorded at fair value at the date of the acquisition and, for those assets having finite useful lives, are amortized using the straight-line method over their estimated useful lives, which generally range from two to five years. The Company periodically reviews its intangible and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company then compares the carrying amounts of the assets with the future net undiscounted cash flows expected to be generated by such asset. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value determined using discounted estimates of future cash flows. There was a $1.4 million and $0.3 million impairment charge recorded during the years ended March 31, 2016 and 2015, respectively.
Goodwill
Goodwill represents the excess of the purchase consideration over the net tangible and an identifiable intangible asset acquired in a business combination and is allocated to reporting units expected to benefit from the business combination. The Company tests goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets may be impaired. The Company has elected to first assess certain qualitative factors to determine whether it is more likely than not that the fair value of its single reporting operating unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If the Company determines that it is more likely than not that the fair value is less than its carrying amount, then the two-step goodwill impairment test will be performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step will be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. There was no impairment charge recorded during years ended March 31, 2016 and 2015.
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:
| | | 2016 | | | 2015 | |
| | | (in thousands, except percentages) | |
Revenues from Customer A | | $ | - | | | $ | 2,102 | |
Percentage of total revenues | | | - | | | | 10 | % |
As of March 31, 2016, no customers accounted for at least 10% of net accounts receivable or revenue. As of March 31, 2015, Customer A accounted for 15% of net accounts receivable.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Revenue Recognition
The Company generates revenues by providing its software-as-a-service solutions through subscription license arrangements and related professional services, and related software maintenance. The Company presents revenue net of sales taxes and any similar assessments.
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 reasonably assured. If the Company determines 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. Subscriptions to use our software solutions have standalone value as such services are often sold separately, primarily through renewals. Professional services have standalone value as the services have value to the customer on a standalone basis 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 and subscription services, the Company has not established VSOE 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.
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. 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.
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.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising expense for the years ended March 31, 2016 were approximately $588,000. Advertising expense for the years ended March 31, 2015 were approximately $614,000.
Foreign Currency
For the Company’s UK subsidiary, the functional currency is the U.S. dollar. Non-monetary assets and liabilities are translated into U.S. dollar equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period. Net gains and losses resulting from foreign exchange transactions are recorded in other income (expense), net in the consolidated statements of operations. For French subsidiaries whose functional currency is the local currency, assets and liabilities are translated into U.S. dollar equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rateover the period. Resulting currency translation adjustments are recorded in accumulated other comprehensive loss in the consolidated balance sheets.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Accumulated Other Comprehensive Loss
The accumulated other comprehensive loss balance consists of translation gains and losses related to our international subsidiaries with functional currencies other than the U.S. dollar, primarily the Euro.
Capitalized Software Development Costs
The Company capitalizes costs for internal use software incurred during the application development stage that are included in research and development expenses. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Capitalized software will be amortized once the product is ready for its intended use, using the straight-line method over the estimated useful lives of the assets, which is three years. Management incurred impairment costs of $0.3 million in fiscal year ended March 31, 2015. During fiscal 2016, the Company continued to evaluate the capitalized software development costs across all products lines with the recent acquisition of b-pack. Given this conclusion, the Company impaired the investment previously made in what was to be a separate platform to hold all products, resulting in an impairment charge of $1.4 million in the fiscal year ended March 31, 2016.
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-Merton 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.
Geographic Information:
International revenues are attributable to countries based on the location of the customers. For the years ended March 31, 2016 and 2015, sales to international locations were derived primarily from France, Bermuda, China, Denmark, Brazil, Canada, India, Italy, Singapore, New Zealand, Switzerland, Germany, Hong Kong, Ireland, Norway and the United Kingdom.
| | | Fiscal Years Ended March 31, | |
| | | 2016 | | | 2015 | |
| | | (in thousands, except percentages) | |
International revenue | | | 21 | % | | | 13 | % |
Domestic revenue | | | 79 | % | | | 87 | % |
Total revenue | | | 100 | % | | | 100 | % |
For the years ended March 31, 2016 and 2015, the Company held long-lived assets outside of the United States with a net book value of approximately $13,000 and $47,000, respectively. These assets were located in Odessa, Ukraine.
Treasury Stock
There were no stock repurchases for the years ended March 31, 2016 and March 31, 2015.
The Company had approximately 96,000 shares of treasury stock as of March 31, 2016 and March 31, 2015.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Recent Accounting Pronouncements
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by eliminating the need for entities to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. ASU 2015-17 is effective for companies beginning after December 15, 2016, with early application permitted as of the beginning of an interim or annual reporting period. The Company has already adopted in current fiscal year, thus resulting in the reclassification of current deferred tax assets to noncurrent on the accompanying consolidated balance sheet. The prior reporting period was not retrospectively adjusted. The adoption of this standard has no impact on our consolidated results of net income (loss) or comprehensive income (loss).
In January 2016, FASB issued Accounting Standards Update 2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities(Subtopic 825-10) (“ASU 2016-01”). The new standard provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements.
In February 2016, FASB issued Accounting Standards Update No. 2016-02,Leases (“ASU 2016-02”). The new guidance generally requires an entity to recognize on its balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”). The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.
In September 2015, the FASB issued Accounting Standards Update No. 2015-16,Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. In addition, separate presentation on the face of the income statement or disclosure in the notes is required regarding the portion of the adjustment recorded in the current period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is to be applied prospectively for measurement period adjustments that occur after the effective date. ASU 2015-16 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015, and early adoption is permitted. Since it is prospective, the impact of ASU 2015-16 on the Company’s financial condition and earnings will depend upon the nature of any measurement period adjustments identified in future periods.
In June 2015, the FASB issued Accounting Standards Update No. 2015-10,Technical Corrections and Improvements (“ASU 2015-10”). ASU 2015-10 amends a wide range of Accounting Standards Codification topics to make clarifying changes, correct unintended application of guidance, and make minor changes that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. The Company does not anticipate that the adoption of ASU 2015-10 will have a material impact on its consolidated financial statements and related disclosures.
In April 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU 2015-05, Intangibles−Goodwill and Other−Internal-use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud ComputingArrangement, providing guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. The standard update is effective for fiscal years beginning afterDecember 15, 2015 and interim. We are currently evaluating the impact of adopting this update on our consolidated financial statements.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is applicable to the Company for fiscal years beginning after December 15, 2015. Early adoption of ASU 2015-03 is permitted. The Company adopted this guidance effective April 1, 2015. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-CreditArrangements. ASU 2015-15 supplements the requirements of ASU 2015-03 by allowing an entity to defer and present debt issuance costs related to a line of credit arrangement as an asset and subsequently amortize the deferred costs ratably over the term of the line of credit arrangement. The Company has not determined in which period it will adopt the new guidance. Retrospective adoption is required. Long-term debt issuance costs will be reclassified from other assets to long-term debt upon adoption.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Subtopic 810) Amendments to the Consolidation Analysis, to improve consolidation guidance for legal entities and affect the consolidation evaluation for reporting organizations. The standard update is effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The standard allows for adoption retrospectively or with a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are currently evaluating the impact of adopting this update on our consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) which amended the existing FASB Accounting Standards Codification. This standard establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The standard also provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts. In April 2015, the FASB proposed a one-year deferral of the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP. In accordance with the deferral, ASU 2014-09 will be effective for fiscal 2019, including interim periods within that reporting period. The Company is currently in the process of assessing the adoption methodology, which allows the amendment to be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial application. The Company is also evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements and has not determined whether the effect will be material to either its revenue results or its deferred commission balances.
In August 2014, FASB issued Accounting Standards Update 2014-15,Presentation of Financial Statements — Going Concern (Subtopic 205-40). The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its consolidated financial statements.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
b-pack SAS
On July 31, 2015, the Company completed its acquisition of b-pack SAS, a French société par actions simplifiée (“b-pack”). As a result of the merger, the b-pack stockholders received an aggregate cash payment of $1.1 million and 1,841,244 shares of common stock of the Company, par value $0.0001, resulting in Determine SAS continuing as a wholly-owned subsidiary of the Company. The acquisition of b-pack positions the Company to provide easier access to contract management, strategic sourcing, spend management and Configuration solutions, and increases the Company’s market coverage in more locations worldwide to its customers.
b-pack SAS, was founded on December 5, 2005, and is a software-as-a-service (SaaS) business that offers a suite of cloud-based applications that help companies significantly reduce costs by optimizing, streamlining, and automating complex procurement processes with an integrated, end-to-end platform that facilitates and promotes an environment for responsible spending. Pre-merger, b-pack SAS was headquartered in Paris, France, and had the following subsidiaries: b-pack Software, b-pack Services, and b-pack, Inc. b-pack Software was 99.94% owned by b-pack SAS and was incorporated in Paris, France. b-pack Software was in charge of the sales and marketing development of Europe. b-pack Services was 82% owned by b-pack SAS and was incorporated in Aix-en-Provence, France. The remaining 18% is held by non-controlling interest shareholder. b-pack, Inc. was a wholly-owned subsidiary of b-pack SAS. b-pack, Inc. was incorporated in Atlanta, Georgia and primarily operated as a sales office in the US. Pursuant to an Agreement and Plan of Merger, dated as of March 30, 2015, b-pack merged with and into Determine SAS and Determine SAS continued as the surviving entity.The Company's operations are subject to significant risks and uncertainties, including competitive, financial, developmental, operational, technological, regulatory, and other risks associated with an emerging business.
