UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
000-50327
(Commission
File Number)
iPass Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 93-1214598 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
3800 Bridge Parkway
Redwood Shores, California 94065
(Address of principal executive offices, including zip code)
(650) 232-4100
(Registrants telephone number, including area code)
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 x No ¨
Indicate by check mark whether the registrant 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 (§ 232 405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes x No ¨
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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated filer | ¨ | Accelerated filer | x | |||
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 x
The number of shares outstanding of the Registrants Common Stock, $0.001 par value, as of July 27, 2011 was 58,764,103.
IPASS INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
2
Item 1. Unaudited Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2011 |
December 31, 2010 |
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(Unaudited, in thousands) | ||||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 26,103 | $ | 30,746 | ||||
Accounts receivable, net of allowance for doubtful accounts of $1,761 and $1,757, respectively |
22,411 | 24,034 | ||||||
Prepaid expenses and other current assets |
6,413 | 6,630 | ||||||
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Total current assets |
54,927 | 61,410 | ||||||
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Property and equipment, net |
3,680 | 4,264 | ||||||
Intangible assets, net |
288 | 408 | ||||||
Other assets |
7,179 | 7,900 | ||||||
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Total assets |
$ | 66,074 | $ | 73,982 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
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Accounts payable |
$ | 9,825 | $ | 13,552 | ||||
Accrued liabilities |
11,820 | 15,333 | ||||||
Deferred revenue, short-term |
4,255 | 4,119 | ||||||
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Total current liabilities |
25,900 | 33,004 | ||||||
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Deferred revenue, long-term |
2,948 | 2,435 | ||||||
Other long-term liabilities |
560 | 721 | ||||||
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Total liabilities |
29,408 | 36,160 | ||||||
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Commitments and contingencies (Note 8) |
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Stockholders equity: |
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Common stock |
58 | 58 | ||||||
Additional paid-in capital |
208,371 | 206,992 | ||||||
Accumulated deficit |
(171,763 | ) | (169,228 | ) | ||||
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Total stockholders equity |
36,666 | 37,822 | ||||||
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Total liabilities and stockholders equity |
$ | 66,074 | $ | 73,982 | ||||
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See Accompanying Notes to the Condensed Consolidated Financial Statements
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Unaudited, in thousands, except share and per share amounts) | ||||||||||||||||
Revenues |
$ | 35,511 | $ | 39,083 | $ | 71,915 | $ | 79,461 | ||||||||
Cost of revenues and operating expenses: |
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Network access costs |
17,209 | 18,843 | 34,601 | 37,267 | ||||||||||||
Network operations |
5,520 | 7,000 | 11,418 | 14,328 | ||||||||||||
Research and development |
3,490 | 3,245 | 7,128 | 6,644 | ||||||||||||
Sales and marketing |
4,958 | 5,889 | 10,703 | 12,398 | ||||||||||||
General and administrative |
5,203 | 5,361 | 10,028 | 11,031 | ||||||||||||
Restructuring charges |
10 | 118 | (155 | ) | 287 | |||||||||||
Amortization of intangible assets |
60 | 77 | 120 | 287 | ||||||||||||
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Total cost of revenue and operating expenses |
36,450 | 40,533 | 73,843 | 82,242 | ||||||||||||
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Operating loss |
(939 | ) | (1,450 | ) | (1,928 | ) | (2,781 | ) | ||||||||
Interest income |
15 | 20 | 100 | 37 | ||||||||||||
Foreign exchange gains (losses) and other income (expenses) |
(119 | ) | 245 | (462 | ) | 618 | ||||||||||
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Loss before income taxes |
(1,043 | ) | (1,185 | ) | (2,290 | ) | (2,126 | ) | ||||||||
Provision for (benefit from) income taxes |
15 | 29 | 245 | (183 | ) | |||||||||||
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Net loss |
$ | (1,058 | ) | $ | (1,214 | ) | $ | (2,535 | ) | $ | (1,943 | ) | ||||
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Net loss per share: |
||||||||||||||||
Basic and diluted |
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
Number of shares used in per share calculations: |
||||||||||||||||
Basic and diluted |
58,379,136 | 58,842,065 | 58,272,603 | 59,711,674 |
See Accompanying Notes to the Condensed Consolidated Financial Statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
(Unaudited, in thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (2,535 | ) | $ | (1,943 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Stock-based compensation |
957 | 856 | ||||||
Amortization of intangible assets |
120 | 287 | ||||||
Depreciation, amortization and accretion |
1,200 | 1,770 | ||||||
Loss on disposal of property and equipment |
87 | 3 | ||||||
Provision for doubtful accounts |
244 | 607 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
1,379 | (276 | ) | |||||
Prepaid expenses and other current assets |
217 | (99 | ) | |||||
Other assets |
433 | 489 | ||||||
Accounts payable |
(3,745 | ) | (1,929 | ) | ||||
Accrued liabilities |
(3,513 | ) | (1,496 | ) | ||||
Deferred revenues |
649 | (837 | ) | |||||
Other liabilities |
(161 | ) | (142 | ) | ||||
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Net cash used in operating activities |
(4,668 | ) | (2,710 | ) | ||||
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Cash flows from investing activities: |
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Maturities of short-term investments |
| 3,778 | ||||||
Purchases of property and equipment |
(685 | ) | (1,515 | ) | ||||
Change in restricted cash pledged for letter of credit |
288 | (678 | ) | |||||
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Net cash provided by (used in) investing activities |
(397 | ) | 1,585 | |||||
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
422 | 163 | ||||||
Cash used in repurchase of common stock |
| (4,158 | ) | |||||
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Net cash provided by (used in) financing activities |
422 | (3,995 | ) | |||||
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Net decrease in cash and cash equivalents |
(4,643 | ) | (5,120 | ) | ||||
Cash and cash equivalents at beginning of period |
30,746 | 37,973 | ||||||
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Cash and cash equivalents at end of period |
$ | 26,103 | $ | 32,853 | ||||
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Supplemental disclosures of cash flow information: |
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Net cash paid (refunded) for taxes |
$ | 338 | $ | (994 | ) | |||
Accrued amounts for acquisition of property and equipment |
137 | 633 |
See Accompanying Notes to the Condensed Consolidated Financial Statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the accounts of iPass Inc. (the Company) and its wholly owned subsidiaries. The condensed consolidated financial statements that accompany these notes have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) consistent in all material respects with those applied in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 Condensed Consolidated Balance Sheets were derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The interim financial information is unaudited, but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim period presented. This interim financial information should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. The results of operations for the three months and six months ended June 30, 2011 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results that the Company experiences may differ materially from those estimates. Estimates are used for, but not limited to the valuation of accounts receivables, inventories, intangible assets, other long-lived assets, network access costs, stock-based compensation, legal contingencies, income taxes, sales tax liabilities, and restructuring charges.
Note 2. Fair Value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy
The three levels of inputs that may be used to measure fair value are as follows:
| Level 1Quoted prices in active markets for identical assets or liabilities; |
| Level 2Observable inputs other than Level 1 either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
| Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The fair value of these financial assets (excluding cash) and nonfinancial liabilities was determined using the following inputs at June 30, 2011:
Fair Value Measurements Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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(in thousands) | ||||||||||||||||
Financial assets: |
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Money market funds(1) |
$ | 19,144 | $ | 19,144 | $ | | $ | | ||||||||
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Total financial assets |
$ | 19,144 | $ | 19,144 | $ | | $ | | ||||||||
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Nonfinancial liabilities: |
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Lease liabilities incurred in connection with the restructuring plan(2) |
$ | 983 | $ | | $ | | $ | 983 | ||||||||
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Total nonfinancial liabilities |
$ | 983 | $ | | $ | | $ | 983 | ||||||||
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(1) | Held in cash and cash equivalents and restricted cash on the Companys condensed consolidated balance sheet. |
6
(2) | Generally, lease liabilities were recorded at fair value and are included as liabilities in the Companys condensed consolidated balance sheet. The lease liability was recorded in connection with the lease abandonment plans implemented in the first quarter and fourth quarter of 2009 (see Note 7 for further discussion of the restructuring plans). Management made assumptions in determining the fair value of the lease liability. Inputs to the present value technique to determine fair value included observable inputs, such as the future rent payment schedule, the discount rate and sublease income based on the executed sublease agreement through the end of the lease term. |
There were no transfers between Levels 1, 2, and 3 between December 31, 2010 and June 30, 2011.
The carrying amounts of accounts receivable, prepaid expenses and other assets, accounts payable and accrued liabilities, closely approximate fair value as of June 30, 2011 and December 31, 2010.
Note 3. Property and Equipment, net
Property and equipment, net, consisted of:
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Equipment |
$ | 15,826 | $ | 17,847 | ||||
Furniture and fixtures |
3,015 | 3,032 | ||||||
Computer software |
8,058 | 8,772 | ||||||
Leasehold improvements |
2,396 | 2,534 | ||||||
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29,295 | 32,185 | |||||||
Less: Accumulated depreciation and amortization |
(25,615 | ) | (27,921 | ) | ||||
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Property and equipment, net |
$ | 3,680 | $ | 4,264 | ||||
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Note 4. Intangible Assets, net
The following tables set forth the carrying amount of intangible assets that will continue to be amortized:
June 30, 2011 | ||||||||||||||||
Amortization Life |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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(in thousands) | ||||||||||||||||
Existing technology |
4-8 yrs | $ | 5,375 | $ | (5,253 | ) | $ | 122 | ||||||||
Patent and core technology |
4-8 yrs | 2,800 | (2,634 | ) | 166 | |||||||||||
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$ | 8,175 | $ | (7,887 | ) | $ | 288 | ||||||||||
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December 31, 2010 | ||||||||||||||||
Amortization Life |
Gross
Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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(in thousands) | ||||||||||||||||
Existing technology |
4-8 yrs | $ | 5,375 | $ | (5,202 | ) | $ | 173 | ||||||||
Patent and core technology |
4-8 yrs | 2,800 | (2,565 | ) | 235 | |||||||||||
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$ | 8,175 | $ | (7,767 | ) | $ | 408 | ||||||||||
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Amortization of intangible assets was approximately $0.1 million for the three months ended June 30, 2011 and 2010, and approximately $0.1 million and $0.3 million for the six months ended June 30, 2011 and 2010, respectively.
