Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TIGR > SEC Filings for TIGR > Form 10-K on 27-Jun-2014All Recent SEC Filings

Show all filings for TIGERLOGIC CORP

Form 10-K for TIGERLOGIC CORP


27-Jun-2014

Annual Report


ITEM 7. 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, 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 Annual Report on Form 10-K and, elsewhere in this Annual Report on Form 10-K. The forward-looking statements contained in this Annual Report on Form 10-K 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 costs, (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 combined with our cash flow from operating activities will be sufficient to meet our operating and capital expenditure requirements for the remainder of the fiscal year ending March 31, 2015 and through the foreseeable future, (14) our focus on the continued development and enhancement of new product lines, including social media content aggregation platform and applications, 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, (16) our ability to successfully integrate recent acquisitions, and
(17) the possibility that we may seek to take advantage of strategic acquisition or disposition 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.

This discussion and analysis of the financial statements and results of operations should be read in conjunction with our audited consolidated financial statements, including the related notes thereto, contained elsewhere in this Annual Report on Form 10-K.

Unless noted otherwise, management's discussion and analysis of financial condition and results of operations pertain to our continuing operations.

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. 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.


Table of Contents

On an on-going basis, we evaluate our estimates, including those related to revenue recognition and accounting for goodwill and intangible assets. 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.

We have identified the accounting policies below as the policies critical to our business operations and the understanding of our results of operations. We believe the following critical accounting policies and the related judgments and estimates affect the preparation of our consolidated financial statements:

REVENUE RECOGNITION. Revenue attributable to an element in a customer arrangement is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. If, at the outset of the customer arrangement, we determine that the arrangement fee is not fixed or determinable, we defer the revenue and recognize the revenue when the arrangement fee becomes due and payable. We do not have price protection programs or conditional acceptance agreements, and sales of our products are made without right of return.

For contracts with multiple software and software-related elements, we recognize revenue for the delivered elements, generally software licenses, using the residual value method when vendor-specific objective evidence (VSOE) of fair value exists for all undelivered elements, consisting primarily of post-contract customer support (PCS). PCS is recognized ratably over the support term.

For our hosted software subscription arrangements, services revenue is recognized ratably over the subscription period. We also have services revenue consisting of consulting and training services that are either recognized as the services are performed or upon the completion of the services depending on the nature of the services. When subscription arrangements involve multiple elements that qualify as separate units of accounting, we allocate arrangement consideration to all deliverables based on the relative stand-alone selling price method in accordance with the selling price hierarchy, which includes:
(i) VSOE if available; (ii) third-party evidence (TPE) if VSOE is not available; and (iii) best estimate of selling price (BESP) if neither VSOE nor TPE is available. Revenue allocated to each deliverable, limited to the amount not contingent on future performance, is then recognized when the basic revenue recognition criteria are met for the respective deliverables.

We determine whether VSOE can be established based on our historical pricing and discounting practices for the specific deliverable when sold separately. In determining VSOE, we require that a substantial majority of the selling prices fall within a reasonably narrow pricing range. We have established VSOE for our PCS included in our software arrangements, but have not yet been able to establish VSOE for our subscription or other services.

When VSOE cannot be established for our subscription and other services, we apply judgment with respect to whether we can establish a selling price based on TPE. TPE is determined based on third party pricing practices for similar deliverables when sold separately. Generally, our pricing strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the comparable pricing of services with similar functionality cannot be obtained. Furthermore, typically, we are unable to reliably determine what similar competitors services' selling prices are on a stand-alone basis. As a result, we have not been able to establish selling prices based on TPE.

When we are unable to establish a selling price for our subscription and other services using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the respective elements were sold on a stand-alone basis. We estimate BESP for services by considering multiple factors including, but not limited to, prices charged for similar offerings, market conditions, competitive landscape, costs of providing the services, and our overall pricing practices. We currently use BESP in order to allocate the selling price to our deliverables in multiple element subscription arrangements.