The Company recorded the assets acquired and liabilities assumed at their estimated fair value, with the difference between the fair value of the net assets acquired and the purchase consideration reflected as goodwill. The working capital has been finalized. The acquisition consideration is comprised of the following:
(in thousands) | | | | |
Cash paid | | $ | 1,056 | |
Total stock value | | | 7,954 | |
Total purchase price | | $ | 9,010 | |
The following table reflects the fair values of assets acquired and liabilities assumed as of the acquisition date (in thousands):
Cash and cash equivalents | | $ | 654 | |
| Accounts receivable, net | | | 1,674 | |
Prepaid and other assets | | | 105 | |
Deferred income tax | | | 260 | |
Customer relationships | | | 1,640 | |
Developed technology | | | 1,860 | |
Goodwill (inclu. assembled workforce) | | | 6,934 | |
Other assets | | | 268 | |
Accounts payable | | | (289 | ) |
Accrued payroll and related benefits | | | (1,031 | ) |
COFACE loan | | | (428 | ) |
Deferred revenue | | | (868 | ) |
Accrued expenses | | | (210 | ) |
VAT payable | | | (265 | ) |
Deferred tax liability - current | | | (1,173 | ) |
Non controlling interest | | | (121 | ) |
Total net assets | | $ | 9,010 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The goodwill of $6.9 million is primarily attributed to the synergies expected to arise after the acquisition and fair value of assembled workforce. We record goodwill in connection with the acquisition of businesses when the purchase price exceeds the fair values of the assets acquired and liabilities assumed. Generally, the most significant intangible assets from the businesses that we acquire are the assembled workforces, which includes the human capital of the management, administrative, marketing and business development, engineering and technical employees of the acquired businesses. Since intangible assets for assembled workforces are part of goodwill in accordance with the accounting standards for business combinations, the substantial majority of the intangible assets for our business acquisitions are recognized as goodwill. No goodwill was deemed to be deductible for income tax purposes.
Iasta.com, Inc. and Iasta Resources, Inc.
On July 2, 2014, the Company completed its acquisition of Iasta.com, Inc., an Indiana corporation, and Iasta Resources, Inc., an Indiana corporation (together, “Iasta”). Pursuant to theAgreement and Plan of Merger dated June 2, 2014, among the Company, Selectica Sourcing, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Selectica Sourcing”), Iasta and Iasta’s shareholders, Iasta merged with and into Selectica Sourcing, with Selectica Sourcing continuing as a wholly owned subsidiary of the Company.
The total purchase price for Iasta included 1,000,000 shares of the Company’s common stock valued at $6.6 million, and cash of $6.5 million, adjusted for amounts related to the repayment of $0.7 million for outstanding borrowings under a line of credit, $0.3 million related to a note payable and payment of transaction costs and certain other adjustments. The total purchase price is subject to a $1.4 million cash escrow (the “Escrow”) to cover any post-closing adjustments and indemnification obligations of the former Iasta shareholders. A portion of the Escrow will be released on the 12-month anniversary of the closing of the acquisition, and the escrow was released as part of a settlement between the Company and the Iasta shareholders. In addition, the Company granted options to certain employees of Iasta to purchase up to 700,000 shares of the Company’s common stock.
The assets acquired and liabilities assumed in connection with the acquisition of Iasta were recorded at their fair values as of the acquisition date. The total purchase price was comprised of the following:
(in thousands) | | | | |
Cash Paid | | $ | 6,494 | |
Total Stock value | | | 6,610 | |
Working Capital Adjustment | | | (734 | ) |
Total Purchase Price | | $ | 12,370 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Summary | | | | |
(in thousands) | | | | |
Cash | | $ | 1,491 | |
Restricted cash | | | 139 | |
Accounts receivable | | | 2,618 | |
Prepaid and other Assets | | | 314 | |
Fixed assets, net | | | 188 | |
Customer relationships | | | 4,210 | |
Developed technology | | | 3,170 | |
Trade name | | | 120 | |
Goodwill | | | 7,702 | |
Other long term assets | | | 340 | |
Accounts payable and accrued expenses | | | (562 | ) |
Accrued and payroll benefits | | | (688 | ) |
Credit facility | | | (655 | ) |
Notes payable | | | (277 | ) |
Other current liabilities | | | (718 | ) |
Deferred revenue | | | (2,033 | ) |
Deferred tax asset - current | | | 280 | |
Deferred tax liability - non current | | | (3,269 | ) |
Total value of assets acquired and liabilities assumed | | $ | 12,370 | |
The purchase price allocation includes goodwill of $7.7 million, which is primarily attributable to the synergies expected to arise after the acquisition and fair value of assembled workforce. The Company incurred $0.4 million of transactional costs which is recorded as part of General and Administrative expenses during the year ended March 31, 2015. The acquired working capital has been finalized and impacted goodwill balance post acquisition date. The goodwill is not deductible for income tax purposes.
Finalization of preliminary purchase price allocation
Under U.S. GAAP, the period that is allowed for finalizing the identification and measurement of the fair value of the assets acquired and the liabilities assumed in a business combination ends when the acquiring entity is no longer waiting for information that it has arranged to obtain and that is known to be available or obtainable. AtMarch 31, 2016, the Company determined that its measurement and recognition of assets acquired and liabilities assumed in the Iasta and b-pack acquisition was recorded on a final basis.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and b-pack, which was considered a “significant” acquisition (as defined in Regulation S-X) for the purposes of unaudited pro forma financial information disclosure, as though the companies were combined as of April 1, 2014. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the b-pack acquisition including amortization charges from acquired intangible assets and stock-based compensation charges for unvested stock option awards, as though the Company and b-pack were combined as of April 1, 2014. The related tax effect was insignificant.
The pro forma financial information, as presented below, is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition of b-pack had taken place as of the beginning of each period presented. The pro forma financial information does not reflect the impact of any reorganization or operating efficiencies resulting from combining the two companies.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The historical financial information has been adjusted to give effect to the pro forma events that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combinedresults. The unaudited pro forma consolidated financial information reflects assuming the acquisition had occurred on April 1, 2014. Acquisition related expenses are included in general and administrative expenses.
| | | Fiscal Year Ended | |
| | | 2016 | | | 2015 | |
| | | (in thousands, except per share data) | |
| | | | | | | | | |
Revenue | | $ | 33,235 | | | $ | 29,724 | |
Loss from operations | | $ | (19,061 | ) | | $ | (20,925 | ) |
Net loss | | $ | (19,787 | ) | | $ | (18,218 | ) |
Basic and diluted net loss per share | | $ | (1.89 | ) | | $ | (2.50 | ) |
4. Goodwill and Purchased Intangible Assets
The following is a summary of goodwill (in thousands):
Balance at March 31, 2014 | | $ | - | |
Goodwill acquired | | | 8,436 | |
Working capital adjustment | | | (734 | ) |
Balance at March 31, 2015 | | | 7,702 | |
Goodwill acquired | | | 6,934 | |
Deferred tax adjustment | | | (146 | ) |
Balance at March 31, 2016 | | $ | 14,490 | |
The following is a summary of purchased intangible assets (in thousands):
| | | March 31, 2016 | |
| | | Gross | | | Accumulated | | | Net | |
| | | Carrying | | | Amortization | | | Carrying | |
| | | Amount | | | | | | | Value | |
Acquired developed technology | | $ | 5,034 | | | $ | 1,367 | | | $ | 3,667 | |
Customer relationships | | | 5,853 | | | | 1,509 | | | | 4,344 | |
Trade name | | | 120 | | | | 120 | | | | - | |
| | | | | | | | | | | | | |
| | | $ | 11,007 | | | $ | 2,996 | | | $ | 8,011 | |
| | | March 31, 2015 | |
| | | Gross | | | Accumulated | | | Net | |
| | | Carrying | | | Amortization | | | Carrying | |
| | | Amount | | | | | | | Value | |
Acquired developed technology | | $ | 3,170 | | | $ | 476 | | | $ | 2,694 | |
Customer relationships | | | 4,210 | | | | 526 | | | | 3,684 | |
Trade name | | | 120 | | | | 45 | | | | 75 | |
| | | | | | | | | | | | | |
| | | $ | 7,500 | | | $ | 1,047 | | | $ | 6,453 | |
Acquired developed technology, and customer relationships are being amortized on a straight-line basis and have weighted-average remaining useful lives of 3.65 years and 3.91 years respectively, as of March 31, 2016.