Scheduled amortization of the remaining intangible assets:
Year |
(in thousands) | |||
Remaining 2011 |
$ | 120 | ||
2012 |
168 | |||
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$ | 288 | |||
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7
Note 5. Other Assets
Other assets consisted of:
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Prepaid lease obligations |
$ | 589 | $ | 732 | ||||
Deferred installation costs |
2,497 | 2,288 | ||||||
Deposits |
904 | 1,291 | ||||||
Long-term deferred tax asset, net |
351 | 351 | ||||||
Restricted cash |
2,754 | 3,040 | ||||||
Other long-term assets |
84 | 198 | ||||||
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$ | 7,179 | $ | 7,900 | |||||
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Note 6. Accrued Liabilities
Accrued liabilities consisted of:
June 30, 2011 |
December 31, 2010 |
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(in thousands) | ||||||||
Accrued sales tax liabilities (1) |
$ | 1,921 | $ | 2,918 | ||||
Accrued restructuring liabilities current (2) |
444 | 962 | ||||||
Accrued expenses |
2,456 | 2,617 | ||||||
Accrued bonus, commissions and other employee benefits |
3,271 | 4,325 | ||||||
Amounts due to customers |
1,173 | 1,844 | ||||||
Other accrued liabilities |
2,555 | 2,667 | ||||||
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$ | 11,820 | $ | 15,333 | |||||
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(1) | See Note 8. Commitments and Contingencies |
(2) | See Note 7. Accrued Restructuring |
Note 7. Accrued Restructuring
In the first quarter of 2009, the Company announced a restructuring plan (the Q1 2009 Plan) in order to reduce operating costs and focus resources on key strategic priorities which resulted in a reduction of workforce by 68 positions across all functional areas and abandonment of certain facilities.
In the fourth quarter of 2009, the Company announced a restructuring plan (the Q4 2009 Plan) to align the cost structure and improve operating efficiencies which resulted in a reduction of workforce by 78 positions, abandonment of certain additional facilities and termination of a contract obligation.
The Q1 2009 and Q4 2009 restructuring plans were completed during 2010.
The following is a summary of restructuring activities of the Q1 2009 and Q4 2009 Plans for the three and six months ended June 30, 2011:
Q1 2009 Excess Facility Costs |
Q4 2009 Excess Facility Costs |
Total Restructuring Costs |
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(in thousands) | ||||||||||||
Balance as of March 31, 2011 |
$ | 1,090 | $ | 22 | $ | 1,112 | ||||||
Restructuring charges |
13 | | 13 | |||||||||
Payments |
(124 | ) | (15 | ) | (139 | ) | ||||||
Adjustments |
(12 | ) | 9 | (3 | ) | |||||||
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Balance as of June 30, 2011 |
$ | 967 | $ | 16 | $ | 983 | ||||||
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8
Q1 2009 Excess Facility Costs |
Q4 2009 Excess Facility Costs |
Total Restructuring Costs |
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(in thousands) | ||||||||||||
Balance as of December 31, 2010 |
$ | 1,185 | $ | 456 | $ | 1,641 | ||||||
Restructuring charges |
24 | | 24 | |||||||||
Payments |
(231 | ) | (272 | ) | (503 | ) | ||||||
Adjustments |
(12 | ) | (167 | ) | (179 | ) | ||||||
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Balance as of June 30, 2011 |
$ | 966 | $ | 17 | $ | 983 | ||||||
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As of June 30, 2011, the Company classified approximately $0.4 million of restructuring liability in accrued liabilities and the remaining $0.6 million in long-term liabilities based on the Companys expectation that the remaining lease payments for the abandoned facilities will be paid through April 2015 (net of sublease income). Net restructuring charges for the Q1 2009 Plan includes an adjustment for sublease income related to the new sublease agreement that the Company executed in the second quarter of 2011 for unused space. Net restructuring charges for the Q4 2009 Plan includes an adjustment of previously recorded facility exit costs as a result of negotiating a favorable termination and lease surrender agreement.
Note 8. Commitments and Contingencies
The Company leases facilities under operating leases that expire at various dates through April 2015. Certain leases are cancellable prior to lease expiration dates. Future minimum lease payments under these operating leases, including payments on leases accounted for under the Companys restructuring plans, as of June 30, 2011, are as follows:
Year |
(in thousands) | |||
Remaining 2011 |
$ | 1,430 | ||
2012 |
2,102 | |||
2013 |
1,752 | |||
2014 |
1,810 | |||
2015 |
609 | |||
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$ | 7,703 | |||
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The above includes approximately $1.0 million in facility lease obligations which are included in accrued restructuring liabilities.
The Company has contracts with certain network service and mobile data providers which have minimum purchase commitments that expire on various dates through April 2013. Future minimum purchase commitments under all agreements are as follows:
Year |
(in thousands) | |||
Remaining 2011 |
$ | 2,120 | ||
2012 |
1,213 | |||
2013 |
31 | |||
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$ | 3,364 | |||
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At June 30, 2011, the Company had no material commitments for capital expenditures.
Sales Tax Liabilities
The Companys sales and use tax filings are subject to customary audits by authorities in the jurisdictions where it conducts business in the United States which may result in assessments of additional taxes. During fiscal year 2009, the Company determined that additional sales taxes were probable of being assessed for multiple states as a result of the preliminary findings specific to a sales and use tax audit that had been initiated in the same year. As a result, the Company estimated an incremental
9
sales tax liability in fiscal year 2009 of $5.0 million, including interest and penalties of $1.5 million. During fiscal year 2010, this liability was reduced to $2.9 million through sales tax payments, settlements with certain state tax authorities and revised estimates. During the six months ended June 30, 2011 the liability was reduced further by $1.0 million, as a result of payments. The balance of this sales tax liability as of June 30, 2011 is $1.9 million.
Legal Proceedings
The Company is involved in legal proceedings and claims arising in the ordinary course of business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any such pending legal proceeding or claim will result in a judgment or settlement that would have a material adverse effect on the Companys financial position, results of operations or cash flows.
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. Certain indemnification agreements may not be subject to maximum loss clauses. If the potential loss from any indemnification claim is considered probable and the amount or the range of the loss can be estimated, the Company accrues a liability for the estimated loss. To date, claims under such indemnification provisions have not been significant.
Note 9. Net Loss Per Common Share
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted daily average number of common shares outstanding during the period. Participating securities are included in the weighted daily average number of shares outstanding in the computation of basic net income per share but are excluded in the computation of basic net loss per share. Diluted net loss per share is computed by dividing net loss available to common shareholders by the weighted daily average number of common shares outstanding plus potentially dilutive common shares outstanding during the period from the issuance of stock options and awards using the treasury stock method. The weighted daily average number of shares outstanding includes participating securities in the calculation of dilutive net income per share but are excluded from the calculation of diluted net loss per share. As the Company was in a net loss position for all periods presented, basic and diluted net loss per share are equal to each other as the weighted average number of shares used to compute diluted net loss per share excludes anti-dilutive securities, including participating securities.
The following table sets forth the computation of basic and diluted net loss per share:
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||
Numerator: |
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Net loss |
$ | (1,058 | ) | $ | (1,214 | ) | $ | (2,535 | ) | $ | (1,943 | ) | ||||
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Denominator: |
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Denominator for basic and diluted net loss per common share weighted average shares outstanding |
58,379,136 | 58,842,065 | 58,272,603 | 59,711,674 | ||||||||||||
Basic and diluted net loss per common share |
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.03 | ) | ||||
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The following weighted average potential shares of common stock have been excluded from the computation of diluted net loss per share because the effect of including these shares would have been anti-dilutive:
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Options to purchase common stock |
9,020,453 | 10,773,896 | 8,790,569 | 10,232,576 | ||||||||||||
Unvested restricted stock awards, considered participating securities |
999,551 | 878,262 | 932,609 | 853,388 | ||||||||||||
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Total |
10,020,004 | 11,652,158 | 9,723,178 | 11,085,964 | ||||||||||||
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10
Note 10. Segment and Geographical Information
The Companys two reportable operating segments are: Enterprise Mobility Services (EMS) and Managed Network Services (MNS).
The Companys Chief Operating Decision Maker (CODM) has been identified as the Companys President and Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income or loss.
The Enterprise Mobility Services segment includes services that help enterprises manage the networks, connections and devices used by their mobile workforce. The Managed Network Services segment involves enterprise remote and branch office connectivity.
The Company evaluates performance and allocates resources based on segment profit or loss from operations before income taxes, not including amortization of intangibles, restructuring and incremental sales taxes, penalties and interest. The accounting policies of the reportable segments are substantially the same as those the Company uses for consolidated financial statements. All direct costs are allocated to the respective segments. In addition to direct costs, each segment has indirect costs. Indirect costs that are allocated to each segment include certain costs of facilities, certain employee benefits and payroll tax costs, and certain additional shared services, costs in management, finance, legal, human resources, and information technology. Indirect costs are allocated based on headcount, salaries and segment revenue contribution. Total operating costs allocated to the reportable segments for the three months ended June 30, 2011 and 2010 were $36.6 million and $40.3 million, respectively, and were $74.6 million and $81.6 million, respectively, for the six months ended June 30, 2011 and 2010. The Company does not allocate to its reportable segments amortization of intangibles, restructuring and any associated adjustments related to restructuring actions, or sales tax penalties and interest. By definition, segment operating income also excludes interest income, foreign exchange gains and losses, and income taxes.
