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 December 31, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16449
TIGERLOGIC CORPORATION
(Name of Registrant as Specified in Its Charter)
Delaware |
|
94-3046892 |
(State of Incorporation) |
|
(I.R.S. Employer ID. No.) |
|
|
|
25A Technology Drive Suite 100 Irvine, California |
|
92618 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
(949) 442-4400
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
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 o |
|
Accelerated filer o |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company x |
(Do not check if a 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 o NO x
As of January 31, 2013, the Registrant had 29,914,309 shares of its common stock outstanding.
TIGERLOGIC CORPORATION
TIGERLOGIC CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
December 31, |
|
March 31, |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash |
|
$ |
7,927 |
|
$ |
8,918 |
|
Trade accounts receivable, less allowance for doubtful accounts of $11 and $19, respectively. |
|
890 |
|
891 |
| ||
Other current assets |
|
747 |
|
632 |
| ||
Total current assets |
|
9,564 |
|
10,441 |
| ||
|
|
|
|
|
| ||
Property, furniture and equipment-net |
|
556 |
|
615 |
| ||
Goodwill |
|
26,388 |
|
26,388 |
| ||
Deferred tax assets |
|
257 |
|
257 |
| ||
Other assets |
|
112 |
|
113 |
| ||
Total assets |
|
$ |
36,877 |
|
$ |
37,814 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
322 |
|
$ |
272 |
|
Accrued liabilities |
|
1,566 |
|
1,467 |
| ||
Deferred revenue |
|
4,103 |
|
4,311 |
| ||
Total current liabilities |
|
5,991 |
|
6,050 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders equity |
|
|
|
|
| ||
|
|
|
|
|
| ||
Preferred stock |
|
|
|
|
| ||
Common stock |
|
2,822 |
|
2,818 |
| ||
Additional paid-in-capital |
|
136,226 |
|
135,438 |
| ||
Accumulated other comprehensive income |
|
2,321 |
|
2,304 |
| ||
Accumulated deficit |
|
(110,483 |
) |
(108,796 |
) | ||
Total stockholders equity |
|
30,886 |
|
31,764 |
| ||
|
|
|
|
|
| ||
Total liabilities and stockholders equity |
|
$ |
36,877 |
|
$ |
37,814 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
TIGERLOGIC CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands except per share data)
|
|
Three Months Ended December 31, |
|
Nine Months Ended December 31, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net revenues |
|
|
|
|
|
|
|
|
| ||||
Licenses |
|
$ |
962 |
|
$ |
1,027 |
|
$ |
2,867 |
|
$ |
3,003 |
|
Services |
|
2,246 |
|
2,331 |
|
6,781 |
|
7,058 |
| ||||
Total net revenues |
|
3,208 |
|
3,358 |
|
9,648 |
|
10,061 |
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
| ||||
Cost of license revenues |
|
2 |
|
3 |
|
6 |
|
9 |
| ||||
Cost of service revenues |
|
405 |
|
435 |
|
1,229 |
|
1,394 |
| ||||
Selling and marketing |
|
1,062 |
|
1,290 |
|
3,175 |
|
3,850 |
| ||||
Research and development |
|
1,284 |
|
1,485 |
|
3,783 |
|
4,353 |
| ||||
General and administrative |
|
1,130 |
|
890 |
|
3,082 |
|
2,863 |
| ||||
Total operating expenses |
|
3,883 |
|
4,103 |
|
11,275 |
|
12,469 |
| ||||
Operating loss |
|
(675 |
) |
(745 |
) |
(1,627 |
) |
(2,408 |
) | ||||
Other income (expense) |
|
|
|
|
|
|
|
|
| ||||
Interest expense-net |
|
(1 |
) |
(2 |
) |
(5 |
) |
|
| ||||
Other income (expense)-net |
|
19 |
|
(40 |
) |
(8 |
) |
(69 |
) | ||||
Total other income (expense) |
|
18 |
|
(42 |
) |
(13 |
) |
(69 |
) | ||||
Loss before income taxes |
|
(657 |
) |
(787 |
) |
(1,640 |
) |
(2,477 |
) | ||||
Income tax provision (benefit) |
|
25 |
|
(33 |
) |
47 |
|
144 |
| ||||
Net loss |
|
$ |
(682 |
) |
$ |
(754 |
) |
$ |
(1,687 |
) |
$ |
(2,621 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted net loss per share |
|
$ |
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.06 |
) |
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Shares used in computing basic and diluted net loss per share |
|
28,218 |
|
28,163 |
|
28,206 |
|
28,138 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
| ||||
Net loss |
|
$ |
(682 |
) |
$ |
(754 |
) |
$ |
(1,687 |
) |
$ |
(2,621 |
) |
Foreign currency translation adjustments |
|
(10 |
) |
(12 |
) |
17 |
|
(35 |
) | ||||
Total comprehensive loss |
|
$ |
(692 |
) |
$ |
(766 |
) |
$ |
(1,670 |
) |
$ |
(2,656 |
) |
See accompanying notes to the unaudited condensed consolidated financial statements.