Amortization expense was $1.9 million and $1.0 million for the years ended March 31, 2016 and 2015, respectively.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
As of March 31, 2016, amortization expense for intangible assets for each of the next five years is as follows:
Year ended Mach 31: | | (in thousands) | |
2017 | | $ | 2,119 | |
2018 | | | 2,119 | |
2019 | | | 2,119 | |
2020 | | | 1,370 | |
2021 | | | 284 | |
Total | | $ | 8,011 | |
5. | Private Placement Funding with Redeemable Convertible Preferred Stock and Warrants |
On February 6, 2015, pursuant to the terms of a Purchase Agreement between the Company and certain institutional funds and other accredited investors, the Company sold and issued 118,829 shares of Series F Convertible Preferred Stock, par value $0.0001 per share (the “Series F Stock”) to such investors at a purchase price of $47.00 per whole share of Series F Stock (or $4.70 per one-tenth of a share of Series F Stock), for an aggregate gross purchase price of approximately $5.6 million (the “2015 Financing”). In addition to the issuance of the Series F Stock, the Company issued to each investor a warrant to purchase common stock, initially exercisable for an aggregate of 594,143 shares of common stock (the “February 2015 Warrants”). The exercise price of the 2015 Warrants is $6.00 per share. The 2015 Warrants have a five-year term and became exercisable on August 6, 2015. The estimated fair value of the warrants using the Black-Scholes-Merton valuation model at the issuance date is $777,500. The total proceeds raised in the 2015 Financing equal approximately $5.6 million. The Series F Stock converted into an aggregate of 1,188,291 shares of common stock on May 5, 2015 following stockholder approval.
In addition, on May 5, 2015, pursuant to the Subscription Agreement, dated as of February 6, 2015, by and among the Company and certain members of the Company’s management and Board of Directors, the Company sold and issued to the Management and Director Investors (i) 65,955 shares of common stock of the Company, par value $0.0001 per share (“Common Stock”), at a purchase price of $4.70 per common share, for a total purchase amount of approximately $310,000 and (ii) warrants to purchase common stock of the Company (the “May 2015 Warrants”), initially exercisable for an aggregate of 32,975 shares of common stock.
The holders of Series F 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 F Stock were not eligible to vote their shares of Series F Stock on the proposal submitted to the Company’s stockholders for approval of the issuance and sale of the securities in the 2015 Financing and the conversion of the Series F Stock. Holders of Series F 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 $47.00 and the denominator of which was the closing bid price per share of the common stock on February 5, 2015.
| (a) | Presentation of February and May 2015 Warrants |
The Company has evaluated the February and May 2015 Warrants and has concluded that equity classification is appropriate as all such February and May 2015 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. Such warrants are included in the Company’s stockholders’ equity and are not subject to remeasurement.
| (b) | Presentation of Redeemable Convertible Preferred Stock |
On May 5, 2015, following approval by the Company’s stockholders, each whole share of Series F Stock converted automatically into ten shares of common stock at an initial conversion price of $4.70 per share of common stock, for a total of 1,188,291 shares of Common Stock issued upon such conversion. Because the Series F Stock was redeemable at the option of the holder (prior to the stockholders approving conversion on May 5, 2015 as discussed above), we have recorded it in temporary equity as of March 31, 2015 until conversion on May 5, 2015, when the redemption value of $5.9 million was reclassified to stockholders’ equity.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
| (c) | Beneficial Conversion Feature (“BCF”) |
The Series F 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 value) to the transaction date value of the number of shares that the holder can convert into. The calculation resulted in a BCF of $0.4 million for Series F Stock being recorded in additional paid-in capital for the year ended March 31, 2016.
The proceeds of the Series F stock and warrants were based on their estimated relative fair values. The proceeds of the 2015 Financing were allocated to the common stock, the February 2015 Warrants, May 2015 Warrants and Series F Stock basedon their estimated relative fair values.
Carrying value of Series D Stock as of March 31, 2014 | | $ | 3,653 | |
| | | | | |
Conversion of Series D stock into common stock | | | (3,653 | ) |
Carrying value of Series D Stock as of June 30, 2014 | | $ | - | |
| | | | | |
Gross proceeds on July 2, 2014 | | $ | 7,493 | |
Fair value of warrants on July 2,2014 | | | (809 | ) |
| | | | | |
Gross proceeds allocated to Series E Stock sold on July 2, 2014 | | | 6,684 | |
Related transaction costs allocated | | | (265 | ) |
Net value allocated to Series E Stock sold prior to BCF | | | 6,419 | |
Calculated BCF value | | | (1,571 | ) |
Accretion of Series E Stock through August 27, 2014 | | | 2,645 | |
Carrying value of Series D Stock as of August 27, 2014 | | | 7,493 | |
| | | | | |
Conversion of Series D stock into common stock | | | (7,493 | ) |
Carrying value of Series D Stock as of September 30, 2014 | | $ | - | |
| | | | | |
Gross proceeds on February 5, 2015 | | $ | 5,585 | |
Fair value of warrants on January 5, 2015 | | | (682 | ) |
| | | | | |
Gross proceeds allocated to Series F Stock sold on February 5, 2015 | | | 4,903 | |
Related transaction costs allocated | | | (490 | ) |
Net value allocated to Series F Stock sold prior to BCF | | | 4,413 | |
Calculated BCF value | | | (564 | ) |
Accretion of Series E Stock through March 31, 2015 | | | 1,046 | |
Carrying value of Series F Stock as of March 31, 2015 | | $ | 4,895 | |
| | | | | |
Carrying value of Series F Stock as of March 31, 2015 | | $ | 4,895 | |
| | | | | |
Gross proceeds allocated to Series F Stock sold on May 5, 2015 | | | 250 | |
Related transaction costs allocated | | | - | |
Net value allocated to Series F Stock sold prior to BCF | | | 250 | |
Calculated BCF value | | | (370 | ) |
Accretion of Series F Stock through May 5, 2015 | | | 1,120 | |
Carrying value of Series F Stock as of May 5, 2015 | | | 5,895 | |
| | | | | |
Conversion of Series F stock into common stock | | | (5,895 | ) |
Carrying value of Series F Stock as of March 31, 2016 | | $ | - | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. | Property and Equipment, net |
Property and equipment consist of the following:
| | | March 31, | |
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
Computers and software | | $ | 360 | | | $ | 562 | |
Furniture and equipment | | | 282 | | | | 260 | |
Leasehold improvements | | | 36 | | | | 70 | |
| | | | 678 | | | | 892 | |
Less: accumulated depreciation | | | (542 | ) | | | (602 | ) |
| | | | | | | | | |
Total property and equipment, net | | $ | 136 | | | $ | 290 | |
Depreciation expense related to property and equipment was approximately $171,000 and $262,000 for the years ended March 31, 2016 and 2015, respectively.
7. Capitalized Software
The Company capitalizes costs for internal use incurred during the application development stage that are included in research and development expenses. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Capitalized software will be amortized once the product is ready for its intended use, using the straight-line method over the estimated useful lives of the assets, which is three years. Management continues to evaluate the capitalized software development costs across all products lines with the recent acquisition of b-pack and incurred impairment costs of $1.4 million and $0.3 million in the fiscal year ended March 31, 2016 and 2015, respectively.In the fourth quarter we continued to evaluate the assets purchased in the b-pack merger. Management’s assessment resulted in a greater value in the b-pack assets, as they can be used as the basis for the unified suite offering called the Determine Platform. It was judged that adding the functionality of the products in the current Selectica product line to the b-pack platform would be more efficient, and resulted in a better unified product suite, than if we built a separate platform to hold all of the products. Given this conclusion, the Company impaired the investment that we had previously made in what was to be the separate platform to hold all of the products.
Amortization expense was $0.6 million for the years ended March 31, 2016 and 2015, respectively, and is included in the product cost of revenue. The unamortized balance of capitalized software was $1.7 million and $2.3 million as of March 31, 2016 and 2015, respectively.