Revenue and operating loss for each reportable segment for the three and six months ended June 30, 2011 and 2010 were as follows:
Three Months
Ended June 30 |
Six Months
Ended June 30 |
|||||||||||||||
(in thousands) | ||||||||||||||||
Net Revenue | Total Segment Operating Loss |
Net Revenue | Total Segment Operating Loss |
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2011 |
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Enterprise Mobility Services |
$ | 28,083 | $ | (691 | ) | $ | 57,389 | $ | (1,593 | ) | ||||||
Managed Network Services |
7,428 | (435 | ) | 14,526 | (1,114 | ) | ||||||||||
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Total Segment |
$ | 35,511 | $ | (1,126 | ) | $ | 71,915 | $ | (2,707 | ) | ||||||
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2010 |
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Enterprise Mobility Services |
$ | 32,454 | $ | (934 | ) | $ | 65,972 | $ | (1,599 | ) | ||||||
Managed Network Services |
6,629 | (271 | ) | 13,489 | (558 | ) | ||||||||||
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Total Segment |
$ | 39,083 | $ | (1,205 | ) | $ | 79,461 | $ | (2,157 | ) | ||||||
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Substantially all of the Companys long-lived assets are located in the United States. The CODM does not evaluate operating segments using discrete asset information. Accordingly, no segment assets have been reported.
There were no material intersegment sales or transfers for the three and six months ended June 30, 2011 and 2010. Depreciation for the EMS segment for the three and six months ended June 30, 2011 was $0.5 million and $1.1 million, respectively, and $0.7 million and $1.6 million, respectively, for the three and six months ended June 30, 2010. Depreciation for the MNS segment for the three and six months ended June 30, 2011 and 2010 was $0.1 million.
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Reconciliations of total segment operating loss to the Company consolidated operating loss from continuing operations before income taxes for the three and six months ended June 30, 2011 and 2010 are as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Total segment operating loss |
$ | (1,126 | ) | $ | (1,205 | ) | $ | (2,707 | ) | $ | (2,157 | ) | ||||
Amortization of intangibles |
(60 | ) | (77 | ) | (120 | ) | (287 | ) | ||||||||
Restructuring |
(10 | ) | (118 | ) | 155 | (287 | ) | |||||||||
Sales tax, penalties and interest |
257 | (50 | ) | 744 | (50 | ) | ||||||||||
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Total loss from operations |
(939 | ) | (1,450 | ) | (1,928 | ) | (2,781 | ) | ||||||||
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Interest income |
15 | 20 | 100 | 37 | ||||||||||||
Foreign exchange gains and losses and other income and expenses |
(119 | ) | 245 | (462 | ) | 618 | ||||||||||
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Total loss from continuing operations before income taxes |
$ | (1,043 | ) | $ | (1,185 | ) | $ | (2,290 | ) | $ | (2,126 | ) | ||||
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The following table presents total Company revenue summarized by geographical region for the periods indicated:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2011 | 2010 | 2011 | 2010 | |||||||||||||
United States |
60 | % | 62 | % | 60 | % | 62 | % | ||||||||
EMEA |
31 | % | 30 | % | 32 | % | 30 | % | ||||||||
Asia Pacific and Rest of World |
9 | % | 8 | % | 8 | % | 8 | % |
No individual customer represented 10% or more of total revenue for the three and six months ended June 30, 2011 and 2010. No individual country, except for the United States, accounted for 10% or more of total revenues for the periods presented.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and with the MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the period ended December 31, 2010.
This MD&A is organized as follows:
Overview | Discussion of our business | |
Key Corporate Objectives | Our overall strategy and goals | |
Significant Trends and Events | Operating, financial and other highlights affecting the Company | |
Key Operating Metrics | Discussion of key metrics and measures that we use to evaluate our operating performance | |
Critical Accounting Policies and Estimates |
Accounting policies and estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts | |
Results of Operations | An analysis of our financial results comparing the three months and six months ended June 30, 2011 and 2010 | |
Liquidity and Capital Resources |
An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition |
The various sections of this MD&A contain forward-looking statements regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as expects, will, anticipates, targets, goals, projects, intends, plans, believes, seeks, estimates, variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements which refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Also see Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 for factors that may cause actual results to be different from those expressed in these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
Overview
We provide cloud-based mobility management and network connectivity services to large and multi-national enterprise customers and telecommunication carrier partners, enabling them to manage the economics, complexity, compliance and security needs of their global employees and subscribers. Our mobility services consist of enterprise mobility services and carrier Wi-Fi mobility services.
The iPass mission is to be the voice of the enterprise through the delivery of enterprise mobility services that assist the productivity of workers as they move between and among office sites, home and remote locations. Our global enterprise mobility services consist of our new Open Mobile services, our legacy Mobile Office offering, and our Network Services. Our Open Mobile services are based on our new Open Mobile Platform, which is a cloud-based services delivery system that gives the enterprise insight and control over definition and management of their mobility services. Our Mobile Office product has been our historic enterprise mobility offering, providing unified global connectivity, connectivity management and device management.
Our enterprise mobility services also includes the iPass Mobile Network, which consists of more than 550,000 global venues including Wi-Fi, Hotel Ethernet and Inflight Wi-Fi hotspots, broadband connection technologies such as 3G, as well as narrowband access technologies, such as modem dial-up, which together we refer to as our Network Services. The iPass Mobile Network is composed of contractual relationships and technical integrations with approximately 313 fixed and mobile telecommunications carriers, Internet service providers and other network service providers around the globe.
Our new carrier Wi-Fi mobility services leverage our Open Mobile platform and networking expertise, unique Wi-Fi authentication infrastructure and transaction settlements capabilities to provide global telecom carriers with data offload and international Wi-Fi
13
roaming functionality. We have recently launched the iPass Open Mobile Exchange (OMX), a carrier-grade platform for service providers to extend core mobility and Internet offerings by integrating Wi-Fi with 3G and 4G, allowing providers to seamlessly connect customers to preferred Wi-Fi networks, including free Wi-Fi. The platform incorporates the iPass Mobile Network with our authentication and transaction settlements infrastructure, which we believe allows providers to introduce new Wi-Fi services.
We also provide managed network services to enterprise customers, connecting the enterprises branch offices, retail locations and teleworkers. Our managed network solutions are used by enterprises in a range of industries.
Our business is reported under two segments: Enterprise Mobility Services (EMS) and Managed Network Services (MNS).
We were incorporated in California in July 1996 and reincorporated in Delaware in June 2000. Our corporate headquarters are located in Redwood Shores, California.
Key Corporate Objectives
Our corporate objectives include the following which we view as important to driving our business.
| Migrate Existing Customers and Add New Customers to the Open Mobile Platform - We believe that our portfolio of mobility management services and continued enhancement of our existing mobile network offerings are key to driving the migration of existing customers and partners to, and acquiring new customers on, our Open Mobile Platform. We continue to sign enterprise customer contracts for our Open Mobile Platform and we have approximately 140 enterprise customers who have signed agreements for our Open Mobile platform. |
| Increase the Use of Our Services - We intend to increase the usage, as well as the frequency-of-use, of our services by our customers by creating an easy and seamless end-user experience, expanding our mobile network footprint and executing on our commitment to customer satisfaction. We currently have approximately 14,000 monthly monetized users of our Open Mobile platform and have expanded our Wi-Fi network footprint to more than 550,000 locations. |
| Leverage our Technology Expertise and Unique Assets to Capitalize on the Wi-Fi Offload Opportunity We are leveraging our global authentication infrastructure and Wi-Fi transaction settlements capabilities to provide compelling functionality around 3G/4G Wi-Fi Offload, international roaming, Wi-Fi exchange services and other related opportunities. During the quarter, we launched the iPass OMX service that provides these services to our carrier and service provider partners to help them address their network infrastructure costs and introduce new offerings to generate revenue. |
| Continue to Develop the Open Mobile Platform - We continue to enhance and develop our cloud-based Open Mobile Platform with innovative features, functionality and services in order to provide a leading and value-added integrated mobility offering for enterprise customers and our carrier and service provider partners. During the second quarter, we released Open Mobile for the iPhone operating system (iOS), the first Open Mobile client for Apple iOS devices which provides convenient options for iPhone and iPad users to find and use a Wi-Fi connection instead of a 3G connection. |
For a detailed discussion regarding certain of our corporate objectives, see the section entitled Our Strategy under Item 1A. Business included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Significant Trends and Events
The following describes significant trends and events that impacted our financial condition, results of operations, and the direction of our business during the second quarter of 2011.
Launch of iPass Open Mobile Exchange
Recently we introduced the iPass OMX, a carrier-grade platform for service providers to extend core mobility and Internet offerings by integrating Wi-Fi with 3G and 4G, allowing them to seamlessly connect their customers and subscribers to preferred Wi-Fi networks. The platform incorporates the iPass Mobile Network with a unique authentication and transaction settlements infrastructure, and allows service providers to introduce new services to capture the rapidly growing Wi-Fi enabled devices market. By enabling operators to provide an integrated approach to mobility, iPass OMX positions them to participate in the second wave of Wi-Fi. With this new platform launch, we believe we will provide multiple service and revenue opportunities to network operators.
The iPass OMX has already been adopted by Deutsche Telekom as part of its Wi-Fi Mobilize service, a new network services exchange for in-country and international roaming services, which can help Deutsche Telekom and its numerous carrier partners across the globe to address the accelerating demand for data services on smartphone and tablet devices using Wi-Fi. This relationship addresses the re-emergence of and the accelerating demand for Wi-Fi as an essential service for network access due to device proliferation, rising mobility costs and soaring mobile broadband data volumes. During the second quarter, no revenue was generated from the iPass OMX.
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Continued Decline in Dial-up, Minimum Commitment, and 3G Network Revenue
For the six months ended June 30, 2011 we experienced a continued and anticipated decline in revenue from dial-up network services of approximately $2.3 million or 51% compared to the same period in 2010. This trend was primarily due to our customers continued migration from dial-up connections to faster broadband technologies. We expect the trend of declining dial-up revenue to continue during the remainder of 2011. For the six months ended June 30, 2011 revenue from dial-up network services comprised less than 3% of our total revenue.
We have customers that have signed contracts with us that contain network minimum revenue commitments. Revenue derived from minimum commitment has declined as these contracts have come up for renewal and customers have committed to lower dollar amounts on a prospective basis. We have also actively engaged with a number of these customers who have negotiated decreases to their minimum network commitments on a prospective basis. We have seen a decline in minimum commitment revenue due, in part, to these new arrangements. At the same time, with these renegotiated arrangements, we have often been able to secure longer contract terms, higher marginal pricing and/or commitments for our customers to migrate to our Open Mobile Platform. We continue to see a decrease in the number of customers that have contracts with minimum network commitments. Minimum commitment network revenue decreased $2.8 million or 31% for the six months ended June 30, 2011 compared to the same period in 2010. We believe that this decline in network minimum commitment revenue will continue for the foreseeable future.
