Add
UNCA to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| UNCA > SEC Filings for UNCA > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
arrangement that provides for software updates and upgrades and technical
support; and (c) a services work order for implementation, training, consulting
and reimbursable expenses. Subscription revenue is derived from subscription
arrangements for our Affinium offerings that typically include: (a) a
subscription fee for bundled software and support for a certain period and (b) a
services work order for implementation, training, consulting and reimbursable
expenses.
License Revenue
Perpetual Licenses. Licenses to use our software products in perpetuity
generally are priced based on (a) either a customer's database size (including
number of database records) or a platform fee and (b) a specified number of
users. With respect to our Affinium NetInsight product, licenses are generally
priced based on the volume of traffic of a website. We recognize perpetual
license revenue at the time of product delivery, provided all other revenue
recognition criteria have been met, pursuant to the requirements of Statement of
Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions. When we license our software on a perpetual basis through an MSP
or systems integrator, we recognize revenue upon delivery of the licensed
software to the MSP or systems integrator only if (a) the customer of the MSP or
systems integrator is identified in a written arrangement between the MSP or
systems integrator and us and (b) all other revenue recognition criteria have
been met.
Maintenance and Services Revenue
Maintenance and services revenue is generated from sales of (a) maintenance,
including software updates and upgrades and technical support associated with
the sale of perpetual software licenses and (b) services, including
implementation, training, consulting, and reimbursable travel.
Maintenance. We generally sell maintenance, with respect to perpetual
licenses, that includes technical support and software updates and upgrades on a
when and if available basis. Revenue is deferred at the time the maintenance
agreement is initiated and is recognized ratably over the term of the
maintenance agreement.
Services. We generally sell implementation services and training on a
time-and-materials basis and recognize revenue when the services are performed;
however, in certain circumstances, these services may be priced on a fixed-fee
basis and recognized as revenue using a proportional performance method.
Services revenue also includes billable travel, lodging and other out-of-pocket
expenses incurred as part of delivering services to our customers.
Subscription Revenue
We also market our software under subscription arrangements, typically when
our software is hosted either by us, with respect to our Affinium NetInsight and
MarketingCentral products, or an MSP with respect to our other products. We have
also licensed our Affinium NetInsight product under a subscription arrangement
in a non-hosted environment. Subscription revenue includes, for a bundled fee,
(a) the right to use our software for a specified period of time, typically one
year, (b) updates and upgrades to our software, and (c) technical support. Under
a subscription agreement, we typically invoice the customer in annual or
quarterly installments in advance. Where fair value of the subscription element
in an arrangement cannot be established, revenue is recognized ratably over the
contractual term of the arrangement commencing on the date at which all services
under related work orders are completed.
Cost of Revenue
Cost of license revenue for perpetual license agreements consists primarily
of (a) salaries, other labor related costs and share-based compensation related
to documentation personnel, (b) facilities and other related overhead,
(c) third-party royalties for licensed technology incorporated into our current
product offerings, (d) amortization of acquired developed technology and
(e) amortization of capitalized software development costs under Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed.
Cost of maintenance and services revenue consists primarily of (a) salaries,
other labor-related costs, share-based compensation, facilities and other
overhead related to professional services and technical support personnel and
(b) cost of services provided by subcontractors for professional services and
out-of-pocket expenses.
Cost of subscription revenue includes the allocation of specific costs
including labor-related and overhead costs associated with technical support,
documentation and professional services personnel, as well as hosting-related
activities.
Operating Expenses
Sales and Marketing. Sales and marketing expense consists primarily of
(a) salaries, benefits and share-based compensation related to sales and
marketing personnel, (b) commissions and bonuses, (c) travel, lodging and other
out-of-pocket expenses, (d) marketing programs, such as trade shows and
advertising, and (e) facilities and other related overhead. The total amount of
commissions earned for a perpetual license, subscription or maintenance
arrangement are recorded as expense when revenue recognition for that
arrangement commences.
Research and Development. Research and development expense consists primarily
of (a) salaries, other labor related costs and share-based compensation related
to employees working on the development of new products, enhancement of existing
products, quality assurance and testing and (b) facilities and other related
overhead. During the three and six months ended March 31, 2009, $182,000 and
$467,000 of software development costs were capitalized. During the three and
six months ended March 31, 2008, $34,000 of software development costs were
capitalized.
