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TIGR > SEC Filings for TIGR > Form 10-Q on 10-Nov-2011All Recent SEC Filings

Show all filings for TIGERLOGIC CORP

Form 10-Q for TIGERLOGIC CORP


10-Nov-2011

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The section entitled "Management's Discussion and Analysis" set forth below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will," or "shall," or the negative of those terms. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements involve certain risks and uncertainties and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described under the heading "Risk Factors" in Item 1A of this Form 10-Q and elsewhere in this Form 10-Q. The forward-looking statements contained in this Form 10-Q include, but are not limited to statements about the following:
(1) our future success, (2) our research and development efforts, (3) our future operating results and cash flow, (4) our ability to compete, (5) the markets in which we operate, (6) our revenue, (7) cost of license revenue and cost of service revenue, (8) our selling and marketing costs, (9) our general and administrative expenses (10) our research and development expenses, (11) the effect of critical accounting policies,(12) the possibility that we may seek to take advantage of opportunities in the equity and capital markets, (13) our belief that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements through the foreseeable future, (14) our focus on the continued development and enhancement of new product lines, including search technology and social media products, and identification of new and emerging technology areas and discussions with channel partners for the sale and distribution of new product lines, (15) the effect of recent changes in tax laws on our financial statements, and (16) the possibility that we may seek to take advantage of strategic acquisition opportunities. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

OVERVIEW
We were incorporated in the State of Delaware in August 1987. We were originally incorporated as Blyth Holdings, Inc. and our name was changed to Omnis Technology Corporation in September 1997. Effective December 1, 2000, we completed the acquisition of PickAx, Inc., a Delaware corporation ("PickAx"). Concurrent with the acquisition, we changed our name to Raining Data Corporation. On April 17, 2008, we changed our name to TigerLogic Corporation. Reference to "we," "our," "us" or the "Company" in this Form 10-Q means TigerLogic Corporation and our subsidiaries.

PRODUCTS
Our principal business consists of 1) the design, development, sale, and support of software infrastructure; 2) Internet search enhancement tools; and 3) a social media content aggregation platform. Our products allow customers to create and enhance flexible software applications for their own needs. Our database and rapid application development software may be categorized into the following product lines: Multidimensional Database Management Systems ("MDMS") and Rapid Application Development ("RAD") software tools. Many of our database software products are based on the proprietary Pick Universal Data Model ("Pick UDM") and are capable of handling data from many sources. Our Internet search enhancement tools include the yolink browser plug-in, yolink API for web sites, and yolink search plug-in for WordPress sites. Our Postano product is a real-time social media content aggregation platform.

We primarily sell our database and rapid application development software products through established distribution


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channels consisting of OEMs, system integrators, specialized vertical application software developers and consulting organizations. Our Internet search enhancement tools and social media content aggregation platform are generally sold through our web sites, as well as through co-marketing arrangements with third parties. We also sell all of our products directly through our sales personnel to end user organizations. Outside the United States, we maintain direct sales offices in the United Kingdom, France and Germany. We generally license our database and rapid application development software on a per-CPU, per-server, per-port or per-user basis. We license our yolink and Postano product lines at prices based on usage measured in a variety of ways. We may make both our yolink and Postano products available to users for free under certain circumstances. We also provide continuing software maintenance and support, and other professional services relating to our products, including consulting and training services. Our revenue to date has been principally derived from MDMS and RAD software products.
In addition, one of the elements of our business strategy involves expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, or enhance our technological capabilities. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the purchase or sale of assets, including tangible and intangible assets such as intellectual property. TigerLogic Postano
Postano is a real-time social media content aggregation platform, integrated with our yolink search technology, that allows companies and individuals to collect content from various social media sources, and to display that content either within existing web pages or on new web pages. Postano is designed primarily for commercial use and is generally priced based on the number of social media fans or followers and the number of Postano pages. Through September 30, 2011, revenue recognized from Postano has been immaterial. TigerLogic Yolink
Yolink is a next-generation search enhancement technology that increases the effectiveness of search functionality across web sites and services. Yolink can search both structured markup, such as HTML, and binary code documents as well as unstructured, raw text documents by layering a common semantic model across them, and using this to organize and effect full-text searches across documents. Yolink searches behind links and through web sites to retrieve content based on keyword search terms. To facilitate the user's review of search results, each keyword is highlighted with a unique color. This capability is especially useful for reviewing and searching through the many web pages that contain hundreds, if not thousands, of embedded hyperlinks. Yolink technology can be applied to many platforms and Internet delivery methodologies. Yolink application programming interfaces (known as APIs) allow developers to integrate yolink search technologies with their web sites, services or applications. Yolink is available for download at www.yolink.com. Through September 30, 2011, revenue recognized from the yolink search technology has been immaterial. Multi-dimensional Databases (MDMS)
The MDMS product line consists principally of the D3 Data Base Management System ("D3"), which runs on many operating systems, including IBM AIX, Linux and Windows. D3 allows application programmers to create new business solution software in less time than it normally takes in many other environments. Our MDMS products also include mvEnterprise, a scalable multi-dimensional database solution that allows the user to leverage the capabilities of the UNIX operating system, and mvBase, a multi-dimensional database solution that runs on all Windows platforms.
Version 9.0 of D3 and version 3.0 of mvBase, released in September 2010, include bundled support for .NET, providing developers a cost effective solution for developing applications utilizing Microsoft Visual Studio; and bundled support for Java, allowing development of applications utilizing Java.
The TigerLogic Dashboard, released in August 2010, is a development tool that allows Pick UDM developers to create intuitive and web-based graphical displays of multi-value data via dashboard and widget creation utilizing Pick/BASIC programming language.
Rapid Application Development (RAD) Tools Our RAD products support the full life cycle of software application development and are designed for rapid prototyping, development and deployment of graphical user interface ("GUI") client/server and web applications. The RAD products-Omnis Studio and Omnis Classic-are object-oriented and component-based, providing the ability to deploy cross-platform applications on operating system platforms and database environments.
Version 5.1 of Omnis Studio, released in October 2010, includes functionality for developers to create mobile