We are focused on providing value-add enterprise mobility and carrier Wi-Fi exchange and related services and do not believe that 3G network services are core to this value proposition. We experienced a modest decline in 3G network revenue of $0.4 million or 4% for the six months ended June 30, 2011 compared to the same period in 2010. We anticipate that 3G network revenue will continue to decline over time as we move away from focusing our efforts on 3G network sales and look to continue to grow our platform revenue and Wi-Fi services.
Key Operating Metrics
Described below are key metrics that we use to evaluate our operating performance and our success in transforming our business and driving future growth.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
Adjusted EBITDA is used by our management as a measure of operating efficiency and overall operating and financial performance and for benchmarking against our peers and competitors. In addition, we also use this metric to determine a portion of our incentive compensation payouts. Management also believes that Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to understand our performance excluding the impact of items which may obscure trends in the core operating performance. Furthermore, the use of Adjusted EBITDA facilitates comparisons with other companies in our industry which may use similar financial measures to supplement their GAAP results. We adjust for these excluded items because we believe that, in general, these items possess one or more of the following characteristics: their magnitude and timing is largely outside of our control; they are unrelated to the ongoing operation of the business in the ordinary course; they are unusual or infrequent and we do not expect them to occur in the ordinary course of business; or they are non-operational, or non-cash expenses involving stock option grants. Adjusted EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States (GAAP) and should not be considered a substitute for operating income, operating performance, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
We defined Adjusted EBITDA as net loss adjusted for interest income; income taxes; depreciation and amortization; stock-based compensation; restructuring charges; certain state sales and federal tax charges, and one-time non-recurring discrete items. The following table reconciles Adjusted EBITDA to GAAP net loss:
Three Months Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Adjusted EBITDA |
$ | (164 | ) | $ | 208 | $ | (1,075 | ) | $ | 1,068 | ||||||
Interest income |
15 | 20 | 100 | 37 | ||||||||||||
Income tax (expense) benefit |
(15 | ) | (29 | ) | (245 | ) | 183 | |||||||||
Depreciation of property and equipment |
(577 | ) | (822 | ) | (1,200 | ) | (1,751 | ) | ||||||||
Amortization of intangible assets |
(60 | ) | (77 | ) | (120 | ) | (287 | ) | ||||||||
Stock-based compensation |
(504 | ) | (346 | ) | (957 | ) | (856 | ) | ||||||||
Restructuring charges and related adjustments |
(10 | ) | (118 | ) | 155 | (287 | ) | |||||||||
Certain state sales and federal tax items and other discrete items |
257 | (50 | ) | 807 | (50 | ) | ||||||||||
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Net loss |
$ | (1,058 | ) | $ | (1,214 | ) | $ | (2,535 | ) | $ | (1,943 | ) | ||||
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Adjusted EBITDA decreased by approximately $0.4 million for the three months ended June 30, 2011 compared to the same period in the prior year as a result of a $3.6 million net decrease in revenues (mainly from lower dial-up, Wi-Fi and minimum commitment revenues), and the unfavorable impact from foreign exchange rates of $0.4 million as a result of the decline of the U.S. Dollar relative to other foreign currencies. These unfavorable decreases were partially offset by lower network access costs of approximately $1.6 million and lower operating expenses of approximately $2.0 million (excluding network access costs). (See Results of Operations for further discussions on the factors affecting Adjusted EBITDA).
Adjusted EBITDA decreased by approximately $2.1 million for the six months ended June 30, 2011 compared to the same period in the prior year as a result of a $7.5 million net decrease in revenues (mainly from lower dial-up, Wi-Fi and minimum commitment revenues), and the unfavorable impact from foreign exchange rates of $1.1 million as a result of the decline of the U.S. Dollar relative to other foreign currencies. These unfavorable decreases were partially offset by lower network access costs of approximately $2.7 million and lower operating expenses of approximately $3.8 million (excluding network access costs). (See Results of Operations for further discussions on the factors affecting Adjusted EBITDA).
Average Number of Monthly Monetized Users
The number of monthly monetized users means the number of monthly users for which a fee was billed by us to an EMS customer for the use of our platform services, network services (or both offerings) in a given month (i.e., a paying user). The average number of monthly monetized users means the average number of monetized users per month in a given quarter (i.e., adding the number of monetized EMS users for each of the three months in a quarter and dividing by three). EMS monetized users consist of EMS monetized network users and EMS monetized platform users, with some overlap for users that pay us for both services in a given month. EMS network users are unique users that used our network through Wi-Fi and Hotel Ethernet, dial-up or 3G network services. EMS platform users are unique users that used our platform services and paid us for that use through a distinct, bundled or annual fee. We use this metric as an indicator of the adoption and use of our services and our ability to convert customers into revenue opportunities. We also use this metric as it applies to Open Mobile users as an indicator of the adoption and use of our Open Mobile Platform and the rate of deployment.
The following diagram provides the relationship and quantification of the Companys Total Average Monthly Monetized Users for the second quarter of 2011:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||||||
Average Number of Monthly Monetized Users |
591 | 657 | (10.0 | %) | 601 | 670 | (10.3 | %) | ||||||||||||||||
Network |
174 | 209 | (16.7 | %) | 177 | 210 | (15.7 | %) | ||||||||||||||||
Platform |
538 | 586 | (8.2 | %) | 546 | 599 | (8.8 | %) |
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The decrease in the average number of monthly monetized network users for the three and six months ended June 30, 2011 compared to the same period in 2010 was primarily due to the decline in dial-up and Wi-Fi users. The decrease in dial-up users was due to the anticipated erosion of our dial-up customer base as they migrated to faster technologies. The decrease in Wi-Fi users is a combination of customer attrition, impact of an increase in the availability of free Wi-Fi internet access in the United States and lower usage in certain countries due to local holidays. The decrease in Platform users for the three and six months ended June 30, 2011 compared to the same period in 2010 was primarily due to the decline in users at customers with legacy pricing plans under which they pay an annual business fee as well as the attrition of iPassConnect customers which to date has outpaced the growth in Open Mobile monetized users. We continue to sign enterprise customer contracts for our Open Mobile Platform; however, we have experienced long lead times in customer Open Mobile deployments as our ability to control large enterprise program deployments is limited since they are typically tied closely to enterprise hardware and operating system refreshes and other IT initiatives.
Network Gross Margin
We use network gross margin as a metric to assist us in assessing the profitability of our various network services. Our overall network gross margin percentage is defined as (total EMS network revenue plus MNS revenue less total network access costs divided by total EMS network revenue plus MNS revenue).
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
Total Network Gross Margin |
43.2 | % | 44.5 | % | (1.3 | %) | 43.7 | % | 46.0 | % | (2.3 | %) |
The decline in network gross margin for the three and six months ended June 30, 2011 compared to the same period in the prior year was primarily due to a decline in higher margin dial-up revenue and network minimum commitment revenue. The erosion in our dial-up revenue is due to the continued migration of customers to alternative faster connectivity technologies while the decline in network minimum commitment revenue is due to terminations and customers renewing their agreements at lower commit levels. For the three and six months ended June 30, 2011 compared to the prior year, the decrease in network gross margin was partially offset by increased margin from 3G and Wi-Fi, respectively.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our condensed consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that are believed to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies. We evaluate our estimates on an ongoing basis. Our most critical accounting estimates include those related to revenue recognition, income taxes, incremental sales tax liability, network access costs, stock-based compensation and allowance for doubtful accounts.
There have been no significant changes in our critical accounting policies and estimates during the three and six months ended June 30, 2011 as compared to the critical accounting policies and estimates disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Results of Operations
From a broad perspective, we are reporting and analyzing revenue and operations under two primary offerings reflecting our two operating segments: EMS and MNS. In determining segment operating income or loss, the items that are not allocated include amortization of intangibles, restructuring, incremental sales tax costs, penalties and interest.
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Sources of Revenue
Within our enterprise mobility services, we present revenue from three areas: (i) platform revenue, (ii) network revenue, and (iii) other fees and revenue. Platform revenue consists of revenues derived from the following services: iPassConnect client fees (iPC), Open Mobile Platform fees and other client/platform related fees. Network revenue consists of revenue primarily from the sale of access to our network of Wi-Fi hotspots, hotel Ethernet, and mobile broadband services such as 3G and narrowband access technologies such as modem dial-up. Network revenues are derived primarily from two types of fee structures: usage-based, which is based on actual network usage, and a fixed-rate per user per month fee structure. Network revenue also includes minimum commitment shortfall revenue. Other fees include device management fees, professional services and other mobility-related fees and services. We will present revenue from carrier mobility services under enterprise mobility services revenue.
Our MNS revenues are derived from the delivery of connectivity services offered to enterprise customers primarily through our iPass Branch, Retail and Home Office services. These revenues are based on monthly flat fee contracts based on each end point bundled with certain other upfront fees including one-time non-recurring fees, which include equipment fees, installation, management set up, and shipping fees. An end point is a logical network end point. In all situations, this means a separate physical locationit could be a home (for teleworkers) or a branch office (for branch and/or retail).
Three Months Ended June 30, |
Six Months
Ended June 30, |
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Enterprise Mobility Services Segment | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Enterprise Mobility Services Revenue | $ | 28,083 | $ | 32,454 | $ | 57,389 | $ | 65,972 | ||||||||
Network Revenue |
22,841 | 27,330 | 46,879 | 55,461 | ||||||||||||
Platform Revenue |
4,655 | 3,812 | 8,988 | 7,552 | ||||||||||||
Other EMS Fees and Revenue |
587 | 1,312 | 1,522 | 2,959 | ||||||||||||
EMS as a percentage of total revenue |
79.0 | % | 83.0 | % | 79.8 | % | 83.0 | % | ||||||||
Change |
(4,371 | ) | (8,583 | ) | ||||||||||||
Percentage change |
(13.5 | )% | (13.0 | )% | ||||||||||||
Operating loss |
(691 | ) | (934 | ) | (1,593 | ) | (1,599 | ) | ||||||||
Change |
(243 | ) | (6 | ) | ||||||||||||
Percentage change |
(26.0 | )% | (0.4 | )% |
Network Revenue
The decline in network revenue was partially due to the decline in Wi-Fi revenue, minimum commitment and dial-up revenues. The decline in Wi-Fi revenue was due to customer attrition and write-down, lower usage in certain countries due to local holidays and the impact of an increase in the availability of free Wi-Fi internet access in the United States. The continued and anticipated decline in minimum commitment revenue was due to customers contracting to lower dollar commit levels on a prospective basis. The decline in dial-up revenue was due to the continued erosion in our dial-up base as customers migrated to alternative faster connectivity technologies.