General and Administrative. General and administrative expense consists
primarily of (a) salaries, other labor-related costs and share-based
compensation related to general and administrative personnel, (b) accounting,
legal and other professional fees, and (c) facilities and other related
overhead.
Restructuring Charges (Credits). Restructuring charges reflect the
restructuring plan initiated in the first quarter of fiscal 2009 to implement a
strategic reduction in our workforce. These costs include salaries, severance
and legal fees. Restructuring credits represent a reversal of a portion of the
restructuring accrual upon final settlement with an employee.
Amortization of Acquired Intangible Assets. Cost of revenue includes the
amortization of developed core technology acquired in our recent acquisitions.
Operating expenses include the amortization of acquired customer contracts and
related customer relationships and trade names.
Share-Based Compensation. We account for share-based compensation in
accordance with SFAS No. 123R Share-Based Payment, which requires measurement of
all employee share-based compensation awards using a fair-value method and the
recording of the related expense in the consolidated financial statements. Staff
Accounting Bulletin (SAB) No. 107 and No. 110 provide supplemental guidance for
SFAS No. 123R. We selected the Black-Scholes option-pricing model as the most
appropriate fair-value model for our awards and recognize compensation cost on a
straight-line basis over the requisite service period of the awards.
Application of Critical Accounting Policies and Use of Estimates
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States, or GAAP. The application of
GAAP requires that we make estimates that affect our reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances. We evaluate our estimates and assumptions on an ongoing basis.
Our actual results may differ significantly from these estimates.
Revenue Recognition
We sell our software products and services together in a multiple-element
arrangement under perpetual license and subscription agreements. We use the
residual method to recognize revenues from arrangements that include one or more
elements to be delivered at a future date, when evidence of the fair value of
all undelivered elements exists. Under the residual method, the fair value of
the undelivered elements based on vendor-specific objective evidence (VSOE) is
deferred and the remaining portion of the arrangement fee is allocated to the
delivered elements. Each license arrangement requires that we analyze the
individual elements in the transaction and determine the fair value of each
undelivered element, which typically includes maintenance and services. We
allocate revenue to each undelivered element based on its fair value, with the
fair value determined by the price charged when that element is sold separately.
For perpetual license agreements, we generally estimate the fair value of the
maintenance portion of an arrangement based on the maintenance renewal price for
that arrangement. In multiple-element perpetual license arrangements where we
sell maintenance for less than fair value, we defer the contractual price of the
maintenance plus the difference between such contractual price and the fair
value of maintenance over the expected life of the product. We make a
corresponding reduction in license revenue. The fair value of the professional
services portion of perpetual license arrangements is based on the rates that we
charge for these services when sold separately. If, in our judgment, evidence of
fair value cannot be established for the undelivered elements in a
multiple-element arrangement, the entire amount of revenue from the arrangement
is deferred until evidence of fair value can be established, or until the
elements for which evidence of fair value could not be established are
delivered.
Revenue for implementation services of our software products that are not
deemed essential to the functionality of the software products, is recognized
separately from license revenue. If we were to determine that services are
essential to the functionality of software in an arrangement, the license or
subscription and services revenue from the arrangement would be recognized
pursuant to SOP 81-1, Accounting for Performance of Construction-Type Contracts
and Certain Production-Type Contracts. In such cases, we expect that we would be
able to make reasonably dependable estimates relative to the extent of progress
toward completion by comparing the total hours incurred to the estimated total
hours for the arrangement and, accordingly, we would apply the
percentage-of-completion method. If we were unable to make reasonably dependable
estimates of progress towards completion, then we would use the
completed-contract method, under which revenue is recognized only upon
completion of the services. If total cost estimates exceed the anticipated
revenue, then the estimated loss on the arrangement is recorded at the inception
of the arrangement or at the time the loss becomes apparent.
We generally enter into subscription agreements that include, on a bundled
basis, (a) the right to use our software for a specified period of time,
(b) updates and upgrades to our software on a when and if available basis and
(c) technical support. In subscription arrangements, where services are not
deemed essential to the functionality of the software products and fair value
has not been established for the subscription element, revenue for both the
subscription and services is recognized ratably over the longer of the term of
the arrangement or the expected customer relationship period, once the software
becomes available to the end-user.