TIGERLOGIC CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Nine Months Ended December 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
(In thousands) |
| ||||
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net loss |
|
$ |
(1,687 |
) |
$ |
(2,621 |
) |
Adjustments to reconcile net loss to net cash used in operating activites: |
|
|
|
|
| ||
Depreciation and amortization of long-lived assets |
|
97 |
|
119 |
| ||
Provision for (recovery from) bad debt |
|
(7 |
) |
4 |
| ||
Stock-based compensation expense |
|
744 |
|
990 |
| ||
Change in deferred tax assets |
|
|
|
|
| ||
Foreign currency exchange loss |
|
13 |
|
75 |
| ||
Change in assets and liabilities: |
|
|
|
|
| ||
Trade accounts receivable |
|
10 |
|
(333 |
) | ||
Other current and non-current assets |
|
(17 |
) |
(330 |
) | ||
Accounts payable |
|
53 |
|
|
| ||
Accrued liabilities |
|
103 |
|
(99 |
) | ||
Deferred revenue |
|
(203 |
) |
(122 |
) | ||
Net cash used in operating activities |
|
(894 |
) |
(2,317 |
) | ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Acquisition bridge loan |
|
(100 |
) |
|
| ||
Purchases of property, plant and equipment |
|
(34 |
) |
(61 |
) | ||
Net cash used for investing activities |
|
(134 |
) |
(61 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Proceeds from exercise of stock options |
|
24 |
|
87 |
| ||
Proceeds from issuance of common stock |
|
23 |
|
48 |
| ||
Net cash provided by financing activities |
|
47 |
|
135 |
| ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash |
|
(10 |
) |
(117 |
) | ||
|
|
|
|
|
| ||
Net decrease in cash |
|
(991 |
) |
(2,360 |
) | ||
Cash at beginning of period |
|
8,918 |
|
11,354 |
| ||
Cash at end of period |
|
$ |
7,927 |
|
$ |
8,994 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
TIGERLOGIC CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
1. INTERIM FINANCIAL STATEMENTS
The unaudited interim condensed consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state TigerLogic Corporation and its subsidiaries (collectively, the Company or we, us or our) financial position, results of operations and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (SEC); nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Companys audited financial statements for the year ended March 31, 2012, contained in the Companys Annual Report on Form 10-K filed with the SEC on June 26, 2012. The results of operations for the three and nine months ended December 31, 2012, are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending March 31, 2013.
Certain immaterial prior period amounts have been reclassified to conform to current year presentation in the Condensed Consolidated Statements of Cash Flows. The amounts reclassified were within operating activities and had no impact on total cash flows from operating activities.
2. STOCK-BASED COMPENSATION
The Company has a stock option plan that provides for the granting of stock options, restricted stock and restricted stock units to directors, employees and consultants. The Company also has an employee stock purchase plan allowing employees to purchase the Companys common stock at a discount.