8. Balance Sheet Components
As of March 31, 2016 and 2015, accrued payroll and related liabilities, other accrued liabilities and deferred revenue consisted of the following:
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
Accrued payroll and related liabilities: | | | | | | | | |
Accrued vacation | | $ | 715 | | | $ | 561 | |
Accrued bonus | | | 103 | | | | 83 | |
Accrued wages | | | 197 | | | | — | |
Accrued benefits | | | 488 | | | | 97 | |
Accrued commissions | | | 152 | | | | 169 | |
Total | | $ | 1,655 | | | $ | 910 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
Other accrued liabilities: | | | | | | | | |
Accrued accounts payable | | $ | 338 | | | $ | 783 | |
VAT on sales | | | 344 | | | | 125 | |
Employee withhold tax for stock | | | 84 | | | | 227 | |
Sales tax payable | | | 819 | | | | 662 | |
Other accrued liabilities | | | 811 | | | | 80 | |
Total | | $ | 2,396 | | | $ | 1,877 | |
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
Deferred revenue: | | | | | | | | |
Hosting | | $ | 52 | | | $ | 90 | |
Consulting | | | 1,165 | | | | 656 | |
Training | | | 118 | | | | 8 | |
Subscription | | | 6,871 | | | | 5,457 | |
Maintenance | | | 2,160 | | | | 2,215 | |
Other | | | — | | | | 6 | |
Total | | $ | 10,366 | | | $ | 8,432 | |
9. Restructuring
The following is a summary of restructuring accrual (in thousands):
Balance at March 31, 2015 | | | - | |
Initial Costs | | | 403 | |
Balance at March 31, 2016 | | $ | 403 | |
Restructuring expenses consist of employee severance costs and other contract termination costs to improve our cost structure prospectively. As part of the process of consolidating companies and moving forward with our unified platform strategy, the Company took a look across the company for duplication of effort and work that was not in fully alignment with our strategy that resulted in removal of eleven positions from the company. The eliminated positions were primarily executives and included a direct report to the CEO. The Company incurred these expenses in the fiscal year ended March 31, 2016.
10. Operating Lease Commitments
On May 15, 2014, 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.
In connection with the acquisition of Iasta, we assumed leases for offices in Carmel, Indiana and in London, United Kingdom. The lease in Indiana expired May 31, 2016. On April 7, 2016, the Company entered into a Lease Agreement with Atapco Carmel, Inc. for approximately 8,795 square feet of office space in a building located at 615 West Carmel Drive, Suite 100, in Carmel, Indiana. The term of the lease runs for approximately 51 months and carries a base rent of $1.33 per rentable square foot for the first year of the term of the lease (with three of the months of the first year term provided rent free), subject to annual adjustment thereafter.
In connection with the acquisition of b-pack, we assumed leases for offices in Paris, France and in Aix-en-Provence, France. The lease in Paris, dated May 4, 2011, is for approximately 1,572 square feet of office space located at 92 rue d’Amsterdam, Paris. It expires June 30, 2020 (but can be terminated June 30, 2017) and carries a base rent of $3.21 per rentable square foot. The lease in Aix-en-Provence, dated July 31, 2015 is for approximately 4,327 square feet of office space located at 220 rue Denis Papin, Aix-en-Provence. It expires July 31, 2024 (but can be terminated July 31, 2018) and carries a base rent of $1.92 per rentable square foot.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
In connection with the acquisition of b-pack, we also assumed a lease for offices in Atlanta, Georgia. The lease in Georgia, dated August 1, 2014, is for approximately 1,742 square feet of office space, and was extended under the Fourth Amendment and expires July 31, 2019 and carries a base rent of $1.48 per rentable square foot.
Retal expenses for the office space and equipment were approximately $0.9 million and $0.7 million for years ended March 31, 2016 and 2015, respectively. Minimum payments under our operating leases agreements are $0.5 million in fiscal 2017, $0.1 million in fiscal 2018 and $0.03 million in fiscal 2019.
11. Litigation andContingencies
From time to time the Company is subject to certain routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of its business. The Company believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone or combined) will not materially affect its financial position, results of operations or liquidity.
On February 1, 2016, Seal Software Ltd. (“Seal”) filed suit against the Company in California Superior Court, San Mateo. In the complaint, Seal alleged that the Company breached a contract by failing to make certain payments and sought damages. The parties have now settled the matter to their mutual satisfaction, and the lawsuit has been dismissed.
In March 2015, a minority shareholder of b-pack Services SA, a French subsidiary of Determine SAS, which was acquired when the Company acquired b-pack SAS, initiated litigation in the Nanterre Commercial Court against b-pack SAS and its founders claiming indemnification rights for his contribution to the business of b-pack Services SA and seeking monetary damages and other relief. The Nanterre Commercial Court declined jurisdiction and sent the matter to the Tribunal de Grande Instance of Nanterre, where it is currently pending. In July 2015, the same minority shareholder also initiated litigation in the Paris Commercial Court against Determine SAS to contest the merger between b-pack SAS and Selectica France SAS, which is also pending, and seeking monetary damages and other relief. The Company believes that the lawsuits are without merit and intends to defend against them vigorously. The Company did not record any provision as of March 31, 2016.
In November 2015, the Company settled outstanding litigation based upon claims the Company alleged against some of its former employees and a competitor relating to the Company’s intellectual property. The Company has included the first payment of $0.2 million in its operating loss on the basis of such amount representing the Company’s lost operating income. Additionally, the Company has been including the litigation expenses related to this matter in loss from operations since the inception of the litigation. In April 2016, such competitor paid the Company the remaining settlement amount of $0.6 million.
From time to time the Company has contractual matters with partners and customers that involve periods of discussion before a value can be placed on the events. These discussions can span multiple quarters. Subsequent to the fourth quarter, several of these long discussed matters came to a conclusion. The Company recorded expenses of $0.8 million for these in the year ended March 31, 2016.
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, 2016 and 2015. 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, 2016 and 2015.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. COFACE Loan
In December 2009, the Company signed a stated guaranteed insurance contract with the insurance company COFACE in order to protect the Company against the financial risks of its commercial development inthe United States. As part of thecontract, COFACE financed part of the expenses in the United States, with the amounts to be amortized in subsequent years. As of March 31, 2016, the amount still to be repaid was approximately $407,000.
13. Credit Facility
On February 3, 2016, the Company entered into Amendment Number Five to Amended and Restated Business Financing Agreement, which amended the Business Financing Agreement entered into with Western Alliance Bank, as successor in interest to Bridge Bank, National Association (“Western Alliance Bank”) on July 25, 2014, as amended (as amended, the “Credit Facility”). The Credit Facility provides a revolving receivables financing facility in an amount up to $5.0 million (the “Receivables Financing Facility”) and a revolving cash secured financing facility in an amount up to $7.0 million (the “Working Capital Facility”), for an aggregate revolving credit facility of up to $12.0 million.
The Receivables Financing Facility may be drawn in amounts up to $5.0 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 $7.0 million in the aggregate. The Credit Facility (as further amended on April 20, 2016) terminates on April 20, 2018, 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 2.00 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.
As of March 31, 2016 and March 31, 2015, the Company owed $7.1 million and $7.4 million, respectively, under the Credit Facility, and no amounts were available for future borrowings.
In order to satisfy certain conditions for Western Alliance Bank to lend additional funds under the Credit Facility, on March 11, 2015, Lloyd I. Miller, III (“Mr. Miller”), and MILFAM each entered into a Limited Guaranty (the “2015 Guaranties”) with Western Alliance Bank to provide a limited, non-revocable guaranty of the Company’s Credit Facility in the amount of $1 million each, for a total guaranteed amount of $2 million. The term of the 2015 Guaranties is two years. Western Alliance Bank, in its sole discretion, may reduce, but not increase, the guaranteed amount under the 2015 Guaranties during the term. In connection with the 2015 Guaranties, on March 11, 2015, the Company entered into a Guaranty Fee Agreement (the “2015 Fee Agreement”) with Mr. Miller, the Company’s largest stockholder, and MILFAM II L.P., pursuant to which the Company agreed to pay Mr. Miller and MILFAM an aggregate commitment fee of $100,000 and a monthly fee equal to (i) 1% of the loan amount then guaranteed under the 2015 Guaranties for the first 12 months of the term and (ii) 1.5% of the loan amount then guaranteed under the 2015 Guaranties for the second 12 months of the term. The commitment fee and the aggregate amount of the monthly fees are payable in cash by the Company within five business days following the termination or expiration of the 2015 Guaranties. On February 3, 2016, the Company entered into an Amendment to Guaranty Fee Agreement with Mr. Miller and MILFAM, pursuant to which the accrual of the fees was amended such that the monthly fees thereunder began accruing on the date that the Company draw from the Credit Facility the amounts guaranteed by Mr. Miller and MILFAM.
Additionally, on February 3, 2016, Alliance Semiconductor Corporation (“ALSC”), an affiliate of Mr. Miller, entered into a Limited Guaranty (the “2016 Guaranty”) with Western Alliance Bank to provide a limited, non-revocable guaranty of the Company’s Credit Facility in the amount of $3 million. The term of the 2016 Guaranty is two years. Western Alliance Bank, in its sole discretion, may reduce, but not increase, the guaranteed amount under the 2016 Guaranty during the term. In connection with the 2016 Guaranty, on February 2, 2016, the Company entered into a Guaranty Fee Agreement with ALSC, whereby the Company agreed to pay ALSC an aggregate commitment fee of $100,000 and a monthly fee equal to 0.5% of the amount guaranteed under the 2016 Guaranty for the first 12 months of the term and 0.75% of the amount guaranteed under the 2016 Guaranty for the second 12 months of the term. Following the date that the Company draws from the Credit Facility the amount guaranteed under the 2016 Guaranty, the monthly fees shall increase to 1.0% during the first 12 months of the term and 1.5% during the second 12 months, respectively. The commitment fee and the aggregate amount of the monthly fees are payable in cash by the Company within five business days following the termination or expiration of the 2016 Guaranty.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
On December 16, 2015, the Company entered into a Junior Secured Convertible Note Purchase Agreement with Mr. Miller and three of his affiliates, pursuant to which the Company issued and sold junior secured convertible promissory notes in the aggregate principal amount of $2.5 million. The Notes are due on December 16, 2020 and accrue interest at an annual rate of8% on the aggregate unconverted and outstanding principal amount, payable quarterly, beginning on December 31, 2015. TheCompany has the option to pay any amounts of interest due under the Notes by converting such interest into shares of common stock of the Company, at a conversion price of $3.75 per share (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, or as may be adjusted as further described below), based upon an interest rate amount calculated at 10% per year. Upon any default under the notes, the notes will bear interest at the rate of 13% per year or, if less, the maximum rate allowable under the laws of the State of New York.