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applications for Apple iOS devices including the iPhone, iPad, and iPod touch.

RESEARCH AND DEVELOPMENT
We have devoted significant resources to the research and development of our products and technology. We believe that our future success will depend largely on strong development efforts with respect to both our existing and new products. These development efforts have resulted in updates and upgrades to existing MDMS and RAD products and the launch of new products including the yolink search technology and Postano social media product lines. New product updates and upgrades in all of our product lines are currently in progress. We expect to continue our research and development efforts in all product lines for the foreseeable future. We intend for these efforts to improve our future operating results and increase cash flow. However, such efforts may not result in additional new products or revenue, and we can make no assurances that the recently announced products or future products will be successful. We spent approximately $1.4 million and $2.9 million on research and development during the three and six month periods ended September 30, 2011, respectively.

COMPETITION
Competition for our MDMS and RAD products include companies such as Oracle, Microsoft, IBM, and SAP. Direct competitors of our yolink search technology include Google, Yahoo, Microsoft, AOL, and Ask, as well as a number of smaller companies with products that directly and indirectly compete with our yolink search technology. Direct competitors of our Postano social media content aggregation platform include Facebook and Twitter, as well as a number of smaller companies with products and services in the emerging social media marketplace.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent liabilities.
On an on-going basis, we evaluate our estimates, including those related to revenue recognition and accounting for goodwill. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. As of September 30, 2011, the fair value of the reporting unit substantially exceeded its carrying value. We have identified the accounting policies below as the policies critical to our business operations and the understanding of our results of operations and how the related judgments and estimates affect the preparation of our consolidated financial statements:
Revenue Recognition

Goodwill

Employee Stock-Based Compensation

Income Taxes

These critical accounting policies are described in our Form 10-K for the fiscal year ended March 31, 2011 and there have been no changes in our application of these policies during the period ended September 30, 2011.

RESULTS OF OPERATIONS
The following table sets forth certain unaudited Condensed Consolidated Statement of Operations data in total dollars, as a percentage of total net revenues and as a percentage change from the same periods in the prior year. Cost of license revenues and cost of service revenues are expressed as a percentage of the related revenues. This information should be read in conjunction with the unaudited Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.


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                                 Three Months Ended                     Three Months Ended                       Six Months Ended                       Six Months Ended
                                 September 30, 2011                     September 30, 2010                      September 30, 2011                     September 30, 2010
                                         % of Net                                      % of Net                         % of Net                                      % of Net
                         Results         Revenues     % Change        Results          Revenues         Results         Revenues     % Change         Results         Revenues
                      (In thousands)                               (In thousands)                    (In thousands)                               (In thousands)
Net revenues
Licenses             $       1,137          32  %          5  %   $       1,079           32  %     $        1,976         29  %         (1 )%   $         2,006         30  %
Services                     2,392          68  %          4  %           2,293           68  %              4,727         71  %          2  %             4,612         70  %
Total net revenues           3,529         100  %          5  %           3,372          100  %              6,703        100  %          1  %             6,618        100  %
Operating expenses
Cost of revenues:
Cost of license
revenues (as a % of
license revenues)                4           -  %          -  %               4            -  %                  6          -  %          -  %                 6          -  %
Cost of service
revenues (as a % of
service revenues)              482          20  %         10  %             440           19  %                959         20  %         13  %               851         18  %
Selling and
marketing                    1,201          34  %          5  %           1,147           34  %              2,560         38  %         11  %             2,308         35  %
Research and
development                  1,384          39  %         (7 )%           1,496           44  %              2,868         43  %         (4 )%             3,002         45  %
General and
administrative                 880          25  %         (5 )%             926           27  %              1,973         29  %         (4 )%             2,065         31  %
Total operating
expenses                     3,951         112  %         (2 )%           4,013          119  %              8,366        125  %          2  %             8,232        124  %
Operating loss                (422 )       (12 )%        (34 )%            (641 )        (19 )%             (1,663 )      (25 )%          3  %            (1,614 )      (24 )%
Other income
(expense)-net                  (38 )        (1 )%       (215 )%              33            1  %                (27 )        -  %       (108 )%               (13 )        -  %
Loss before income
taxes                         (460 )       (13 )%        (24 )%            (608 )        (18 )%             (1,690 )      (25 )%          4  %            (1,627 )      (25 )%
Income tax provision            68           2  %        (30 )%              97            3  %                177          3  %         51  %               117          2  %
Net loss             $        (528 )       (15 )%        (25 )%   $        (705 )        (21 )%     $       (1,867 )      (28 )%          7  %   $        (1,744 )      (26 )%