Total stock-based compensation expense included in the unaudited condensed consolidated statements of operations for the three and nine months ended December 31, 2012 and 2011, was as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue |
|
$ |
21 |
|
$ |
38 |
|
$ |
66 |
|
$ |
114 |
|
Operating expense: |
|
|
|
|
|
|
|
|
| ||||
Selling and marketing |
|
34 |
|
112 |
|
127 |
|
290 |
| ||||
Research and development |
|
66 |
|
101 |
|
180 |
|
303 |
| ||||
General and administrative |
|
123 |
|
110 |
|
371 |
|
283 |
| ||||
Total stock-based compensation expense |
|
244 |
|
361 |
|
744 |
|
990 |
| ||||
Income tax benefit |
|
|
|
|
|
|
|
|
| ||||
Net stock-based compensation expense |
|
$ |
244 |
|
$ |
361 |
|
$ |
744 |
|
$ |
990 |
|
As of December 31, 2012, there was approximately $1.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 2.2 years.
In February 2012, the stockholders approved an amendment to the Companys 2001 Employee Stock Purchase Plan (2001 Plan), which otherwise was scheduled to expire by its own terms. The main changes in the Companys 2011 Amended and Restated Employee Stock Purchase Plan (Stock Purchase Plan) are: (i) to eliminate the ten-year term limit; (ii) to amend the definition of compensation used under the Stock Purchase Plan to include deferrals made under qualified transportation benefit programs; and (iii) to increase the hours per week that an otherwise eligible employee must work in order to be able to participate in the Stock Purchase Plan from more than ten (10) to more than twenty (20). In addition, the Stock Purchase Plan clarifies certain provisions of the 2001 Plan and amends various technical provisions in order to comply with applicable laws. The total number of shares of the Companys common stock reserved for issuance and available for purchase under the Stock Purchase Plan was not increased from the 2001 Plan and remained at 1,000,000 (less shares already issued under the 2001 Plan).
3. RECENTLY ADOPTED ACCOUNTING GUIDANCE
In September 2011, the Financial Accounting Standard Board (FASB) issued an update to existing guidance on testing goodwill for impairment. This update permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. This update is effective for our fiscal year beginning April 1, 2012. The Company does not expect this guidance to have a material impact on the consolidated financial statements.
In June 2011, the FASB issued an amendment to the existing guidance on the presentation of comprehensive income. This amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders equity, and instead requires that all non-owner changes in stockholders equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is effective for our fiscal year beginning April 1, 2012. This guidance did not have a material impact on the consolidated financial statements.
4. FAIR VALUE MEASUREMENT
The Company maintains all of its cash on deposit at financial institutions. As such, there were no cash equivalents on the Companys balance sheets as of December 31, 2012 or March 31, 2012 and no other financial assets or liabilities requiring fair value measurement on a recurring basis. There were no nonfinancial assets or liabilities that required recognition or disclosure at fair value on a nonrecurring basis in the Companys balance sheets as of December 31, 2012 or March 31, 2012.
5. STOCKHOLDERS EQUITY
Basic loss per share is computed using the net loss and the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the net loss and the weighted average number of common shares and potential common shares outstanding during the period when the potential common shares are dilutive. Potential dilutive common shares include outstanding stock options.
Weighted outstanding options to purchase 3,085,513 shares and 3,195,716 shares of the Companys common stock for the three and nine month periods ended December 31, 2012, respectively; and 3,211,414 shares and 2,995,149 shares for the three and nine month periods ended December 31, 2011, respectively, have been excluded from the computation of diluted net loss per share because the effect of their inclusion would have been anti-dilutive.
The change in accumulated other comprehensive loss during the nine month periods ended December 31, 2012 and 2011 is the result of the effect of foreign exchange rate changes.