Subject to applicable NASDAQ listing rule limitations (including, if applicable, approval by the Company’s stockholders), the outstanding principal and interest under the notes may be converted into shares of common stock at the soleoption of the investors at any time prior to the maturity date, at a conversion price of $3.75 per share (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); provided, however, that if prior to the maturity date the Company offers and sells share of its common stock in a private placement primarily intended to raise capital at a price per share of $3.25 or less, then the conversion price for the notes will be reduced to such common stock offering price plus $0.50 per share. However, the total number of shares of Common Stock that may be issued to the Investors upon conversion of the Notes may not exceed 19.99% of the Company’s outstanding shares of common stock as of December 16, 2015.
The notes may be prepaid or called by the Company prior to the maturity date. If the closing bid price for the Company’s common stock equals or exceeds $10.00 per share (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) for ten trading days in any fifteen trading-day period, the outstanding principal and interest under the Notes may be converted into shares of common stock at the sole option of the Company at the then-current conversion price.
The Company’s Credit Facility with Bridge Bank contains certain financial covenants that require, among other things, the maintenance of an asset coverage ratio of not less than 2:00 to 1:00 at the end of each month. This financial covenant was not met for the month of September 30, 2015, but on March 31, 2016 the Company met all the requirements and was in compliance.
The Company recorded $1.4 million of fees associated with the 2015 Fee Agreement as part of other long-term liabilities as of March 31, 2016.
14. Stockholders’ Equity
Common Stock Reserved for Future Issuance
At March 31, 2016, shares of common stock reserved for future issuance of stock-based grants were as follows:
Equity Incentive Plans: | | | | |
Restricted stock awards outstanding | | | 244,079 | |
Options outstanding | | | 2,761,392 | |
Reserved for future grants | | | 80,186 | |
Total common stock reserved for future issuance | | | 3,085,657 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The effect of recording stock-based compensation expense (including expense related to the Employee Stock Purchase Plan (“ESPP”) discussed below) for each of the periods presented was as follows (in thousands):
| | | 2016 | | | 2015 | |
Cost of revenues | | $ | 367 | | | $ | 459 | |
Research and development | | | 250 | | | | 213 | |
Sales and marketing | | | 919 | | | | 836 | |
General and administrative | | | 853 | | | | 1,030 | |
| | | | | | | | | |
Impact on net loss | | $ | 2,389 | | | $ | 2,538 | |
1999 ESPP
The price paid for the Company’s common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for the fiscal years ended March 31, 2016 and 2015 was $72,000 and 80,000, respectively. During the fiscal years ended March 31, 2016 and 2015, there were 64,178 and 48,833 shares issued under the ESPP.
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. On March 10, 2015, the 1999 Plan was terminated and the shares then reserved under the 1999 Plan were released and made awardable for grant under the 2015 Plan (as defined below).
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 for the years ended March 31, 2016 and 2015.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1999ESPP
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 areexcluded 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 thenumber 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.
2015 Equity Incentive Plan
The Company’s Board of Directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”) on March 10, 2015. The Company’s stockholders approved the 2015 Plan at the special meeting of the stockholders held on May 5, 2015.
Pursuant to the terms of the 2015 Plan, employees, directors and consultants of the Company, and any present or future parent or subsidiary corporation or other affiliated entity, may receive grants of stock options, restricted stock awards and/or restricted stock units of the Company and certain cash-based awards. Subject to permitted adjustments for certain corporate transactions, the 2015 Plan authorizes the issuance of up to 1,500,000 shares of Company common stock.
The 2015 Plan will be administered by the Compensation Committee of the Company’s Board of Directors, which is comprised of independent members of the Board of Directors. The Compensation Committee has full and exclusive power to make all decisions and determinations regarding (i) the selection of participants and the granting of awards; (ii) the terms and conditions relating to each award; (iii) adopting rules, regulations and guidelines for carrying out the 2015 Plan’s purposes; and (iv) interpreting the provisions of the 2015 Plan.
With limited restrictions, if shares awarded under the 2015 Plan are forfeited, those shares will again become available for new awards under the 2015 Plan. The 2015 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 2015 Plan. Each eligible participant is limited to being granted options or stock appreciation rights covering no more than 300,000 shares per fiscal year, except in the first year of employment where the limit is 500,000 shares. Incentive stock options and non-statutory 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. 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 2015 Plan have a maximum term of ten years.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following tables summarize activity under the equity incentive plans:
| | | Options Outstanding | | | Restricted Stock Units Outstanding | |
| | | Number of shares (in thousands) | | | Weighted average exercise price | | | Number of shares (in thousands) | | | Weighted average fair value | |
| | | | | | | | | | | | | | | | | |
Outstanding at April 1, 2015 | | | 1,099 | | | $ | 6.46 | | | | 348 | | | $ | 6.17 | |
Granted | | | 1,483 | | | $ | 2.92 | | | | 190 | | | $ | 4.58 | |
Granted outside of plan | | | 800 | | | $ | 4.19 | | | | - | | | $ | - | |
Exercised | | | (2 | ) | | $ | 2.04 | | | | (185 | ) | | $ | 5.56 | |
Cancelled | | | (619 | ) | | $ | 5.93 | | | | (109 | ) | | $ | 6.05 | |
Outstanding at March 31, 2016 | | | 2,761 | | | $ | 4.02 | | | | 244 | | | $ | 5.45 | |
| | | | | | | | | | | | | | | | | |
Vested and expected to vest | | | 2,410 | | | $ | 4.13 | | | | | | | | | |
| | | Shares Available for Grant | | |
| | | (in thousands) | | |
| | | | | | |
Balance at April 1, 2015 | | | 563 | | |
Plan shares expired | | | (561 | ) | |
Options: | | | | | |
Granted from approved plans | | | (1,483 | ) | |
Granted from non-approved plans | | | (800 | ) | |
Shares added to the plans | | | 2,436 | | |
Cancelled | | | 112 | | |
Restricted Stock Units: | | | | | |
Granted | | | (190 | ) | |
Cancelled | | | 3 | | |
| | | | | | |
Balance at March 31, 2016 | | | 80 | | |
The options outstanding and exercisable at March 31, 2016 were in the following exercise price ranges:
| | | | | OPTIONS OUTSTANDING | | | OPTIONS EXERCISABLE | |
| | | | | | | | | Weighted | | | | | | | | | | | | | |
| | | | | Number | | | Average | | | Weighted | | | Number | | | Weighted | |
Range of | | Outstanding | | | Remaining | | | Average | | | Exercisable | | | Average | |
Exercise Prices | | as of 03/31/16 | | | Contractual Term | | | Exercise Price | | | as of 03/31/16 | | | Exercise Price | |
$1.64 | - | $1.64 | | | 694,294 | | | | 9.90 | | | $ | 1.6400 | | | | 0 | | | $ | 0.0000 | |
$1.98 | - | $3.24 | | | 368,700 | | | | 9.73 | | | $ | 2.6966 | | | | 0 | | | $ | 0.0000 | |
$3.34 | - | $3.99 | | | 165,250 | | | | 9.54 | | | $ | 3.5800 | | | | 12,500 | | | $ | 3.9900 | |
$4.32 | - | $4.32 | | | 687,500 | | | | 9.33 | | | $ | 4.3200 | | | | 0 | | | $ | 0.0000 | |
$5.18 | - | $6.14 | | | 378,486 | | | | 8.53 | | | $ | 5.9790 | | | | 126,203 | | | $ | 5.6958 | |
$6.30 | - | $6.30 | | | 23,333 | | | | 7.62 | | | $ | 6.3000 | | | | 14,998 | | | $ | 6.3000 | |
$6.61 | - | $6.61 | | | 382,529 | | | | 5.47 | | | $ | 6.6100 | | | | 235,812 | | | $ | 6.6100 | |
$6.83 | - | $18.90 | | | 60,200 | | | | 7.00 | | | $ | 7.2804 | | | | 60,200 | | | $ | 7.2804 | |
| | | | | | | | | | | | | | | | | | | | | | | |
$24.50 | - | $24.50 | | | 500 | | | | 0.13 | | | $ | 24.5000 | | | | 500 | | | $ | 24.5000 | |
$25.20 | - | $25.20 | | | 600 | | | | 0.28 | | | $ | 25.2000 | | | | 600 | | | $ | 25.2000 | |
$1.64 | - | $25.20 | | | 2,761,392 | | | | 8.83 | | | $ | 4.0192 | | | | 450,813 | | | $ | 6.4052 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The weighted average remaining contractual term for exercisable options is 5.45 years. The intrinsic value is calculated as the difference between the market value as of March 31, 2016 and the exercise price of the shares. The market value of the Company’s common stock as of March 31, 2016 was $1.85. The aggregate intrinsic value of stock options outstanding at March 31, 2016 and 2015 was $146,000 and $198,000, respectively. The aggregate intrinsic value of restricted stock units outstanding at March 31, 2016 and 2015 was $0.5 million and $2.3 million, respectively.