For all of our software arrangements, we do not recognize revenue until we
can determine that persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable and we deem collection to be
probable. In making these judgments, we evaluate these criteria as follows:
• Evidence of an arrangement. For the majority of our arrangements, we consider
a non-cancelable agreement signed by us and the customer to be persuasive
evidence of an arrangement. In transactions below a certain dollar threshold,
we consider a purchase order signed by the customer to be persuasive evidence
of an arrangement.
• Delivery. We consider delivery to have occurred when a CD or other medium containing the licensed software is provided to a common carrier or, in the case of electronic delivery, the customer is given electronic access to the licensed software. Our typical end-user license agreement does not include customer acceptance provisions.
• Fixed or determinable fee. We consider the fee to be fixed or determinable unless the fee is subject to refund or adjustment or is not payable within our normal payment terms. If the fee is subject to refund or adjustment, we recognize the revenue when the refund or adjustment right lapses. If the payments are due beyond our normal terms, we recognize the revenue as amounts become due and payable or as cash is collected.
• Collection is deemed probable. Customers are evaluated for creditworthiness through our credit review process at the inception of the arrangement. Collection is deemed probable if, based upon our evaluation, we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we cannot conclude that collection is probable, we defer the revenue and recognize the revenue upon cash collection.
In our agreements with customers and MSPs, we provide a limited warranty that our software will perform in a manner consistent with our documentation under normal use and circumstances. In the event of a breach of this limited warranty, we must repair or replace the software or, if those remedies are insufficient, provide a refund. These agreements generally do not include any other right of return or any cancellation clause or conditions of acceptance.
Allowance for Doubtful Accounts
In addition to our initial credit evaluations at the inception of
arrangements, we regularly assess our ability to collect outstanding customer
invoices and in so doing must make estimates of the collectibility of accounts
receivable. We provide an allowance for doubtful accounts when we determine that
the collection of an outstanding customer receivable is not probable. We
specifically analyze accounts receivable and historical bad debts experience,
customer creditworthiness, and changes in our customer payment history when
evaluating the adequacy of the allowance for doubtful accounts. If any of these
factors change, our estimates may also change, which could affect the level of
our future provision for doubtful accounts.
Share-Based Compensation
We account for share-based compensation under the provisions of SFAS
No. 123R, which requires us to recognize expense related to the fair value of
share-based compensation awards. Pursuant to SFAS 123R, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes pricing
model, which requires us to make assumptions as to volatility, risk-free
interest rate, expected term of the awards, and expected forfeiture rate. The
computation of expected volatility is based on a study of historical volatility
rates of comparable companies during a period comparable to the expected option
term. The estimated risk-free interest rate is based on the U.S. Treasury
risk-free interest rate in effect at the time of grant. The computation of
expected option term is based on an average of the vesting term and the maximum
contractual life of the Company's stock options, as described in SAB 107 and SAB
110. Computation of expected forfeitures is based on historical forfeiture rates
of the Company's stock options.
For options and other awards accounted for under SFAS No. 123R, the Company
recognizes compensation expense on a straight-line basis over the requisite
service period of the award. In addition, certain tax effects of share-based
compensation are reported as a financing activity rather than an operating
activity in the statement of cash flows.
Goodwill, Other Intangible Assets and Long-Lived Assets
Goodwill represents the excess of the purchase price over the fair value of
net assets associated with various acquisitions. In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, goodwill is not subject to
amortization. We allocated a portion of each purchase price to intangible
assets, including customer contracts and related customer relationships,
developed technology, tradenames and acquired licenses that are being amortized
over their estimated useful lives of one to fourteen years. We also allocated a
portion of each purchase price to tangible assets and assessed the liabilities
to be recorded as part of the purchase price. The estimates we made in
allocating each purchase price to tangible and intangible assets, and in
assessing liabilities recorded as part of the purchase, involved the application
of judgment and the use of estimates, which could significantly affect our
operating results and financial position.