6. BUSINESS SEGMENT
The Company operates in one reportable segment. International operations consist primarily of foreign sales offices selling software developed in the United States combined with local service revenue. The following table summarizes consolidated financial information of the Companys operations by geographic location (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Net revenue |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
2,252 |
|
$ |
2,363 |
|
$ |
6,883 |
|
$ |
6,861 |
|
Europe/Africa |
|
956 |
|
995 |
|
2,765 |
|
3,200 |
| ||||
Total |
|
$ |
3,208 |
|
$ |
3,358 |
|
$ |
9,648 |
|
$ |
10,061 |
|
|
|
December 31, |
|
March 31, |
| ||
Long-lived assets |
|
2012 |
|
2012 |
| ||
|
|
|
|
|
| ||
North America |
|
$ |
26,620 |
|
$ |
26,658 |
|
Europe/Africa |
|
436 |
|
458 |
| ||
Total |
|
$ |
27,056 |
|
$ |
27,116 |
|
The Company is engaged in the design, development, sale, and support of the following software product lines: 1) Multidimensional Database Management Systems (MDMS), 2) Rapid Application Development (RAD) software tools, 3) yolink, and 4) Postano. To date, revenue from our yolink and Postano product lines have been immaterial. The following table represents the Companys net revenue by product line (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Net revenue |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Databases (MDMS) |
|
$ |
2,167 |
|
$ |
2,496 |
|
$ |
6,997 |
|
$ |
7,140 |
|
RAD Software Tools |
|
1,041 |
|
862 |
|
2,651 |
|
2,921 |
| ||||
Total |
|
$ |
3,208 |
|
$ |
3,358 |
|
$ |
9,648 |
|
$ |
10,061 |
|
7. RELATED PARTY TRANSACTIONS
The Company entered into an expense reimbursement agreement with Astoria Capital Partners, L.P. (Astoria), its largest stockholder, in connection with Richard Koes appointment as Interim President and Chief Executive Officer, pursuant to which the Company agreed to reimburse Astoria for a portion of overhead costs and expenses related to the use by Mr. Koe of Astorias premises and office equipment while performing his employment duties for the Company. The agreement terminates 90 days after Mr. Koe is either no longer employed by the Company or is no longer performing services for the Company from Astorias premises. Mr. Koe also serves as President of Astoria. From the start of the agreement on April 1, 2009 through June 30, 2011, the Company reimbursed Astoria approximately $7,100 per month. Effective April 1, 2011, the Company entered into a new office lease in Portland, Oregon, and as a result, the expense reimbursement agreement with Astoria terminated on June 30, 2011 when the Company moved into its new Portland office. In connection with the acquisition of Storycode in January 2013, Mr. Koes title was modified to eliminate the interim references, and he continues to serve as our President and Chief Executive Officer.
8. COMMITMENTS AND CONTINGENCIES
The Company is subject from time to time to litigation, claims and suits arising in the ordinary course of business. There were no ongoing material legal proceedings as of December 31, 2012.
Indemnification
The Companys standard customer license and software agreements contain indemnification and warranty provisions which are generally consistent with practice in the Companys industry. The duration of the Companys service warranties generally does not exceed 30 days following completion of its services. The Company has not incurred significant obligations under customer indemnification or warranty provisions historically and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations. The maximum potential amount of future payments that the Company could be required to make is generally limited under the indemnification provisions in its customer license and service agreements. The Company has entered into the standard form of indemnification agreement with each of its directors and executives.