REVENUE
NET REVENUE. Our revenue is derived principally from two sources: fees from software licensing and fees for post contract technical support. We generally license our database and rapid application development software primarily on a per-CPU, per-server, per-port or per-user basis. Therefore, the addition of CPUs, servers, ports or users to existing systems increases our revenue from our installed base of licenses. Similarly, the reduction of CPUs, servers, ports or users from existing systems decreases our revenue from our installed base of customers. The timing of orders and customer ordering patterns has resulted in fluctuations in license revenue between quarters and year-to-year. Total revenue increased slightly by $0.2 million or 5%, and $0.1 million or 1% for the three and six month periods ended September 30, 2011, respectively, when compared to the same periods in the prior year mainly due to higher service revenues and favorable foreign currency exchange effect. License revenue for the three and six month periods ended September 30, 2011 remained relatively unchanged on a dollar amount basis when compared to the same periods in the prior year. We have been actively developing and marketing our newer product lines, including yolink and Postano. Revenue from these new products has been immaterial for the three and six month periods ended September 30, 2011 and no revenue was recognized in the same periods in the prior year. While we are committed to research and development efforts that are intended to allow us to penetrate new markets and generate new sources of revenue, such efforts may not result in additional products, services or revenue.

OPERATING EXPENSES
COST OF LICENSE REVENUE. Cost of license revenue is comprised of direct costs associated with software license sales including software packaging, documentation, physical media costs and royalties. Cost of license revenue remained consistent for the three and six month periods ended September 30, 2011 when compared to the same periods in the prior year.

COST OF SERVICE REVENUE. Cost of service revenue includes primarily personnel costs relating to consulting, technical support and training services. Cost of service revenue for the three and six month periods ended September 30, 2011 increased $42,000 or 10% and $0.1 million or 13% when compared to the same periods in the prior year due to higher one-time personnel related costs resulting from the consolidation of our offices in the United Kingdom, and higher stock compensation expense for new stock options issued during the prior period.
SELLING AND MARKETING. Selling and marketing expense consists primarily of salaries, benefits, advertising, trade shows, travel and overhead costs for our sales and marketing personnel. Selling and marketing expense for the three month