BUSINESS DIVESTITURE. We divested the MDMS Business in fiscal year 2014, and in the future may make further divestitures. We presented financial results for the divested MDMS Business as discontinued operations in the financial statements for the periods prior to the divestiture. We identified costs that were considered to be related to ongoing Company activities separately from those related to the divested MDMS Business. Costs identified as relating to continuing operations include costs related to certain personnel and general and administrative costs, as well as other finance and legal costs which are equivalent to the resources expected on an ongoing basis after the divestiture. All compensation, benefits, stock-based compensation and other personnel related costs associated with these positions were included in ongoing operations. We also included in ongoing operations costs related to being a public company, such as external audit costs, costs associated with the Sarbanes-Oxley Act, board of directors' fees, SEC filing fees, and Nasdaq fees. Facilities and information systems/technology costs were allocated based upon the percentage of headcount of the employees assumed to be working primarily on continuing operations. All specific costs of the divested MDMS Business were classified as discontinued operations as they were considered necessary and were directly related the divested business.


Table of Contents

We identified assets and liabilities that were related to the divested MDMS Business and presented them as assets and liabilities from discontinued operations on the consolidated balance sheets. Assets related to the MDMS Business included certain trade accounts receivable, fixed assets, and goodwill. Goodwill was allocated to the MDMS Business based on the relative fair values of the MDMS Business and continuing operations. Liabilities related to the MDMS Business included certain deferred revenue related to support contracts that were sold and certain pension liabilities relating to our France subsidiary.

BUSINESS COMBINATIONS AND GOODWILL. We have entered into certain acquisitions, and in the future may make further acquisitions. The application of the purchase method of accounting for business combinations requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price consideration between depreciable assets, assumed liabilities, intangibles, and goodwill. Our estimates of the fair values of assets and liabilities acquired are based upon assumptions that we believe to be reasonable and include assistance from independent third-party appraisal firms. When equity instruments are issued as part of the purchase price consideration, we measure them at fair value as of the date of the acquisition.

We assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable and at least annually during the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to its fair value. For purposes of this analysis, we consider ourselves a single reporting unit. Factors we consider to be important that would trigger an impairment review include the following:

Significant underperformance relative to expected historical or projected future operating results;

Timing of our revenue, significant changes in the manner of use of the acquired assets or the strategy for the overall business;

          Significant negative industry or economic trends;

          Significant decline in our stock price for a sustained period; and

          Our market capitalization falling below our net book value for a
sustained period.

Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. Given our single reporting unit structure, a key input in estimating of our reporting unit fair value is our stock price as reported by Nasdaq and our related market capitalization. No impairment of goodwill has been identified during any of the periods presented as our market capitalization had exceeded our net book value. However, the amount by which our market capitalization exceeded our net book value had decreased significantly as of March 31, 2014 as compared to the prior year, and subsequent to March 31, 2014, our stock price has been volatile and on some days our market capitalization has fallen slightly below our net book value. We continue to monitor our stock price and to the extent it continues to fall below our net book value for sustained periods of time, it may trigger an additional goodwill impairment test such that we may be required to obtain an independent third party valuation to incorporate other relevant factors in estimating the fair value of our Company including but not limited to, any control premium. To the extent the fair value of our Company is below its carrying amount, we would be required to perform the second step of the goodwill impairment test to measure any impairment of goodwill.

Intangible assets with finite useful life are amortized using the straight-line method over their estimated period of economic benefit. Our intangible assets were acquired in connection with our acquisition of Storycode on January 17, 2013. We estimate that our technology intangible asset has a useful life of seven years and our trade and domain names intangible asset has a useful life of ten years. We evaluate our intangible assets for impairment whenever events and change in circumstances occur which may warrant revised estimate of useful lives or recognition of an impairment loss.