9. SUBSEQUENT EVENT
On January 17, 2013, the Company completed its acquisition of Storycode, Inc, a privately held mobile app publishing company. Pursuant to the terms of the Agreement and Plan of Merger dated December 27, 2012, as amended (the Merger Agreement), Storycode became a wholly-owned subsidiary of the Company. In accordance with the Merger Agreement, the Company issued an aggregate of 1,696,329 shares of its common stock with a fair value of approximately $3.9 million and may issue an additional 444,468 shares with a fair value as of the acquisition closing date of approximately $1.0 million, subject to an 18-month holdback pursuant to the Merger Agreement, which holdback share number may be adjusted from time to time. The Company also substituted 822,320 options to purchase its common stock for options to purchase Storycodes common stock. In addition, the Company made cash payments aggregating approximately $0.5 million, of which $100,000 was paid to Storycode during the quarter ended December 31, 2012 in the form of a bridge loan and applied to the purchase price at closing. The Company is currently in the process of determining the amount that will be recorded as purchase consideration and the allocation of the total purchase consideration to the tangible and intangible net assets acquired.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The section entitled Managements Discussion and Analysis set forth below contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements may generally be identified by the use of such words as expect, anticipate, believe, intend, plan, will, or shall, or the negative of those terms. We have based these forward-looking statements on our current expectations and projections about future events. Forward-looking statements involve certain risks and uncertainties and actual results may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially from such forward-looking statements include the risks described under the heading Risk Factors in Item 1A of this Form 10-Q and elsewhere in this Form 10-Q. The forward-looking statements contained in this Form 10-Q include, but are not limited to statements about the following: (1) our future success, (2) our ability to integrate acquired products and technologies and realize the anticipated synergies from the acquired businesses (3) our research and development efforts, (4) our future operating results and cash flow, (5) our ability to compete, (6) the markets in which we operate, (7) our revenue, (8) cost of license revenue and cost of service revenue, (9) our selling and marketing costs, (10) our general and administrative expenses (11) our research and development expenses, (12) the effect of critical accounting policies,(13) the possibility that we may seek to take advantage of opportunities in the equity and capital markets, (14) our belief that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements through the foreseeable future, (15) our focus on the continued development and enhancement of new product lines, including search technology and social media products, and identification of new and emerging technology areas and discussions with channel partners for the sale and distribution of new product lines, (16) the effect of recent changes in tax laws on our financial statements, and (17) the possibility that we may seek to take advantage of strategic acquisition opportunities. All forward-looking statements in this document are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.
Overview
We were incorporated in the State of Delaware in August 1987. We were originally incorporated as Blyth Holdings, Inc. and our name was changed to Omnis Technology Corporation in September 1997. Effective December 1, 2000, we completed the acquisition of PickAx, Inc., a Delaware corporation (PickAx). Concurrent with the acquisition, we changed our name to Raining Data Corporation. On April 17, 2008, we changed our name to TigerLogic Corporation. Reference to we, our, us or the Company in this Form 10-Q means TigerLogic Corporation and our subsidiaries.
On January 17, 2013, we completed our acquisition of Storycode, Inc, a privately held mobile app publishing company. Pursuant to the terms of the Agreement and Plan of Merger dated December 27, 2012, as amended (the Merger Agreement), Storycode became a wholly-owned subsidiary. In accordance with the Merger Agreement, we issued an aggregate of 1,696,329 shares of our common stock with a fair value of approximately $3.9 million and may issue an additional 444,468 shares with a fair value as of the acquisition closing date of approximately $1.0 million, subject to an 18-month holdback pursuant to the Merger Agreement, which holdback share number may be adjusted from time to time. We also substituted 822,320 options to purchase our common stock for options to purchase Storycodes common stock. In addition, we made cash payments aggregating approximately $0.5 million, of which $100,000 was paid to Storycode during the quarter ended December 31, 2012 in the form of a bridge loan and applied to the purchase price at closing. We are currently in the process of determining the amount that will be recorded as purchase consideration and the allocation of the total purchase consideration to the tangible and intangible net assets acquired. We intend to integrate Storycodes technology into our Postano social media visualization platform to create, what we believe, will be a new kind of social platform with unique mobile distribution capabilities. This new platform will be designed to allow brands to use original and fan-generated content to develop engaging experiences across the worldwide web, live events, and mobile environment. In addition to the complimentary technology, the Storycode team brings to us additional expertise in the areas of user experience, data visualization,and creative services.