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period ended September 30, 2011 increased $0.1 million or 5% when compared to the same period in the prior year. Selling and marketing expense for the six month period ended September 30, 2011 increased $0.3 million or 11% when compared to the same period in the prior year. The increase in the three and six month periods ended September 30, 2011 when compared to the same periods in the prior year was due to higher personnel cost from additional headcount, and consulting expenses relating to the new Postano product. We anticipate that selling and marketing costs related to the yolink and Postano product lines may increase as we further develop the sales channels for these products and if customer acceptance of these products increases. In addition, if our continued research and development efforts are successful, including with respect to our yolink and Postano product lines, and as new products or services are created, we may incur increased sales and marketing expense to promote those new products in future periods.
RESEARCH AND DEVELOPMENT. Research and development expense consists primarily of salaries and other personnel-related expenses and overhead costs for engineering personnel, including employees in the United States and the United Kingdom and contractors in the United States. Research and development expense for the three month period ended September 30, 2011 decreased $0.1 million or 7% when compared to the same period in the prior year due to lower personnel expense resulted from lower headcount, and lower depreciation expense as certain fixed assets were fully depreciated, partially offset by higher stock compensation expense for new stock options issued during the prior period. Research and development expense for the six month period ended September 30, 2011 decreased by $0.1 million or 4% when compared to the same period in the prior year due to lower amortization and depreciation expense as certain fixed assets were fully depreciated. We are committed to our research and development efforts and expect research and development expenses to increase in future periods as we investigate further applications and delivery options for the yolink technology and Postano social media products, and as we build new technology platforms for our RAD product line and continue enhancing our MDMS product line. Such efforts may not result in additional new products, and new products may not generate sufficient revenue, if any, to offset the research and development expense. GENERAL AND ADMINISTRATIVE. General and administrative expense consists primarily of costs associated with our finance, human resources, legal and other administrative functions. These costs consist principally of salaries and other personnel-related expenses, professional fees, depreciation and overhead costs. General and administrative expense for the three month period ended September 30, 2011 remained consistent when compared to the same period in the prior year. General and administrative expense for the six month period ended September 30, 2011 decreased $0.1 million or 4% when compared to the same period in the prior year due to lower professional fees in the current year.
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of gains and losses on foreign currency transactions. Other income (expense) decreased from $33,000 of income for the three month period ended September 30, 2010 to $38,000 of expense for the three month period ended September 30, 2011. Other income (expense) increased from $13,000 of expense for the six month period ended September 30, 2010 to $27,000 of expense for the six month period ended September 30, 2011. The variance for the three and six month periods ended September 30, 2011 when compared to the same periods in the prior year is mainly due to fluctuation in the Euro exchange rate relating to intercompany balances. Due to the uncertainty in exchange rates, we may experience transaction gains or losses in future periods, the effect of which cannot be predicted at this time. PROVISION FOR INCOME TAXES. Our effective tax rate was (14.8)% and (10.5)% for the three and six month periods ended September 30, 2011, respectively, and
(16.0)% and (7.2)% for the three and six month periods ended September 30, 2010, respectively. The provision for income taxes for the three and six month periods ended September 30, 2011 reflected the income tax on net earnings from foreign subsidiaries, and true up of tax expense of our Germany subsidiary, net of the deferred tax benefits. The provision for income taxes for the three and six month periods ended September 30, 2010 reflected income tax on net earnings from foreign subsidiaries. Due to uncertainties surrounding the timing of realizing the benefits of the net operating loss carryforwards in the future, we continue to carry a full valuation allowance against net deferred tax assets for our subsidiaries in the United States and United Kingdom.

On August 9, 2011, we received a report from the German tax authorities upon completion of a tax audit of our German subsidiary for fiscal years 2005 through 2007. During the quarter ended June 30, 2011, we considered the results of the tax audit in measuring our uncertain tax position for transfer pricing between our German subsidiary and other affiliated companies. The effect of the change in estimate was to increase our liability for uncertain tax positions and income tax expense by $4,000 for the quarter ended June 30, 2011. During the quarter ended September 30, 2011, we have settled $33,000 of the $45,000 in tax liability accrued in the prior quarter for uncertain tax position related to Germany. The remaining balance is expected to be settled within the next twelve months.
During the quarter ended June 30, 2011, while reconciling the German tax audit results to our records for the German subsidiary, we discovered certain errors in the amounts of German net operating loss carryforwards and taxable income included in our income tax provision for prior years. The effect of these errors was an understatement of income tax expense by


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$45,000 and $48,000 in fiscal 2010 and 2011, respectively. These amounts were recorded during the quarter ended June 30, 2011. Income tax expense for the three month period ended June 30, 2011, and for six month period ended September 30, 2011 includes the effect of the correction of these errors. Management believes these amounts are immaterial to the financial statements for all affected periods.
The tax audit in Germany also resulted in the assessment of certain withholding taxes on intercompany payments in Germany relating to fiscal years 2005 through 2007. Management believes these withholding taxes are refundable pursuant to tax treaties between Germany and the United States and under European Union law. During the quarter ended September 30, 2011, we settled $403,000 of the withholding tax liability accrued for in the previous quarter ended June 30, 2011. Additionally, during the quarter ended September 30, 2011, we assessed the potential withholding liability for the periods subsequent to the periods already examined by the German tax authorities, and as a result, identified additional withholding taxes due of approximately $196,000. For the quarter ended September 30, 2011, we recorded this amount as an accrued liability and as a corresponding receivable amount to reflect the anticipated future refund of these withholding taxes under the tax treaties. As of September 30, 2011, we have an accrued liability of $196,000 and a current asset of $599,000 relating to these withholding taxes.

LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2011, we had $8.9 million in cash, of which approximately $1.0 million was held by our foreign subsidiaries and, if repatriated, would not be subject to material tax consequences. We believe that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements for the remainder of the fiscal year ending March 31, 2012 and through the foreseeable future. We are committed to research and development and marketing efforts that are intended to allow us to penetrate new markets and generate new sources of revenue and improve operating results. However, our research and development and marketing efforts have required, and will continue to require, cash outlays without the immediate or short-term receipt of related . . .

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