For the three months ended June 30, 2011 compared to the same period in 2010, network revenue decreased $4.5 million or 16.4% primarily due to the decline in Wi-Fi revenue of $2.0 million and the decline in minimum commitment and dial-up revenues of $1.2 million and $1.0 million, respectively. A decrease of $0.3 million in 3G revenue due to lower 3G usage also contributed to the decrease in network revenue.
For the six months ended June 30, 2011 compared to the same period in 2010, network revenue decreased $8.6 million or 15.5% primarily due to the decline in Wi-Fi revenue of $3.0 million and the declines in minimum commitment and dial-up revenues of $2.8 million and $2.3 million, respectively. A decrease of $0.4 million in 3G revenue due to lower 3G usage also contributed to the decrease in network revenue.
Platform Revenue
For the three and six months ended June 30, 2011, compared to the same periods in 2010, Platform revenue increased by $0.8 million or 22.1% and $1.4 million or 19.0%, respectively, due to fees generated by new or existing carrier and enterprise Open Mobile customers of $1.8 million and $2.9 million, respectively, offset in part by a decrease in iPC usage fees, annual business fees and other platform fees of $1.0 million and $1.5 million, respectively.
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Other EMS Fees and Revenue
For the three and six months ended June 30, 2011 compared to the same periods in 2010, the decrease in other EMS fees and revenue of $0.7 million or 55.3% and $1.4 million or 48.6%, respectively, was primarily due to the decrease in device management fees and end-of-life fees. The decrease in device management fees was due to the deferral of revenue recognition until certain product upgrade obligations are delivered which is expected to occur by the end of 2011. The decrease in end-of-life fees is the result of customers migrating to our new Open Mobile offerings. Customers are charged end-of-life fees if they remain on older versions of iPass solutions.
Operating Loss
For the three months ended June 30, 2011, compared to the same period in 2010, the decrease in EMS operating loss of $0.2 million was primarily due to the decrease in operating expenses.
Three Months Ended June 30, |
Six Months
Ended June 30, |
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Managed Network Services Segment | 2011 | 2010 | 2011 | 2010 | ||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Managed Network Services revenue |
$ | 7,428 | $ | 6,629 | $ | 14,526 | $ | 13,489 | ||||||||
MNS as a percentage of total revenue |
20.9 | % | 17.0 | % | 20.2 | % | 17.0 | % | ||||||||
Change |
799 | 1,037 | ||||||||||||||
Percentage change |
12.1 | % | 7.7 | % | ||||||||||||
Operating loss |
(435 | ) | (271 | ) | (1,114 | ) | (558 | ) | ||||||||
Change |
164 | 556 | ||||||||||||||
Percentage change |
60.5 | % | 99.6 | % |
MNS Revenue
The increase in MNS revenue for the three and six months ended June 30, 2011 compared to the same periods in 2010, was primarily due to an increase in revenue of $1.3 million and $2.1 million, respectively, resulting from growth in Branch/Retail customer base and related management fees. These increases were partially offset by a decrease in Home/Office product revenue of $0.6 million and $1.4 million, respectively, for these periods.
Operating loss
The increase in MNS operating loss for the three and six months ended June 30, 2011 compared to the same periods in 2010 was mainly due to a decrease in gross profit of approximately $0.1 million and $0.5 million, respectively, as a result of the shift in product mix from Home/Office to Branch/Retail.
Q3 2011 Outlook
We expect total revenue to decline in the third quarter of 2011 due to the seasonal impact of low usage during the summer months. We expect Adjusted EBITDA to decline in the third quarter primarily driven by lower revenue and higher operating expenses.
Operating Expenses
Network Access Costs
Network access costs (NAC) consist of charges for network access which we pay to our network service providers.
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Network access costs |
$ | 17,209 | $ | 18,843 | $ | 34,601 | $ | 37,267 | ||||||||
As a percent of total revenue |
48.5 | % | 48.2 | % | 48.1 | % | 46.9 | % | ||||||||
Change |
$ | (1,634 | ) | $ | (2,666 | ) | ||||||||||
Percentage change |
(8.7 | )% | (7.2 | )% |
19
The decrease in network access costs for the three and six months ended June 30, 2011, compared to the same periods in 2010, was primarily due to a combination of lower Wi-Fi, 3G and dial-up network usage. These decreases were partially offset by an increase of $0.9 million in MNS network access costs. The increase in MNS network access costs was due to the increase in revenue and a shift in the product mix from Home/Office to Branch/Retail. Branch/Retail generally has higher incremental deployment costs and higher connection charges.
Network Operations
Network operations expenses consist of compensation and benefits for our network engineering, customer support and network access quality personnel, outside consultants, transaction center fees, depreciation of our network equipment, costs of 3G data cards and allocated overhead costs.
Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Network operations expenses |
$ | 5,520 | $ | 7,000 | $ | 11,418 | $ | 14,328 | ||||||||
As a percent of total revenue |
15.5 | % | 17.9 | % | 15.9 | % | 18.0 | % | ||||||||
Change |
$ | (1,480 | ) | $ | (2,910 | ) | ||||||||||
Percentage change |
(21.1 | )% | (20.3 | )% |
The decrease in network operations expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010, was primarily due to a decrease in 3G mobile data cards subsidized expenses relating to lower shipment of cards, headcount-related expenses as a result of headcount reductions, infrastructure expenses (depreciation, maintenance and co-location expenses) due to efficiencies achieved in our network footprint and related technology infrastructure including rent and facilities related expenses as a result of our fiscal 2009 restructuring program.
For the three and six months ended June 30, 2011 compared to the same periods in 2010, 3G mobile data cards subsidized expenses decreased $0.7 million and $1.1 million, respectively, headcount-related expenses decreased $0.5 million and $0.9 million, respectively, and infrastructure expenses decreased $0.3 million and $0.8 million, respectively.
Research and Development
Research and development expenses consist of compensation and benefits for our research and development personnel, consulting, and allocated overhead costs.
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Research and development expenses |
$ | 3,490 | $ | 3,245 | $ | 7,128 | $ | 6,644 | ||||||||
As a percent of total revenue |
9.8 | % | 8.3 | % | 9.9 | % | 8.4 | % | ||||||||
Change |
$ | 245 | $ | 484 | ||||||||||||
Percentage change |
7.6 | % | 7.3 | % |
The increase in research and development expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010, was primarily due to an increase in headcount-related expenses and consulting fees mainly to support the development efforts of our Open Mobile products, which was partially offset by a decrease in depreciation expense.
Sales and Marketing
Sales and marketing expenses consist of compensation, benefits, advertising and promotion costs, and allocated overhead costs.
Three Months Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except percentages) | ||||||||||||||||
Sales and marketing expenses |
$ | 4,958 | $ | 5,889 | $ | 10,703 | $ | 12,398 | ||||||||
As a percent of total revenue |
14.0 | % | 15.1 | % | 14.9 | % | 15.6 | % | ||||||||
Change |
$ | (931 | ) | $ | (1,695 | ) | ||||||||||
Percentage change |
(15.8 | )% | (13.7 | )% |
20
The decrease in sales and marketing expenses for the three and six months ended June 30, 2011 compared to the same periods in 2010 was primarily due to lower headcount-related expenses including commission expense and targeted spending reductions offset, in part, by an increase in severance and consulting expenses.
For the three and six months ended June 30, 2011, compared to the same period in the prior year, headcount-related expenses decreased $0.8 million and $1.5 million, respectively, and marketing program spending and travel expenses decreased $0.2 million and $0.5 million, respectively. These decreases were offset, in part, by an increase in severance and consulting expenses for these periods.
General and Administrative
General and administrative expenses consist primarily of compensation and benefits for general and administrative personnel, legal and accounting expenses and bad debt expense.
Three Months Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except percentages) | ||||||||||||||||
General and administrative expenses |
$ | 5,203 | $ | 5,361 | $ | 10,028 | $ | 11,031 | ||||||||
As a percent of total revenue |
14.7 | % | 13.7 | % | 13.9 | % | 13.9 | % | ||||||||
Change |
$ | (158 | ) | $ | (1,003 | ) | ||||||||||
Percentage change |
(2.9 | )% | (9.1 | )% |
For the three and six months ended June 30, 2011, compared to the same periods in 2010, the decrease in general and administrative expenses was primarily due to benefit realized as a result of cash collections on invoiced sales taxes.
Restructuring Charges
Restructuring charges were immaterial for the three months ended June 30, 2011 compared to $0.1 million for the same period in the prior year. Restructuring benefits were $0.2 million for the six months ended June 30, 2011 compared to charges of $0.3 million in the same period in the prior year. The restructuring benefits of $0.2 million for the six months ended June 30, 2011 is related to an adjustment of previously recorded Q4 2009 facility exit costs arising from a favorable termination and lease surrender agreement, and an adjustment to sublease income estimates related to Q1 2009 facility exit costs as a result of a sublease agreement being executed in the second quarter of 2011 for unused space.
For further information, see Note 7, Accrued Restructuring, in the Notes to Condensed Consolidated Financial Statements of this Form 10-Q.