Products
Our principal business consists of 1) the design, development, sale, and support of software infrastructure; 2) Internet search enhancement tools; and 3) a social media visualization platform. Our products allow customers to create and enhance flexible software applications for their own needs. Our database and rapid application development software may be categorized into the following product lines: Multidimensional Database Management Systems (MDMS) and Rapid Application Development (RAD) software tools. Many of our database software products are based on the proprietary Pick Universal Data Model (Pick UDM) and are capable of handling data from many sources. Our Internet search enhancement tools include the yolink browser plug-in, yolink API for web sites, and yolink search plug-in for WordPress sites. Our Postano product is a real-time social media visualization platform. We intend to integrate Storycodes mobile app technology into the Postano social media visualization platform to create a new kind of interactive social platform for brands to easily and quickly create immersive mobile applications.
We primarily sell our database and rapid application development software products through established distribution channels consisting of OEMs, system integrators, specialized vertical application software developers and consulting organizations. Our Internet search enhancement tools and social media visualization platform are generally sold through our web sites, as well as through co-marketing arrangements with third parties. We also sell all of our products directly through our sales personnel to end user organizations. Outside the United States, we maintain direct sales offices in the United Kingdom, France and Germany. We generally license our database and rapid application development software on a per-CPU, per-server, per-port or per-user basis. We license our yolink and Postano product lines at prices based on usage measured in a variety of ways. We may make both our yolink and Postano products available to users for free under certain circumstances. We also provide continuing software maintenance and support, and other professional services relating to our products, including consulting and training services. The majority of our revenue to date has been principally derived from MDMS and RAD software products. For the three and nine months ended December 31, 2012, approximately 30% and 29%, respectively, of our revenue came from sales through our offices located outside the United States, and no single customer accounted for more than 10% of our revenue.
In addition, one of the elements of our business strategy involves expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, or enhance our technological capabilities. We continually evaluate and explore strategic opportunities as they arise, including business combination transactions, strategic partnerships, and the acquisitions or dispositions of assets and technology, including tangible and intangible assets such as intellectual property.
TigerLogic Postano and Storycode
Postano is a real-time social media visualization platform, integrated with our yolink search technology that allows companies and individuals to collect content from various social media sources, and to display that content either within existing web pages hosted by us, or within existing web pages hosted by others, or in interactive tabs on Facebook. In addition, brands use Postano during marketing events and promotions to increase audience participation and engagement by displaying fan-generated live tweets, Instagram photos and more, in real-time. Postano is designed primarily for commercial use, with pricing based on a number of factors including, the number of Postanos, features and support levels desired. Through December 31, 2012, revenue recognized from Postano product has been immaterial.
We intend to integrate Storycodes mobile applications technology into the Postano social media visualization platform to create what we believe, will be a new kind of interactive social platform. This new platform will be designed to allow the use of original and fan-generated content to develop interactive experiences for consumers across the web, live events, and mobile environment to drive improved consumer loyalty with visually based engagement in real-time.
TigerLogic Yolink
Yolink is a next-generation search enhancement technology that increases the effectiveness of search functionality across web sites and services. Yolink can search both structured markup, such as HTML, and binary code documents as well as unstructured, raw text documents by layering a common semantic model across them, and using this to organize and effect full-text searches across documents. Yolink searches behind links and through web sites to retrieve content based on keyword search terms. To facilitate the users review of search results, each keyword is highlighted with a unique color. This capability is especially useful for reviewing and searching through the many web pages that contain hundreds, if not thousands, of embedded hyperlinks. Yolink technology can be applied to many platforms and Internet delivery methodologies. Yolink application programming interfaces (known as APIs) allow developers to integrate yolink search technologies with their web sites, services or applications. Yolink is available for download at www.yolink.com. Through December 31, 2012, revenue recognized from the yolink search technology has been immaterial.