The following table summarizes values for options granted during the respective years:
| | | Fiscal Years Ended | |
| | | March 31, | |
| | | 2016 | | | 2015 | |
| | | (in thousands, except per share data) | |
Weighted average grant date fair value | | $ | 1.68 | | | $ | 3.73 | |
Intrinsic value of options exercised | | $ | - | | | $ | 2.00 | |
Fair value of shares vesting during the year | | $ | 1,085 | | | $ | 287 | |
The following table summarizes activity for awards for therespective years:
| | | Shares | | | Grant Date Fair Value Per Share | | | Aggregate Intrinsic Value | |
| | | (in thousands) | | | | | | | | | |
Balance at March 31, 2014 | | | 639 | | | $ | 6.66 | | | $ | 4,255 | |
Awards granted | | | 234 | | | $ | 5.93 | | | $ | — | |
Awards vested/released | | | (362 | ) | | $ | 6.32 | | | $ | — | |
Awards cancelled/forfeited | | | (163 | ) | | $ | 6.43 | | | $ | — | |
Balance at March 31, 2015 | | | 348 | | | $ | 6.66 | | | $ | 2,265 | |
Awards granted | | | 190 | | | $ | 4.58 | | | $ | — | |
Awards vested/released | | | (185 | ) | | $ | 5.56 | | | $ | — | |
Awards cancelled/forfeited | | | (109 | ) | | $ | 6.05 | | | $ | — | |
Balance at March 31, 2016 | | | 244 | | | $ | 5.45 | | | $ | 452 | |
During fiscal 2016 and 2015, the fair value of rights granted under the employee stock purchase plan were estimated at the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:
| | | Fiscal Year Ended | | | Fiscal Year Ended | |
| | | March 31, 2016 | | | March 31, 2015 | |
Risk-free interest rate | | | 0.37 | % | | | 0.06 | % |
Dividend yield | | | 0.00 | % | | | 0.00 | % |
Expected volatility | | | 88.77 | % | | | 28.4 | % |
Expected term in years | | | 0.50 | | | | 0.50 | |
Weighted average fair value at grant date | | $ | 1.09 | | | $ | 1.49 | |
For the fiscal years ended March 31, 2016 and 2015 the Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:
| | | Fiscal Year Ended | | | Fiscal Year Ended | |
| | | March 31, 2016 | | | March 31, 2015 | |
Risk-free interest rate | | | 1.63 | % | | | 1.96 | % |
Dividend yield | | | 0 | % | | | 0 | % |
Expected volatility | | | 52.23 | % | | | 60.45 | % |
Expected term in years | | | 6.07 | | | | 6.05 | |
Weighted average fair value at grant date | | $ | 1.68 | | | $ | 3.73 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
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, 2016:
| | | Number of Securities to be Issued Upon Exercise of Outstanding Options and RSU's | | | Weighted Average Exercise Price per Share of Outstanding Options and Rights | | | Number of Securities Available for Future Issuance Under Equity Compensation Plans | |
| | | (in thousands) | | | | | | | | | |
Equity compensation plans approved by stockholders | | | | | | | | | | | | |
1996 and 1999 Equity Incentive Plan | | | 324 | | | $ | 6.29 | | | | - | |
2015 Equity Incentive Plan | | | 1,512 | | | $ | 2.83 | | | | 80 | |
Equity compensation plans not approved by stockholders | | | | | | | | | | | | |
IASTA | | | 383 | | | $ | 6.61 | | | | - | |
Inducement Plan | | | 687 | | | $ | 4.32 | | | | - | |
NOLN Plan (1) | | | 100 | | | $ | 3.34 | | | | - | |
Total | | | 3,006 | | | $ | 4.02 | | | | 80 | |
(1) John Nolan, Chief Financial Officer, was granted an option to purchase 100,000 shares of Determine common stock on November 16, 2015. The non-qualified option has an exercise price per share of $3.34, 10-year term and vests over a 48-month period, with 25% cliff vesting after one year, and the remaining option shares vesting in equal monthly installments over the following 36 months of continuous service to the company.
All vested shares granted under all Plans are exercisable; however, shares exercised but not vested under the 1996 Stock Plan are subject to repurchase.
15. 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:
| | | March 31, | |
| | | 2016 | | | 2015 | |
| | | (in thousands) | |
| | | | | | | | | |
Options | | | 27 | | | | 12 | |
Unvested restricted stock units | | | 26 | | | | 31 | |
Warrants | | | 1,468 | | | | 1,468 | |
| Total common stock equivalents excluded from diluted net loss per common share | | | 1,521 | | | | 1,511 | |
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
16. Income Taxes
The benefit from income taxes is based upon loss before income taxes as follows (in thousands):
| | | March 31, | |
| | | 2016 | | | 2015 | |
Domestic pre-tax loss | | $ | (13,339 | ) | | $ | (16,633 | ) |
Foreign pre-tax loss | | | (1,234 | ) | | | (63 | ) |
Total pre-tax loss | | $ | (14,573 | ) | | $ | (16,696 | ) |
| | | March 31, | |
| | | 2016 | | | 2015 | |
Federal tax at statutory rate | | $ | (4,870 | ) | | $ | (5,843 | ) |
Computed state tax | | | (312 | ) | | | (354 | ) |
Foreign rate differential | | | (17 | ) | | | 23 | |
Losses not benefited | | | 4,274 | | | | (3,729 | ) |
Change in tax reserve | | | 214 | | | | 2,808 | |
Nondeductible expenses | | | 364 | | | | 815 | |
Research and development tax credits | | | (198 | ) | | | 3,330 | |
Income tax benefit | | $ | (545 | ) | | $ | (2,950 | ) |
The components of the benefit from income taxes are as follows (in thousands):
| | | March 31, | |
| | | 2016 | | | 2015 | |
Current: | | | | | | | | |
US | | $ | - | | | $ | - | |
State | | | 6 | | | | - | |
Foreign | | | 8 | | | | - | |
| | | | 14 | | | | - | |
Deferred: | | | | | | | | |
Federal | | | (112 | ) | | | (2,901 | ) |
State | | | (3 | ) | | | (49 | ) |
Foreign | | | (444 | ) | | | - | |
| | | | (559 | ) | | | (2,950 | ) |
| | | | | | | | | |
Total benefit from income taxes | | $ | (545 | ) | | $ | (2,950 | ) |
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):
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
| | | March 31, | |
| | | 2016 | | | 2015 | |
Deferred Tax Assets: | | | | | | | | |
Net operating loss carryforward | | $ | 19,430 | | | $ | 16,206 | |
Intangible assets | | | 8,951 | | | | 8,486 | |
Tax credit carryforwards | | | 2,706 | | | | 2,491 | |
Reserves and accruals | | | 900 | | | | 531 | |
Stock compensation | | | 692 | | | | 444 | |
Fixed assets | | | 30 | | | | - | |
Deferred revenue | | | 14 | | | | - | |
| | | | 32,723 | | | | 28,158 | |
| | | | | | | | | |
Deferred Tax Liability | | | | | | | | |
Fixed assets | | | - | | | | (3 | ) |
Deferred revenue | | | - | | | | (27 | ) |
Intangible assets | | | (930 | ) | | | - | |
| | | | (930 | ) | | | (30 | ) |
| | | | | | | | | |
Gross Deferred Tax Asset | | | 31,793 | | | | 28,131 | |
| | | | | | | | | |
Valuation Allowance | | | (32,083 | ) | | | (28,131 | ) |
| | | | | | | | | |
Net Deferred Liabilities | | $ | (290 | ) | | $ | - | |
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. The valuation allowance increased by $4.0 million and decreased by $62.2 million during fiscal 2016 and 2015, respectively.
As of March 31, 2016 the Company had federal and state net operating loss carryforwards of approximately $49.6 million and $36.9 million, which will begin to expire in various amounts beginning in fiscal 2020 and 2017, respectively. The Company also had French net operating loss carryforwards of approximately $0.5 million which have no expiration date. TheCompany also had federal and state research credit carryforwards of $0.15 million and $5.2 million, respectively. Federal research credits will start expiring in fiscal 2020. The state research credit has no expiration.