We review the carrying value of goodwill for impairment annually and whenever
events or changes in circumstances indicate that the carrying value of goodwill
may exceed its fair value. Conditions that could trigger a more frequent
impairment assessment include, but are not limited to, a significant adverse
change in certain agreements, significant underperformance relative to
historical or projected future operating results, an economic downturn in
customers' industries, increased competition, a significant reduction in the
Company's stock price for a sustained period or a reduction of our market
capitalization relative to net book value. We evaluate impairment by comparing
the estimated fair value of each reporting unit to its carrying value. We
estimate fair value by computing our expected future discounted operating cash
flows based on historical trends, which we adjust to reflect our best estimate
of future market and operating conditions. Actual results may differ materially
from these estimates. The estimates we make in determining the fair value of
each reporting unit involve the application of judgment, including the amount
and timing of future cash flows, short- and long-term growth rates, and the
weighted average cost of capital, which could affect the timing and size of any
future impairment charges. Impairment of our goodwill could significantly affect
our operating results and financial position.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, we continually evaluate whether events or circumstances have
occurred that indicate that the estimated remaining useful life of our
long-lived assets, including intangible assets, may warrant revision or that the
carrying value of these assets may be impaired. Any write-downs are treated as
permanent reductions in the carrying amount of the assets. We must use judgment
in evaluating whether events or circumstances indicate that useful lives should
change or that the carrying value of assets has been impaired. Any resulting
revision in the useful life or the amount of an impairment also requires
judgment. Any of these judgments could affect the timing or size of any future
impairment charges. Revision of useful lives or impairment charges could
significantly affect our operating results and financial position.
Software Development Costs
We evaluate whether to capitalize or expense software development costs in
accordance with SFAS No. 86. We sell products in a market that is subject to
rapid technological change, new product development and changing customer needs.
Accordingly, we have concluded that technological feasibility is not established
until the development stage of the product is nearly complete. We define
technological feasibility as the completion of a working model. We amortize
software development costs, capitalized in accordance with SFAS No. 86, over
their estimated useful lives of two years. During the three and six months ended
March 31, 2009 $42,000 and $146,000, respectively, of software development costs
were capitalized in accordance with SFAS No. 86. During the three and six months
ended March 31, 2008, $14,000 of software development costs was capitalized in
accordance with SFAS No. 86.
We capitalize certain costs of software developed or obtained for internal
use in accordance with SOP 98-1, Accounting for the Costs of Corporate Software
Developed or Obtained for Internal Use. The costs incurred in the preliminary
stages of development are expensed as incurred. Once an application has reached
the development stage, internal and external costs, if direct and incremental,
will be capitalized until the software is substantially complete and ready for
its intended use. Capitalization ceases upon completion of all substantial
testing. During the three and six months ended March 31, 2009, we capitalized
$140,000 and $321,000, respectively, of internal-use software development costs.
During the three and six months ended March 31, 2008, $20,000 of internal use
software development costs were capitalized.
Income Taxes
We are subject to income taxes in both the United States and foreign
jurisdictions, and we use estimates in determining our provision for income
taxes. Significant changes to these estimates could have a material impact on
our effective tax rate. Deferred tax assets, related valuation allowances,
current tax liabilities and deferred tax liabilities are determined separately
by tax jurisdiction. In making these determinations, we estimate tax assets,
related valuation allowances, current tax liabilities and deferred tax
liabilities and assess temporary differences resulting from differing treatment
of items for tax and accounting purposes. At March 31, 2009, our deferred tax
assets consist primarily of state research and development tax credit
carryforwards, foreign tax credit carryforwards and temporary differences
relating primarily to share-based compensation expense and acquired intangible
assets. We assess the likelihood that deferred tax assets will be realized, and
we recognize a valuation allowance if it is more likely than not that some
portion of the deferred tax assets will not be realized. This assessment
requires judgment as to the likelihood and amounts of future taxable income by
tax jurisdiction.
FASB Statement No. 109, ("SFAS No. 109") Accounting for Income Taxes,
requires that deferred tax assets be reduced by a valuation allowance if, based
on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. The valuation allowance must be
sufficient to reduce the deferred tax assets to the amount that is more likely
than not to be realized. Future realization of deferred tax assets ultimately
. . .
|
|