Multi-dimensional Databases (MDMS)
The MDMS product line consists principally of the D3 Data Base Management System (D3), which runs on many operating systems, including IBM AIX, Linux and Windows. D3 allows application programmers to create new business solution software in less time than it normally takes in many other environments. Our MDMS products also include mvEnterprise, a scalable multi-dimensional database solution that allows the user to leverage the capabilities of the UNIX operating system, and mvBase, a multi-dimensional database solution that runs on all Windows platforms.
Version 9.0 of D3 and version 3.0 of mvBase, released in September 2010, include bundled support for .NET, providing developers a cost effective solution for developing applications utilizing Microsoft Visual Studio; and bundled support for Java, allowing development of applications utilizing Java.
The TigerLogic Dashboard, released in August 2010, is a development tool that allows Pick UDM developers to create intuitive and web-based graphical displays of multi-value data via dashboard and widget creation utilizing Pick/BASIC programming language.
Rapid Application Development (RAD) Software Tools
Our RAD products support the full life cycle of software application development and are designed for rapid prototyping, development and deployment of graphical user interface (GUI) client/server and web applications. The RAD products - Omnis Studio and Omnis Classic - are object-oriented and component-based, providing the ability to deploy cross-platform applications on operating system platforms and database environments.
In March 2012, we released version 5.2 of Omnis Studio featuring a new JavaScript based Client technology that enables developers to create leading-edge mobile applications. The Omnis JavaScript Client uses scripting compatible with HTML5 and CSS3 to enable support for all popular browsers and devices, including tablets, smartphones, desktops, and web-enabled TVs. Omnis-based applications are developed once and deployed to any device, on any platform, including Android, iOS, Mac OS, Linux and Windows, with no plug-in installation required.
Technical Support
Many of our products are used by our customers to build and deploy applications that may become a critical component of their business operations. As a result, continuing to provide customers with technical support services is an important element of our business strategy. Customers who participate in our support programs receive periodic maintenance releases on a when-and-if available basis and direct technical support when required.
Research and Development
We have devoted significant resources to the research and development of our products and technology. We believe that our future success will depend largely on strong development efforts with respect to both our existing and new products, as well as the efforts to integrate and further develop Storycode technology. These development efforts have resulted in updates and upgrades to existing MDMS and RAD products and the launch of new products including the yolink search technology and Postano social media visualization product lines. We expect to continue our research and development efforts in all product lines for the foreseeable future. We intend for these efforts to improve our future operating results and increase cash flow. However, such efforts may not result in additional new products or revenue, and we can make no assurances that the recently announced products or future products will be successful. Similarly, we can make no assurances that we will be able to successfully integrate Storycode products and technology or that any such products will receive market acceptance or result in revenue growth. We spent approximately $1.3 million and $3.8 million on research and development during the three and nine months ended December 31, 2012, respectively.
Competition
The application development tools software market is rapidly changing and intensely competitive. Our MDMS products compete with products developed by companies such as Oracle, Microsoft, and Rocket Software. Our RAD products currently encounter competition from several direct competitors, including Microsoft, and competing development environments, including JAVA. Direct competitors of our yolink search technology include Google, Yahoo, Microsoft, AOL, and Ask, as well as a number of smaller companies with products that directly and indirectly compete with our yolink search technology. Our Postano social media visualization product competes with products developed by companies such as Facebook and Twitter, as well as a number of smaller companies in the emerging social media marketplace. Direct competitors of our Storycode technology include companies such as salesforce and Oracle. Most of our competitors have significantly more financial, technical, marketing, and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies, evolving markets and changes in customer requirements, and may devote greater resources to the development, promotion, and sale of their products. We believe that our ability to compete in the various product markets depends on factors both within and outside our control, including the timing of release, performance and price of new products developed by both us and our competitors. Although we believe that we currently compete favorably with respect to most of these factors, we may not be able to maintain our competitive position against current and potential competitors, especially those with greater resources.