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 had an ownership change on July 2, 2014 as defined by Section 382 of the Internal Revenue Code (IRC), which is limiting 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 result in the forfeiture of $169 million net operating loss carryforward for federal income tax purposes and $48 million of net operating loss carryforward for California income tax purposes.
In addition, based on this recent study, the Company concluded that $3.5 million of the federal and none of 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, 2016, there was no liability for unrecognized tax benefits.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
A reconciliation of the beginning and ending unrecognized tax benefit amounts for fiscal year 2016 are as follows (in thousands):
Balance at April 1, 2015 | | $ | 1,280 | |
| | | | | |
Increases related to current year tax positions | | | 68 | |
| | | | | |
Balance at March 31, 2016 | | $ | 1,348 | |
The Company’s Federal, state, and foreign tax returns are subject to examination by the tax authorities from inception due to net operating losses and tax carryforwards unutilized from such years.
17. 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, 2016 and 2015, the Company contributed $0.4 million and $0.3 million, respectively, to the 401(k) Plan. Administrative expenses relating to the 401(k) Plan are insignificant.
18. Segment Information
The Company operates as one business segment and therefore segment information is not presented.
19. Related Party
Determine SAS and b-pack Services rent their offices from SCI Donapierre, the company controlled by two of the Company’s shareholders. For year ended March 31, 2016, Determine SAS made rental payments of approximately $73,000 to SCI Donapierre.
20. Subsequent Events
Entry intoa Material Definitive Agreement
On April 7, 2016, the Company entered into a Lease Agreement with Atapco Carmel, Inc. for approximately 8,795 square feet of office space in a building located at 615 West Carmel Drive, Suite 100 in Carmel, Indiana. The term of the Lease runs for approximately 51 months and provides for monthly rent payments of $11,726.67 per month for the first year of the term of the Lease (with three of the months of the first year term provided rent free), subject to annual adjustment thereafter.
Amendment of Business Financing Agreement
On April 20, 2016, Determine, Inc. and its wholly owned subsidiary, Determine Sourcing, Inc., entered into Amendment Number Seven to Amended and Restated Business Financing Agreement with Western Alliance Bank, an Arizona corporation, as successor in interest to Bridge Bank, National Association. The Amendment extended the maturity date of the underlying credit facility to April 20, 2018.
Amendment of Limited Guaranties
In order to satisfy certain conditions for Western Alliance Bank to enter into the Amendment, on April 22, 2016, Lloyd I. Miller, III, the Company’s largest stockholder, and his affiliates MILFAM II, L.P. and Alliance Semiconductor Corporation, a Delaware corporation, each entered into an Amended and Restated Limited Guaranty with Western Alliance. The Amended Guaranties extend the term of the limited guaranties entered into by Mr. Miller and MILFAM with Western Alliance on March 11, 2015, and the limited guaranty entered into by ALSC with Western Alliance on February 3, 2016 to April 20, 2018.
DETERMINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Amendment to Guaranty Fee Agreements
On April 22, 2016, the Company and the Guarantors entered into a Second Amendment to 2015 Guaranty Fee Agreement and Amendment to 2016 Guaranty Fee Agreement, which (i) further amended the Guaranty Fee Agreement, dated March 11, 2015, entered into by the Company, Mr. Miller and MILFAM and (ii) amended the Guaranty Fee Agreement, dated February 3, 2016, entered into by the Company and ALSC. Pursuant to the Fee Amendment, the term of the 2015 Fee Agreement and the 2016 Fee Agreement is extended to April 20, 2018. As a condition for extending the term of the Amended Guaranties as described above, the Company agreed to pay an additional cash fee of $76,000 to Mr. Miller and MILFAM, payable by the Company within five business days following the termination or expiration of the Amended Guaranties, and also agreed to pay certain fees and expenses of the Guarantors related to the Amended Guaranties.
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, 2016. Based on its evaluation, our management concluded that our disclosure controls and procedures were effective as of March 31, 2016.
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, 2016 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, 2016, our management concluded that our internal control over financial reporting was effective as of March 31, 2016.
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, 2016 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 2016 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 2016 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 2016 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 2015 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 2016 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, 2016 and 2015, 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, 2016 | | $ | 205 | | | $ | 504 | | | $ | (302 | ) | | $ | — | | | $ | 407 | |
Fiscal year ended March 31, 2015 | | $ | 247 | | | $ | (42 | ) | | $ | — | | | $ | — | | | $ | 205 | |
(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 July 1, 2016.
| | DETERMINE, INC. Registrant |
| | /s/ PATRICK STAKENAS |
| | Patrick Stakenas President and Chief Executive Officer |
| | |
| | |
| | /s/ JOHN NOLAN |
| | John Nolan Chief Financial Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Patrick Stakenas and John Nolan 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/ PATRICK STAKENAS | | President, Chief Executive Officer | | July 1, 2016 | |
| Patrick Stakenas | | (Principal Executive Officer) and Director | | | |
| | | | | | |
| /s/ JOHN NOLAN | | Chief Financial Officer (Principal Financial Officer | | July 1, 2016 | |
| John Nolan | | and Principal Accounting Officer) and Secretary | | | |
| | | | | | |
| | | | | | |
| /s/ ALAN HOWE | | Director | | July 1, 2016 | |
| Alan Howe | | | | | |
| | | | | | |
| /s/ LLOYD SEMS | | Director | | July 1, 2016 | |
| Lloyd Sems | | | | | |
| | | | | | |
| /s/ MICHAEL CASEY | | Director | | July 1, 2016 | |
| Michael Casey | | | | | |
| | | | | | |
| /s/ J. MICHAEL GULLARD | | Director | | July 1, 2016 | |
| J. Michael Gullard | | | | | |
| | | | | | |
| /s/ MICHAEL BRODSKY | | Director | | July 1, 2016 | |
| Michael Brodsky | | | | | | | |
Exhibit No. | | Description |
2.1(19) | | Agreement and Plan of Merger, dated as of March 30, 2015. |
| | | |
3.1(34) | | Certificate of Incorporation (effective October 15 2015). |
| | | |
3.2(2) | | Certificate of Designation of Series A Junior or Participating Preferred Stock. |
| | |
3.3(33) | | Amended and Restated Bylaws (effective October 15, 2015). |
| �� | |
3.4(4) | | Certificate of Designation of Series B Junior or Participating Preferred Stock. |
| | | |
4.1 | | Reference is made to Exhibits 3.1 through 3.4. |
| | |
4.2(1) | | Form of Registrant’s Common Stock certificate. |
| | |
4.3(4) | | Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A., as Rights Agent, dated January 2, 2009. |
| | |
4.4(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. |
| | |
4.5(7) | | 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. |
| | |
4.6(12) | | 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. |
| | | |
4.7(26) | | Amendment No. 4, dated as of December 28, 2014, 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. |
| | |
10.3(3)† | | 1999 Equity Incentive Plan Stock Option Agreement. |
| | |
10.4(3)† | | 1999 Equity Incentive Plan Stock Option Agreement (Initial Grant to Directors). |
| | |
10.5(3)† | | 1999 Equity Incentive Plan Stock Option Agreement (Annual Grant to Directors). |
| | |
10.6(8) | | 1999 Employee Stock Purchase Plan, as amended and restated February 1, 2008. |
| | |
10.7(8) | | 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. |
| | |
10.8(8) | | Registrant Compensation Program for Non-Employee Directors effective May 20, 2009. |
| | |
10.9(8) | | Settlement, Release and License Agreement between Registrant and Versata Software Inc., a corporation f/k/a Trilogy Software, Inc., dated October 5, 2007. |
| | |
10.10(32) | | Severance Agreement by and between the Registrant and John Nolan, dated as of October 7, 2015. |
| | |
10.11(32) | | Employment Letter Agreement by and between the Registrant and John Nolan, dated as of October 7, 2015. |
| | |
10.12(10)† | | 1999 Equity Incentive Plan, as amended May 2010. |
10.13(13) | | Office Lease by and between 2121 El Camino Investors, LLC and the Registrant, executed July 28, 2011, and effective as of July 8, 2011. |