Non-Operating Expenses
Foreign Exchange Gains (Losses) and Other Income (Expenses)
Foreign exchange gains (losses) and other income (expenses) include primarily realized and unrealized gains and losses on foreign currency transactions. Foreign currency exchange rates fluctuations impact the re-measurement of certain assets and liabilities denominated in currencies other than the U.S. Dollar and generate unrealized foreign exchange gains or losses. In addition, certain of our network access costs are invoiced in currencies other than the U.S. Dollar. The transactional settlement of these outstanding invoices and other cross-currency transactions generate realized foreign exchange gains or losses depending on the fluctuation of exchange rates between the date of invoicing and the date of payment. For the three months ended June 30, 2011 and 2010, we recorded foreign exchange losses of $0.1 million and gains of $0.2 million, respectively. For the six months ended June 30, 2011 and 2010, we recorded foreign exchange losses of $0.5 million and gains of $0.6 million, respectively. The increase in foreign exchange losses for these periods was primarily the result of the weakening of the U.S. Dollar relative to the Euro and the British Pound.
Liquidity and Capital Resources
June 30, 2011 |
December 31, 2010 |
Increase/ (Decrease) |
||||||||||
(in thousands) | ||||||||||||
Cash and cash equivalents |
$ | 26,103 | $ | 30,746 | $ | (4,643 | ) | |||||
As a percent of total assets |
39.5 | % | 41.6 | % |
21
Operating Activities
Cash used in operating activities is net loss adjusted for certain non-cash items and changes in certain assets and liabilities. Cash used in operating activities was $4.7 million for the six months ended June 30, 2011, compared to net cash used of $2.7 million in the same period last year.
Net loss after adjustment for non-cash items generated $1.5 million less cash from operations period over period. General timing on cash receipts and payments used an additional $0.5 million of cash. The largest contributor to this use of cash was $1.1 million paid to certain state tax authorities in the first quarter of 2011 to settle certain state sales tax obligations.
Investing Activities
Net cash used in investing activities was $0.4 million for the six months ended June 30, 2011. In the current period, $0.7 million was used for capital expenditures and $0.3 million was provided for as a reduction in restricted cash pledged for letter of credit.
Financing Activities
Net cash provided by financing activities of $0.4 million for the six months ended June 30, 2011 was from proceeds from the exercise of stock options.
Sources of Cash and Future Cash Requirements
We have historically relied on existing cash and cash equivalents and cash flow from operations for our liquidity needs. Key sources of cash are provided by operations and existing cash and cash equivalents. As of June 30, 2011, we had cash and cash equivalents of $26.1 million. We use a professional investment management firm to manage a large portion of our cash which is invested primarily in money market accounts with a remaining maturity of three months or less at the time of purchase. We believe that based on our current business plan and revenue prospects and our anticipated cash flows from operations, our existing cash balances will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next twelve months.
Primary Uses of Cash
Our principal use of cash in the first half of 2011 was for network access costs, payroll related expenses and general operating expenses including marketing, travel, office rent, settlement of certain sales tax obligations, settlement of restructuring obligations and capital expenditures.
Restructuring. In the first quarter of 2009, we announced the Q1 2009 plan in order to reduce our operating costs and focus our resources on key strategic priorities. In the fourth quarter of 2009 we announced the Q4 2009 plan to align our cost structure and improve operating efficiencies. Cash used for restructuring activities during the six months ended June 30, 2011 was $0.5 million.
Settlement of Certain State Sales Tax Obligations: During the six months ended of 2011, we paid $1.1 million in cash in satisfaction of a settlement agreement reached with certain tax authorities.
Contractual Commitments
Our contractual commitments at June 30, 2011, were not materially different from those at December 31, 2010 (see Commitments in Part 7, Managements Discussion and Analysis of Financial Conditions and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2010).
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We did not have any off-balance sheet arrangements at June 30, 2011 and December 31, 2010 as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Exchange Rate Risk
We are exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies, of which the most significant to our operations for the three and six months ended June 30, 2011 were the Euro, the British Pound, and the Indian Rupee. We are primarily exposed to foreign currency fluctuations related to network access costs denominated in currencies other than the U.S. Dollar. As such, we benefit from a stronger U.S. Dollar and may be adversely affected by a weaker U.S. Dollar relative to the foreign currency. Currently, we do not enter into currency forward exchange or option contracts to hedge foreign currency exposures. For the three months ended June 30, 2011 and 2010, we recorded foreign exchange losses of $0.1 million and gains of $0.2 million, respectively. For the six months ended June 30, 2011 and 2010, we recorded foreign exchange losses of $0.5 million and gains of $0.6 million, respectively. The increase in foreign exchange losses for these periods was primarily the result of the weakening of the U.S. Dollar relative to the Euro and the British Pound.
Interest Rate Risk
As of June 30, 2011, we had cash and cash equivalents of $26.1 million, restricted cash of $2.8 million and no short-term investments. As of December 31, 2010, we had cash and cash equivalents of $30.7 million, restricted cash of $3.0 million and no short-term investments. Our cash balances are held primarily in bank deposits and money market accounts generally due within one year. As a result, we do not believe we are exposed to any material interest rate risk.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level, as of the end of the period covered by this report, to ensure that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2011 there have been no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Disclosure Controls and Procedures and Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed 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 iPass have been detected.
23
The risk factors set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC on March 3, 2011 have not substantively changed.
See the Exhibit Index which follows the signature page of this Quarterly Report on Form 10-Q, which is incorporated here by reference.
24
Pursuant to the requirements 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.
iPass Inc. | ||||||
Date: August 8, 2011 | /s/ Steven H. Gatoff | |||||
Steven H. Gatoff Senior Vice President and Chief Financial Officer (Duly Authorized and Principal Financial and Accounting Officer) |
25
Exhibit |
Description | |
3.1 | Amended and Restated Certificate of Incorporation (1) | |
3.2 | Certificate of Amendment to Amended and Restated Certificate of Incorporation (2) | |
3.3 | Certificate of Change to Amended and Restated Certificate of Incorporation (3) | |
3.4 | Amended and Restated Bylaws (4) | |
4.1 | Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 | |
4.2 | Specimen stock certificate (5) | |
10.1 | Offer Letter with Christophe Culine dated June 14, 2011 | |
10.2 | iPass Inc. Amended and Restated Executive Corporate transaction and Severance Benefit Plan (6) | |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | Filed as Exhibit 3.1 to our Form 10-Q, filed November 13, 2003 (Commission No. 000-50327), and incorporated herein by reference. |
(2) | Filed as Exhibit 3.2 to our Form 10-Q, filed August 7, 2009 (Commission No. 000-50327), and incorporated herein by reference. |
(3) | Filed as Exhibit 3.1 to our Form 8-K, filed February 3, 2010 (Commission No. 000-50327), and incorporated herein by reference. |
(4) | Filed as an exhibit to our Form 8-K, filed October 29, 2010 (Commission No. 000-50327), and incorporated herein by reference. |
(5) | Filed as an exhibit to our Form S-1/A, filed July 1, 2003 (No. 333-102715), and incorporated herein by reference. |
(6) | Filed as an exhibit to our Form 8-K, filed July 6, 2011 (Commission No. 000-50327), and incorporated herein by reference. |
* | XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or Prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |
26
Exhibit 10.1
June 14, 2011
Christophe Culine
Dear Christophe:
I am pleased to offer you employment in the position of Senior Vice President, Worldwide Sales at iPass Inc. (iPass or the Company), reporting to me, under the terms set forth in this letter. Your initial base salary will be $10,416.67, paid semi-monthly, plus benefits, including the option of participating in our 401(k) Plan. If annualized, this base salary amount equals $250,000. As an exempt employee, you will not be eligible for overtime compensation.
In addition, you will be eligible to earn a target annual bonus of $250,000 paid on a quarterly basis consistent with the management bonus plan. Bonuses are only considered earned if the participant is an employee of iPass in good standing on the last day of the fiscal quarter and has successfully completed the quarterly objectives. If you leave the Company for any reason during the quarter, no pro-rata bonus shall be earned. The Company shall have the sole discretion to determine if you have met all of the requirements for earning a bonus (including completion of the applicable objectives) and, if so, the amount of the bonus payment. If earned, the bonus payments generally will be paid within forty-five (45) days following the end of the Companys fiscal quarter to allow the Company time to determine bonus calculations. Assuming your employment with iPass starts on July 18, 2011, for the quarter ending September 30, 2011, you will be paid a portion of your annual bonus opportunity in the total amount of $52,083. Further, for the quarter ending December 31, 2011, you will be paid the greater of: (i) 80% of your quarterly bonus opportunity ($50,000) (the 80% Bonus); or (ii) the actual amount which would be earned under the 2011 Executive Management Bonus Plan ( the 2011 EMBP) pursuant to the terms of the 2011 EMBP. However, you shall not be entitled to any payments under the 2011 EMBP if you receive the 80% Bonus. Any bonus provided to you will be subject to standard deductions and withholdings.
Further, subject to the approval of the Board of Directors of iPass (the Board), you will be granted an option to purchase 580,000 shares of iPass common stock, subject to a four-year vesting schedule, at a purchase price equal to the fair market value of the stock as of the date of grant (as determined by the Board) under the iPass 2003 Equity Incentive Plan (the Plan). The option will be governed by the terms of the Plan and your stock option agreement. In addition, should you remain continuously employed into Q1 2012, subject to Board approval, the Company will issue to you at that time a Restricted Stock Award (RSA) consisting of 75,000 shares of restricted stock in the Company which will vest as set forth in the governing RSA Agreement.
iPass offers its employees health, dental, vision, life, AD&D, and short term and long term disability insurance, and you will be eligible to participate in these benefit plans in accordance with the terms and conditions of the applicable plan documents. The health and dental plans provide you with several options regarding your care. Please read the enclosed information about the health and dental plan options available to you. You may call Mike Badgis with any questions about health insurance or any other iPass benefits at (650) 232-4130. iPass may modify your position, duties, reporting relationship, office location, and compensation and benefits from time to time in its discretion.
In addition, in the position of Senior Vice President, Worldwide Sales, you will be eligible to become a Tier 1 Participant under the Companys Executive Corporate Transaction and Severance Benefit Plan (the Executive Severance Plan), which provides specified severance benefits to certain eligible executive employees of the Company in the event of qualifying employment terminations, pursuant to the terms and conditions of the Executive Severance Plan. In order to become a Participant, you will need to sign and return the enclosed Executive Severance Plan Participation Notice.