EMPLOYEE STOCK-BASED COMPENSATION. Share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period. We estimate the fair value of stock-based awards using a Black-Scholes valuation model. Determining the fair value of share-based awards at the grant date and related expense requires judgment, including estimating volatility, expected terms, and forfeitures. Volatility is estimated based on historical experience. Expected terms are based on historical experience and consideration of the awards' contractual terms, vesting schedule and future expectations. Forfeitures are based on our actual forfeiture rate as well as management judgment. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

RECENT ACCOUNTING PRONOUNCEMENT. In May 2014, the Financial Accounting Standard Board issued Accounting Standards Update (ASU) No. 2014-09, Revenue from contracts with Customers (Topic 606) which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchanged for those goods or services. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. We are currently assessing the expected impact of the ASU on our financial position and results of operations.


Table of Contents

INCOME TAXES. Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax bases of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Due to uncertainties surrounding the timing of realizing the benefits of the net operating loss carryforwards and tax credits in the future, we carry a full valuation allowance against net deferred tax assets in domestic and foreign jurisdictions, except France and Germany.

We accrue for uncertain tax positions when income tax positions do not meet a more-likely-than-not recognition threshold upon the application of the appropriate tax rules and in subsequent periods. Developments such as case law, changes in tax law, new rulings or regulations issued by taxing authorities, and interactions with the taxing authorities could affect whether a position should be recognized or the amount that should be reported.

RESULTS OF OPERATIONS

The following table sets forth certain Consolidated Statement of Operations data from continuing operations in total dollars, as a percentage of total net revenues and as a percentage change from the same period 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 Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

                                   Year Ended                               Year Ended                          Year Ended
                                 March 31, 2014                           March 31, 2013                      March 31, 2012
                                        % of Net    Percent                      % of Net    Percent                      % of Net
                          Results       Revenues    Change         Results       Revenues    Change         Results       Revenues
                      (In thousands)                           (In thousands)                           (In thousands)
Net revenues
Licenses              $         2,264         41 %        8 %  $         2,090         55 %       (3 )% $         2,153         56 %
Services                        3,226         59 %       91 %  $         1,687         45 %        1 %            1,676         44 %
Total net revenues              5,490        100 %       45 %            3,777        100 %       (1 )%           3,829        100 %
Operating expenses
Cost of revenues:
Cost of license
revenues (as a % of
license revenues)                  95          4 %      375 %               20          1 %      233 %                6          0 %
Cost of service
revenues (as a % of
service revenues)               1,638         51 %      361 %              355         21 %        0 %              356         21 %
Selling and
marketing                       5,918        108 %       49 %            3,979        105 %      (12 )%           4,497        117 %
Research and
development                     4,441         81 %       20 %            3,698         98 %      (19 )%           4,574        119 %
General and
administrative                  4,350         79 %       17 %            3,728         99 %        4 %            3,592         94 %
Acquisition related
costs                             209          4 %      (27 )%             288          8 %      100 %                -
Total operating
expenses                       16,651        303 %       38 %           12,068        320 %       (7 )%          13,025        340 %
Operating loss                (11,161 )     (203 )%      35 %           (8,291 )     (220 )%     (10 )%          (9,196 )     (240 )%
Other income
(expense)-net                     (68 )       (1 )%   (1800 )%               4          0 %     (106 )%             (64 )       (2 )%
Loss before income
taxes                         (11,229 )     (205 )%      36 %           (8,287 )     (219 )%     (11 )%          (9,260 )     (242 )%
Income tax benefit             (3,965 )      (72 )%      97 %           (2,012 )      (53 )%      (7 )%          (2,168 )      (57 )%
Net loss from
continuing
operations            $        (7,264 )     (132 )%      16 %  $        (6,275 )     (166 )%     (12 )% $        (7,092 )     (185 )%