| | | |
10.14(14) | | Comprehensive Settlement Agreement by and between the Registrant and Versata Software, Inc., dated September 20, 2011. |
| | | |
10.15(28) | | Amended and Restated Business Financing Agreement, dated as of July 25, 2014, as amended by Amendment Number One to Amended and Restated Business Financing Agreement, dated as of December 31, 2014, as further amended by Amendment Number Two to Amended and Restated Business Financing Agreement, dated as of March 11, 2015. |
| | | |
10.16(15) | | 1999 Employee Stock Purchase Plan, as amended and restated effective November 7, 2012. |
| | | |
10.17(31)† | | 2015 Equity Incentive Plan. |
| | | |
10.18(31)† | | 2015 Equity Incentive Plan Stock Option Agreement. |
| | | |
10.19(31)† | | 2015 Equity Incentive Plan Restricted Stock Units Agreement. |
| | | |
10.20(31)† | | 2015 Equity Incentive Plan Restricted Stock Agreement. |
| | | |
10.21(16) | | Registration Rights Agreement, dated as of May 31, 2013. |
| | | |
10.22(16) | | Form of Series A Warrant to Purchase Common Stock, dated as of May 31, 2013. |
| | | |
10.23(17) | | Form of Series B Warrant to Purchase Common Stock, dated as of September 12, 2013, as modified. |
| | | |
10.24(18) | | Amendment to the Series A Warrants dated as of September 4, 2013. |
| | | |
10.25(19) | | Employment Offer Letter dated August 6, 2013 by and between the Registrant and Michael Brodsky. |
| | | |
10.26(20) | | Amendment to Offer Letter, dated December 4, 2013, by and between the Registrant and Michael Brodsky. |
| | | |
10.27(25) | | Amendment to Offer Letter, dated September 1, 2014, by and between the Registrant and Michael Brodsky. |
| | | |
10.28(21) | | Form of Registration Rights Agreement, dated as of January 24, 2014. |
| | | |
10.29(21) | | Form of Warrant to Purchase Common Stock, dated as of January 24, 2014. |
| | | |
10.30(22) | | First Amendment to Lease, effective as of May 15, 2014, by and between the Registrant and SKBGS I, L.L.C. |
| | | |
10.31(23) | | Agreement and Plan of Merger, dated as of June 2, 2014. |
| | | |
10.32(23) | | Purchase Agreement, dated as of June 5, 2014. |
| | | |
10.33(23) | | Registration Rights Agreement, dated as of June 5, 2014. |
| | | |
10.34(23) | | Form of Warrant to Purchase Common Stock. |
| | | |
10.35(23) | | Forms of Voting Agreement. |
| | | |
10.36(24) | | Registration Rights Agreement, dated as of July 2, 2014. |
| | | |
10.37(27) | | Purchase Agreement, dated as of February 6, 2015. |
| | | |
10.38(27) | | Subscription Agreement, dated as of February 6, 2015. |
| | | |
10.39(27) | | Registration Rights Agreement, dated as of February 6, 2015. |
| | | |
10.40(27) | | Form of Warrant to Purchase Common Stock, dated as of February 6, 2015, issued to Outside Investors. |
10.41(27) | | Form of Warrant to Purchase Common Stock, dated as of May 5, 2015, issued to Management and Director Investors. |
| | | |
10.42(27) | | Voting Agreements, dated as of February 6, 2015. |
| | | |
10.43(28) | | Limited Guaranty, dated March 11, 2015 (Lloyd I. Miller, III). |
| | | |
10.44(28) | | Limited Guaranty, dated March 11, 2015 (MILFAM II L.P.). |
| | | |
10.45(28) | | Guaranty Fee Agreement, dated March 11, 2015. |
| | | |
10.46(28) | | Junior Secured Convertible Note Purchase Agreement, dated March 11, 2015. |
| | | |
10.47(28) | | Form of Junior Secured Convertible Promissory Note, dated March 11, 2015. |
| | | |
10.48(28) | | Security Agreement, dated March 11, 2015. |
| | | |
10.49(28) | | Subordination Agreement, dated March 11, 2015. |
| | | |
10.50(28) | | Amendment to Voting Agreements, dated March 11, 2015. |
| | | |
10.51(30) | | Offer Letter of Employment, dated as of June 3, 2015, by and between the Registrant and Patrick Stakenas. |
| | | |
10.52(30) | | Severance Agreement, dated as of June 3, 2015, by and between the Registrant and Patrick Stakenas. |
| | | |
10.53(34) | | Amendment Number Four to Amended and Restated Business Financing Agreement, dated as of November 13, 2015. |
| | | |
10.54(35) | | Junior Secured Convertible Note Purchase Agreement, dated December 16, 2015. |
| | | |
10.55(35) | | Form of Junior Secured Convertible Promissory Note. |
| | | |
10.56(35) | | Amended and Restated Security Agreement, dated December 16, 2015. |
| | | |
10.57(35) | | Amended and Restated Subordination Agreement, dated December 16, 2015. |
| | | |
10.58(36) | | Amendment Number Five to Amended and Restated Business Financing Agreement, dated as of February 3, 2016. |
| | | |
10.59(36) | | Limited Guaranty, dated February 3, 2016. |
| | | |
10.60(36) | | Guaranty Fee Agreement, dated February 3, 2016. |
| | | |
10.61(36) | | Amendment to Guaranty Fee Agreement, dated February 3, 2016. |
| | | |
10.62(37) | | Amendment Number Six, dated March 18, 2016, to Amended and Restated Business Financing Agreement. |
| | | |
10.63*** | | Lease Agreement, dated April 7, 2016, between the Registrant and Atapco Carmel, Inc. |
| | | |
10.64(38) | | Amendment Number Seven, dated April 20, 2016, to Amended and Restated Business Financing Agreement. |
| | | |
10.65(38) | | Amended and Restated Limited Guaranty, dated April 22, 2016, between Western Alliance Bank and Lloyd I. Miller, III. |
| | | |
10.66(38) | | Amended and Restated Limited Guaranty, dated April 22, 2016, between Western Alliance Bank and MILFAM II, L.P. |
| | | |
10.67(38) | | Amended and Restated Limited Guaranty, dated April 22, 2016, between Western Alliance Bank and Alliance Semiconductor Corporation. |
10.68(38) | | Second Amendment to 2015 Guaranty Fee Agreement and Amendment to 2016 Guaranty Fee Agreement, dated April 22, 2016, with Lloyd I. Miller, III, MILFAM II, L.P., and Alliance Semiconductor Corporation. |
| | | |
21.1*** | | 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(6) | | 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 April 7, 2009. |
(7) | Previously filed in the Company’s report on Form 8-K filed on April 29, 2009. |
(8) | Previously filed in the Company’s report on Form 10-K filed on July 9, 2009. |
(9) | Previously filed in the Company’s report on Form 8-K filed on October 28, 2011. |
(10) | Previously filed in the Company’s report on Form 10-K filed on June 29, 2010. |
(11) | Previously filed on the Company’s report on Form 10-Q filed on February 14, 2011. |
(12) | Previously filed in the Company’s report on Form 8-K filed on December 29, 2011. |
(13) | Previously filed in the Company’s report on Form 8-K filed on August 8, 2011. |
(14) | Previously filed in the Company’s report on Form 8-K filed on September 21, 2011. |
(15) | Previously filed in the Company’s proxy statement filed on October 9, 2012. |
(16) | Previously filed in the Company’s report on Form 8-K/A filed on June 4, 2013. |
(17) | Previously filed in the Company’s report on Form 8-K filed on September 12, 2013. |
(18) | Previously filed in the Company’s report on Form 8-K filed on September 4, 2013. |
(19) | Previously filed in the Company’s report on Form 10-Q filed on August 14, 2013. |
(20) | Previously filed in the Company’s report on Form 8-K filed on December 10, 2013. |
(21) | Previously filed in the Company’s report on Form 8-K filed on January 27, 2014. |
(22) | Previously filed in the Company’s report on Form 8-K filed on May 20, 2014. |
(23) | Previously filed in the Company’s report on Form 8-K /A filed on June 11, 2014. |
(24) | Previously filed in the Company’s report on Form 8-K filed on July 3, 2014. |
(25) | Previously filed in the Company’s report on Form 8-K filed on September 3, 2014. |
(26) | Previously filed in the Company’s report on Form 8-K filed on December 29, 2014. |
(27) | Previously filed in the Company’s report on Form 8-K filed on February 9, 2015. |
(28) | Previously filed in the Company’s report on Form 8-K filed on March 16, 2015. |
(29) | Previously filed in the Company’s report on Form 8-K filed on March 30, 2015. |
(30) | Previously filed in the Company’s report on Form 8-K filed on June [8], 2015. |
(31) | Previously filed in the Company’s report on Form 10-K filed on June 29, 2015. |
(32) | Previously filed in the Company’s report on Form 8-K filed on October 9, 2015. |
(33) | Previously filed in the Company’s report on Form 8-K filed on October 19, 2015. |
(34) | Previously filed in the Company’s report on Form 10-Q filed on November 16, 2015. |
(35) | Previously filed in the Company’s report on Form 8-K filed on December 17, 2015. |
(36) | Previously filed in the Company’s report on Form 8-K filed on February 8, 2016. |
(37) | Previously filed in the Company’s report on Form 8-K filed on March 23, 2016. |
(38) | Previously filed in the Company’s report on Form 8-K filed on April 26, 2016. |
† | 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 Determine, Inc. specifically incorporates it by reference. |
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*** | Filed herewith. |