This offer is contingent upon the successful results of background and reference checks, your execution of and compliance with the enclosed Proprietary Information and Inventions Agreement and satisfactory proof of your right to work in the United States. You agree to assist as needed and to complete any documentation at the Companys request to meet these conditions. In addition, as a condition of your employment, you will be required to abide by the Companys policies and procedures, including but not limited to the policies set forth in the Companys Employee Handbook, as may be in effect from time to time. Employment with iPass is at the will of each party, is not for a specific term and can be terminated by you or by the Company at any time, with or without cause and with or without advance notice.
This letter, along with your Proprietary Information and Inventions Agreement, is the entire agreement between you and iPass concerning your employment terms, and it supersedes any other agreements or promises made to you by anyone, whether written or oral. The terms of this letter cannot be changed (except with respect to those changes expressly reserved to the Companys discretion herein) unless such changes are in writing and signed by an authorized representative of iPass. This offer is valid until Friday, June 17, 2011 at 5:00 pm, at which time it will expire if you have not returned this fully signed letter to the Company.
Please signify your acceptance of employment with the Company under the terms provided in this letter by signing and dating below and returning this offer letter to Mike Badgis at fax number (650) 232-0232.
Christophe, your acceptance of our offer represents a unique opportunity for us both to grow and succeed. We all want to thank you in advance for your faith in us, and for the commitment you have made to our common vision.
Finally, we all look forward to working and building iPass with you!
Welcome aboard, | Understood And Accepted | |||||
/s/ Evan L. Kaplan |
/s/ Christophe Culine |
|||||
Evan L. Kaplan | Christophe Culine | |||||
President & CEO | ||||||
June 17, 2011 |
||||||
Date | Start Date 07-18-11 |
Exhibit 31.1
CERTIFICATION
I, Evan L. Kaplan, certify that:
1. I have reviewed this Form 10-Q of iPass Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2011 | By: |
/S/ EVAN L. KAPLAN | ||||||
Evan L. Kaplan President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Steven H. Gatoff, certify that:
1. I have reviewed this Form 10-Q of iPass Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 8, 2011 | By: | /S/ STEVEN H. GATOFF | ||||||
Steven H. Gatoff Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
In connection with the Quarterly Report of iPass Inc. (the Company) on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Evan L. Kaplan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 8, 2011 | By: | /S/ EVAN L. KAPLAN | ||||||
Evan L. Kaplan President and Chief Executive Officer (Principal Executive Officer) |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of iPass Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
In connection with the Quarterly Report of iPass Inc. (the Company) on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Steven H. Gatoff, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
iPass Inc. | ||||||||
August 8, 2011 | By: | /s/ STEVEN H. GATOFF | ||||||
Steven H. Gatoff | ||||||||
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of iPass Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Condensed Consolidated Balance Sheets | Â | Â |
Accounts receivable, allowance for doubtful accounts | $ 1,761 | $ 1,757 |
Condensed Consolidated Statements Of Operations (USD $)
In Thousands, except Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Condensed Consolidated Statements Of Operations | Â | Â | Â | Â |
Revenues | $ 35,511 | $ 39,083 | $ 71,915 | $ 79,461 |
Cost of revenues and operating expenses: | Â | Â | Â | Â |
Network access costs | 17,209 | 18,843 | 34,601 | 37,267 |
Network operations | 5,520 | 7,000 | 11,418 | 14,328 |
Research and development | 3,490 | 3,245 | 7,128 | 6,644 |
Sales and marketing | 4,958 | 5,889 | 10,703 | 12,398 |
General and administrative | 5,203 | 5,361 | 10,028 | 11,031 |
Restructuring charges | 10 | 118 | (155) | 287 |
Amortization of intangible assets | 60 | 77 | 120 | 287 |
Total cost of revenue and operating expenses | 36,450 | 40,533 | 73,843 | 82,242 |
Operating loss | (939) | (1,450) | (1,928) | (2,781) |
Interest income | 15 | 20 | 100 | 37 |
Foreign exchange gains (losses) and other income (expenses) | (119) | 245 | (462) | 618 |
Loss before income taxes | (1,043) | (1,185) | (2,290) | (2,126) |
Provision for (benefit from) income taxes | 15 | 29 | 245 | (183) |
Net loss | $ (1,058) | $ (1,214) | $ (2,535) | $ (1,943) |
Net loss per share: | Â | Â | Â | Â |
Basic and diluted | $ (0.02) | $ (0.02) | $ (0.04) | $ (0.03) |
Number of shares used in per share calculations: | Â | Â | Â | Â |
Basic and diluted | 58,379,136 | 58,842,065 | 58,272,603 | 59,711,674 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 27, 2011
|
|
Document And Entity Information | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Entity Central Index Key | 0001053374 | Â |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Entity Registrant Name | IPASS INC | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 58,764,103 |
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MOFW)EG_U[L9W "+ text.join( " " + text[p] + " ' + raw + ' Note 7. Accrued Restructuring In the first quarter of 2009, the Company announced a restructuring plan (the "Q1 2009 Plan") in order to reduce operating costs and focus resources on key strategic priorities which resulted in a reduction of workforce by 68 positions across all functional areas and abandonment of certain facilities. In the fourth quarter of 2009, the Company announced a restructuring plan (the "Q4 2009 Plan") to align the cost structure and improve operating efficiencies which resulted in a reduction of workforce by 78 positions, abandonment of certain additional facilities and termination of a contract obligation. The Q1 2009 and Q4 2009 restructuring plans were completed during 2010. The following is a summary of restructuring activities of the Q1 2009 and Q4 2009 Plans for the three and six months ended June 30, 2011: Balance as of March 31, 2011 Restructuring charges Payments Adjustments Balance as of June 30, 2011 Balance as of December 31, 2010 Restructuring charges Payments Adjustments Balance as of June 30, 2011 As of June 30, 2011, the Company classified approximately $0.4 million of restructuring liability in accrued liabilities and the remaining $0.6 million in long-term liabilities based on the Company's expectation that the remaining lease payments for the abandoned facilities will be paid through April 2015 (net of sublease income). Net restructuring charges for the Q1 2009 Plan includes an adjustment for sublease income related to the new sublease agreement that the Company executed in the second quarter of 2011 for unused space. Net restructuring charges for the Q4 2009 Plan includes an adjustment of previously recorded facility exit costs as a result of negotiating a favorable termination and lease surrender agreement. Note 3. Property and Equipment, net Property and equipment, net, consisted of: Equipment Furniture and fixtures Computer software Leasehold improvements Less: Accumulated depreciation and amortization Property and equipment, net Note 9. Net Loss Per Common Share Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted daily average number of common shares outstanding during the period. Participating securities are included in the weighted daily average number of shares outstanding in the computation of basic net income per share but are excluded in the computation of basic net loss per share. Diluted net loss per share is computed by dividing net loss available to common shareholders by the weighted daily average number of common shares outstanding plus potentially dilutive common shares outstanding during the period from the issuance of stock options and awards using the treasury stock method. The weighted daily average number of shares outstanding includes participating securities in the calculation of dilutive net income per share but are excluded from the calculation of diluted net loss per share. As the Company was in a net loss position for all periods presented, basic and diluted net loss per share are equal to each other as the weighted average number of shares used to compute diluted net loss per share excludes anti-dilutive securities, including participating securities. The following table sets forth the computation of basic and diluted net loss per share: Numerator: Net loss Denominator: Denominator for basic and diluted net loss per common share – weighted average shares outstanding Basic and diluted net loss per common share The following weighted average potential shares of common stock have been excluded from the computation of diluted net loss per share because the effect of including these shares would have been anti-dilutive: Options to purchase common stock Unvested restricted stock awards, considered participating securities Total Note 10. Segment and Geographical Information The Company's two reportable operating segments are: Enterprise Mobility Services ("EMS") and Managed Network Services ("MNS"). The Company's Chief Operating Decision Maker ("CODM") has been identified as the Company's President and Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income or loss. The Enterprise Mobility Services segment includes services that help enterprises manage the networks, connections and devices used by their mobile workforce. The Managed Network Services segment involves enterprise remote and branch office connectivity. The Company evaluates performance and allocates resources based on segment profit or loss from operations before income taxes, not including amortization of intangibles, restructuring and incremental sales taxes, penalties and interest. The accounting policies of the reportable segments are substantially the same as those the Company uses for consolidated financial statements. All direct costs are allocated to the respective segments. In addition to direct costs, each segment has indirect costs. Indirect costs that are allocated to each segment include certain costs of facilities, certain employee benefits and payroll tax costs, and certain additional shared services, costs in management, finance, legal, human resources, and information technology. Indirect costs are allocated based on headcount, salaries and segment revenue contribution. Total operating costs allocated to the reportable segments for the three months ended June 30, 2011 and 2010 were $36.6 million and $40.3 million, respectively, and were $74.6 million and $81.6 million, respectively, for the six months ended June 30, 2011 and 2010. The Company does not allocate to its reportable segments amortization of intangibles, restructuring and any associated adjustments related to restructuring actions, or sales tax penalties and interest. By definition, segment operating income also excludes interest income, foreign exchange gains and losses, and income taxes. Revenue and operating loss for each reportable segment for the three and six months ended June 30, 2011 and 2010 were as follows: 2011 Enterprise Mobility Services Managed Network Services Total Segment 2010 Enterprise Mobility Services Managed Network Services Total Segment Substantially all of the Company's long-lived assets are located in the United States. The CODM does not evaluate operating segments using discrete asset information. Accordingly, no