NET REVENUE. Net revenues include software licensing, hosted subscription services, post contract technical support, and professional services for our Omnis, Postano, and Storycode products and services. We generally license our Omnis RAD 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. Our hosted Postano platform is generally sold on a time-based subscription basis and may additionally include professional services fees. Our Storycode digital publishing professional services are generally sold on a project basis. The timing of orders and customer ordering patterns has resulted in fluctuations in revenue between quarters and year-to-year. Total revenue increased by approximately $1.7 million or 45% for fiscal year ended March 31, 2014 when compared to fiscal year ended March 31, 2013, and remained consistent for fiscal year ended March 31, 2013 when compared to fiscal year ended March 31, 2012. License revenue, which relates to our Omnis software, increased by approximately $0.2 million or 8% for the fiscal year ended March 31, 2014 when compared to the same period in the prior year mainly due to higher sales of high volume Exclusive Multi-User (EMU) licenses in the current year. License revenue decreased approximately $0.1 million or 3% for the fiscal year ended March 31, 2013 when compared to the same period in the previous year mainly due to decreased sales of Omnis upgrade licenses. Service revenue increased approximately $1.5 million or 91% for the fiscal year ended March 31, 2014 when compared to the same period in the prior year mainly due to higher sales of subscriptions and services of our hosted Postano platform, and increased sales of our Storycode digital publishing services. Service revenue remained consistent for fiscal year ended March 31, 2013 when compared to the same period in the prior year.


Table of Contents

Along with developing upgrades to our Omnis software, we have been actively developing and marketing our newer product lines, including our Postano social media visualization platform and Storycode digital publishing solutions. 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. We can give no assurances as to customer acceptance of any new products or services, or the ability of the current or any new products and services to generate revenue. There can be no assurances that we will be able to fully replace the revenue from the MDMS Business we sold in November 2013 with revenue from our retained or newly developed products quickly, or at all.

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, amortization of intangible assets, and royalties. Cost of license revenue increased by approximately $0.1 million or 375% in fiscal year ended March 31, 2014 when compared to the same period in the prior year due mainly to amortization of intangible assets. Cost of license revenue in fiscal year ended March 31, 2013 is related to amortization of intangible assets, which was not present in fiscal year 2012, and was not significant.

COST OF SERVICE REVENUE. Cost of service revenue includes primarily data center hosting and personnel costs relating to hosting, consulting, technical support and training services. Cost of service revenue for fiscal year ended March 31, 2014 increased approximately $1.3 million or 361% from the same period in the prior year mainly due to a $1.0 million revenue sharing agreement we entered into with a former consultant. Under this agreement, the consultant reconfirmed the assignment to us of any and all rights related to Postano platform and associated inventions and intellectual property rights. In addition, we also incurred higher personnel costs relating to our social and mobile platform during fiscal year 2014 as more headcount was added. Cost of service revenue for the fiscal year 2013 remained consistent with the prior year.

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 fiscal year 2014 increased by approximately $1.9 million or 49% mainly due to increased activity for our Postano products, including higher personnel costs of approximately $1.1 million as we hired additional sales and marketing personnel in the current year, higher marketing campaign costs of approximately $0.4 million, higher travel costs of approximately $0.1 million, and higher stock compensation expense of approximately $0.2 million due to new options issued to current and new employees in the current year. Selling and marketing expense for the fiscal year 2013 decreased by approximately $0.5 million or 12% when compared to the same period in the prior year due to lower marketing and consulting expense of approximately $0.3 million, lower stock compensation expense of approximately $0.1 million resulting from previously issued stock options fully vesting in the previous year, and lower personnel expense of approximately $0.1 million.

We anticipate that selling and marketing costs related to our Postano product lines may continue to increase as we further develop the sales channels for these products, and as customer acceptance of these products increases.

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 fiscal year 2014 increased by approximately $0.7 million or 20%, when compared to the same period in the prior year mainly due to higher personnel cost of approximately $0.4 million as we added more headcount to our Postano product lines in the current year, higher consulting and outside support expense of approximately $0.3 million, and higher stock compensation expense of approximately $0.1 million due to new options issued to current and new employees in the current year. Research and development expense for the fiscal year 2013 decreased by approximately $0.9 million or 19% when compared to the same period in the prior year mainly due to lower personnel cost of approximately $0.5 million from lower headcount in our U.S. office, lower consulting and outside support expense of approximately $0.1 million as we terminated services for certain products, and lower stock compensation expense of approximately $0.1 million due to previously issued stock options fully . . .

  Add TIGR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TIGR - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.