segment assets have been reported. There were no material intersegment sales or transfers for the three and six months ended June 30, 2011 and 2010. Depreciation for the EMS segment for the three and six months ended June 30, 2011 was $0.5 million and $1.1 million, respectively, and $0.7 million and $1.6 million, respectively, for the three and six months ended June 30, 2010. Depreciation for the MNS segment for the three and six months ended June 30, 2011 and 2010 was $0.1 million. Reconciliations of total segment operating loss to the Company consolidated operating loss from continuing operations before income taxes for the three and six months ended June 30, 2011 and 2010 are as follows: Total segment operating loss Amortization of intangibles Restructuring Sales tax, penalties and interest Total loss from operations Interest income Foreign exchange gains and losses and other income and expenses Total loss from continuing operations before income taxes The following table presents total Company revenue summarized by geographical region for the periods indicated: United States EMEA Asia Pacific and Rest of World No individual customer represented 10% or more of total revenue for the three and six months ended June 30, 2011 and 2010. No individual country, except for the United States, accounted for 10% or more of total revenues for the periods presented. Note 8. Commitments and Contingencies The Company leases facilities under operating leases that expire at various dates through April 2015. Certain leases are cancellable prior to lease expiration dates. Future minimum lease payments under these operating leases, including payments on leases accounted for under the Company's restructuring plans, as of June 30, 2011, are as follows: Year Remaining 2011 2012 2013 2014 2015 The above includes approximately $1.0 million in facility lease obligations which are included in accrued restructuring liabilities. The Company has contracts with certain network service and mobile data providers which have minimum purchase commitments that expire on various dates through April 2013. Future minimum purchase commitments under all agreements are as follows: Year Remaining 2011 2012 2013 At June 30, 2011, the Company had no material commitments for capital expenditures. Sales Tax Liabilities The Company's sales and use tax filings are subject to customary audits by authorities in the jurisdictions where it conducts business in the United States which may result in assessments of additional taxes. During fiscal year 2009, the Company determined that additional sales taxes were probable of being assessed for multiple states as a result of the preliminary findings specific to a sales and use tax audit that had been initiated in the same year. As a result, the Company estimated an incremental sales tax liability in fiscal year 2009 of $5.0 million, including interest and penalties of $1.5 million. During fiscal year 2010, this liability was reduced to $2.9 million through sales tax payments, settlements with certain state tax authorities and revised estimates. During the six months ended June 30, 2011 the liability was reduced further by $1.0 million, as a result of payments. The balance of this sales tax liability as of June 30, 2011 is $1.9 million. Legal Proceedings The Company is involved in legal proceedings and claims arising in the ordinary course of business. While there can be no assurances as to the ultimate outcome of any litigation involving the Company, management does not believe any such pending legal proceeding or claim will result in a judgment or settlement that would have a material adverse effect on the Company's financial position, results of operations or cash flows. In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. Certain indemnification agreements may not be subject to maximum loss clauses. If the potential loss from any indemnification claim is considered probable and the amount or the range of the loss can be estimated, the Company accrues a liability for the estimated loss. To date, claims under such indemnification provisions have not been significant. Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of iPass Inc. (the "Company") and its wholly owned subsidiaries. The condensed consolidated financial statements that accompany these notes have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 Condensed Consolidated Balance Sheets were derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The interim financial information is unaudited, but reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim period presented. This interim financial information should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The results of operations for the three months and six months ended June 30, 2011 are not necessarily indicative of the operating results for the full fiscal year or any future periods. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results that the Company experiences may differ materially from those estimates. Estimates are used for, but not limited to the valuation of accounts receivables, inventories, intangible assets, other long-lived assets, network access costs, stock-based compensation, legal contingencies, income taxes, sales tax liabilities, and restructuring charges. Note 4. Intangible Assets, net The following tables set forth the carrying amount of intangible assets that will continue to be amortized: Existing technology Patent and core technology Existing technology Patent and core technology Amortization of intangible assets was approximately $0.1 million for the three months ended June 30, 2011 and 2010, and approximately $0.1 million and $0.3 million for the six months ended June 30, 2011 and 2010, respectively. Scheduled amortization of the remaining intangible assets: Year Remaining 2011 2012 Note 5. Other Assets Other assets consisted of: Prepaid lease obligations Deferred installation costs Deposits Long-term deferred tax asset, net Restricted cash Other long-term assets Note 6. Accrued Liabilities Accrued liabilities consisted of: Accrued sales tax liabilities (1) Accrued restructuring liabilities – current (2) Accrued expenses Accrued bonus, commissions and other employee benefits Amounts due to customers Other accrued liabilities Note 2. Fair Value Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction in the principal or most advantageous market between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers assumptions that market participants would use when pricing the asset or liability. Fair Value Hierarchy The three levels of inputs that may be used to measure fair value are as follows: Level 1—Quoted prices in active markets for identical assets or liabilities; Level 2—Observable inputs other than Level 1 either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value of these financial assets (excluding cash) and nonfinancial liabilities was determined using the following inputs at June 30, 2011: Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: Money market funds(1) Total financial assets Nonfinancial liabilities: Lease liabilities incurred in connection with the restructuring plan(2) Total nonfinancial liabilities There were no transfers between Levels 1, 2, and 3 between December 31, 2010 and June 30, 2011. The carrying amounts of accounts receivable, prepaid expenses and other assets, accounts payable and accrued liabilities, closely approximate fair value as of June 30, 2011 and December 31, 2010.K&L6:0>"S"%A+J6:^;*X9=G.I\87R
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6 Months Ended
Accrued Restructuring
Â
Accrued Restructuring
Q1 2009
Excess
Facility Costs
Q4 2009
Excess
Facility Costs
Total
Restructuring
Costs
(in thousands)
$
1,090
$
22
$
1,112
13
—
13
(124
)
(15
)
(139
)
(12
)
9
(3
)
$
967
$
16
$
983
Q1 2009
Excess
Facility Costs
Q4 2009
Excess
Facility Costs
Total
Restructuring
Costs
(in thousands)
$
1,185
$
456
$
1,641
24
—
24
(231
)
(272
)
(503
)
(12
)
(167
)
(179
)
$
966
$
17
$
983
6 Months Ended
Property And Equipment, Net
Â
Property And Equipment, Net
June 30, 2011
December 31, 2010
(in thousands)
$
15,826
$
17,847
3,015
3,032
8,058
8,772
2,396
2,534
29,295
32,185
(25,615
)
(27,921
)
$
3,680
$
4,264
6 Months Ended
Net Loss Per Common Share
Â
Net Loss Per Common Share
Three Months Ended
June 30,
Six Months Ended
June 30,
2011
2010
2011
2010
(in thousands, except share and per share amounts)
$
(1,058
)
$
(1,214
)
$
(2,535
)
$
(1,943
)
58,379,136
58,842,065
58,272,603
59,711,674
$
(0.02
)
$
(0.02
)
$
(0.04
)
$
(0.03
)
Three Months Ended
June 30,
Six Months Ended
June 30,
2011
2010
2011
2010
9,020,453
10,773,896
8,790,569
10,232,576
999,551
878,262
932,609
853,388
10,020,004
11,652,158
9,723,178
11,085,964
6 Months Ended
Segment And Geographical Information
Â
Segment And Geographical Information
Three Months Ended
June 30
Six Months Ended
June 30
(in thousands)
Net Revenue
Total
Segment
Operating
Loss
Net Revenue
Total
Segment
Operating
Loss
$
28,083
$
(691
)
$
57,389
$
(1,593
)
7,428
(435
)
14,526
(1,114
)
$
35,511
$
(1,126
)
$
71,915
$
(2,707
)
$
32,454
$
(934
)
$
65,972
$
(1,599
)
6,629
(271
)
13,489
(558
)
$
39,083
$
(1,205
)
$
79,461
$
(2,157
)
Three Months
Ended
June 30,
Six Months
Ended
June 30,
2011
2010
2011
2010
(in thousands)
$
(1,126
)
$
(1,205
)
$
(2,707
)
$
(2,157
)
(60
)
(77
)
(120
)
(287
)
(10
)
(118
)
155
(287
)
257
(50
)
744
(50
)
(939
)
(1,450
)
(1,928
)
(2,781
)
15
20
100
37
(119
)
245
(462
)
618
$
(1,043
)
$
(1,185
)
$
(2,290
)
$
(2,126
)
Three Months Ended
June 30,
Six Months Ended
June 30,
2011
2010
2011
2010
60
%
62
%
60
%
62
%
31
%
30
%
32
%
30
%
9
%
8
%
8
%
8
%
6 Months Ended
Commitments And Contingencies
Â
Commitments And Contingencies
(in thousands)
$
1,430
2,102
1,752
1,810
609
$
7,703
(in thousands)
$
2,120
1,213
31
$
3,364
6 Months Ended
Basis Of Presentation
Â
Basis Of Presentation
6 Months Ended
Intangible Assets, Net
Â
Intangible Assets, Net
June 30, 2011
Amortization
Life
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(in thousands)
4-8 yrs
$
5,375
$
(5,253
)
$
122
4-8 yrs
2,800
(2,634
)
166
$
8,175
$
(7,887
)
$
288
December 31, 2010
Amortization
Life
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(in thousands)
4-8 yrs
$
5,375
$
(5,202
)
$
173
4-8 yrs
2,800
(2,565
)
235
$
8,175
$
(7,767
)
$
408
(in thousands)
$
120
168
$
288
6 Months Ended
Other Assets
Â
Other Assets
June 30, 2011
December 31, 2010
(in thousands)
$
589
$
732
2,497
2,288
904
1,291
351
351
2,754
3,040
84
198
$
7,179
$
7,900
6 Months Ended
Accrued Liabilities
Â
Accrued Liabilities
June 30, 2011
December 31, 2010
(in thousands)
$
1,921
$
2,918
444
962
2,456
2,617
3,271
4,325
1,173
1,844
2,555
2,667
$
11,820
$
15,333
(1)
See Note 8. Commitments and Contingencies
(2)
See Note 7. Accrued Restructuring
6 Months Ended
Fair Value
Â
Fair Value
Fair Value Measurements Using
Total
(in thousands)
$
19,144
$
19,144
$
—
$
—
$
19,144
$
19,144
$
—
$
—
$
983
$
—
$
—
$
983
$
983
$
—
$
—
$
983
(1)
Held in cash and cash equivalents and restricted cash on the Company's condensed consolidated balance sheet.
(2)
Generally, lease liabilities were recorded at fair value and are included as liabilities in the Company's condensed consolidated balance sheet. The lease liability was recorded in connection with the lease abandonment plans implemented in the first quarter and fourth quarter of 2009 (see Note 7 for further discussion of the restructuring plans). Management made assumptions in determining the fair value of the lease liability. Inputs to the present value technique to determine fair value included observable inputs, such as the future rent payment schedule, the discount rate and sublease income based on the executed sublease agreement through the end of the lease term.