We continue to focus on growth in new market opportunities, such as the mobile application for our Postano product line, while also continuing to meet the needs of our loyal customer base by investing in the development of new upgrades and updates for our existing MDMS and RAD product lines. While we have experienced lower license revenue for our MDMS and RAD product lines, we believe that our relatively stable services revenue and prudent management of expenditures will continue to provide sufficient working capital balances to fund new product initiatives aimed at increasing stockholder value.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent liabilities.
On an on-going basis, we evaluate our estimates, including those related to revenue recognition and accounting for goodwill and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We have identified the accounting policies related to the areas below as the policies critical to our business operations and the understanding of our results of operations and how the related judgments and estimates affect the preparation of our consolidated financial statements:
· Revenue Recognition
· Goodwill
· Employee Stock-Based Compensation
· Income Taxes
These critical accounting policies are described in our Form 10-K for the fiscal year ended March 31, 2012 and there have been no changes in our application of these policies during the nine months ended December 31, 2012. We anticipate adding accounting policies relating to business combinations and intangible assets for the fiscal year ending March 31, 2013.
Results of Operations
The following table sets forth certain unaudited Condensed Consolidated Statement of Operations data in total dollars, as a percentage of total net revenues and as a percentage change from the same periods in the prior year. Cost of license revenues and cost of service revenues are expressed as a percentage of the related revenues. This information should be read in conjunction with the unaudited Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q.
|
|
Three Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
|
Nine Months Ended |
| ||||||||||||||||
|
|
December 31, 2012 |
|
December 31, 2011 |
|
December 31, 2012 |
|
December 31, 2011 |
| ||||||||||||||||
|
|
Results |
|
% of Net |
|
Percent |
|
Results |
|
% of Net |
|
Results |
|
% of Net |
|
Percent |
|
Results |
|
% of Net |
| ||||
|
|
(In |
|
|
|
|
|
(In |
|
|
|
(In |
|
|
|
|
|
(In |
|
|
| ||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Licenses |
|
$ |
962 |
|
30 |
% |
-6 |
% |
$ |
1,027 |
|
31 |
% |
$ |
2,867 |
|
30 |
% |
-5 |
% |
$ |
3,003 |
|
30 |
% |
Services |
|
2,246 |
|
70 |
% |
-4 |
% |
2,331 |
|
69 |
% |
6,781 |
|
70 |
% |
-4 |
% |
7,058 |
|
70 |
% | ||||
Total net revenues |
|
3,208 |
|
100 |
% |
-4 |
% |
3,358 |
|
100 |
% |
9,648 |
|
100 |
% |
-4 |
% |
10,061 |
|
100 |
% | ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of license revenues (as a % of license revenues) |
|
2 |
|
0 |
% |
-33 |
% |
3 |
|
0 |
% |
6 |
|
0 |
% |
-33 |
% |
9 |
|
0 |
% | ||||
Cost of service revenues (as a % of service revenues) |
|
405 |
|
18 |
% |
-7 |
% |
435 |
|
19 |
% |
1,229 |
|
18 |
% |
-12 |
% |
1,394 |
|
20 |
% | ||||
Selling and marketing |
|
1,062 |
|
33 |
% |
-18 |
% |
1,290 |
|
38 |
% |
3,175 |
|
33 |
% |
-18 |
% |
3,850 |
|
38 |
% | ||||
Research and development |
|
1,284 |
|
40 |
% |
-14 |
% |
1,485 |
|
44 |
% |
3,783 |
|
39 |
% |
-13 |
% |
4,353 |
|
43 |
% | ||||
General and administrative |
|
1,130 |
|
35 |
% |
27 |
% |
890 |
|
27 |
% |
3,082 |
|
32 |
% |
8 |
% |
2,863 |
|
28 |
% | ||||
Total operating expenses |
|
3,883 |
|
121 |
% |
-5 |
% |
4,103 |
|
122 |
% |
11,275 |
|
117 |
% |
-10 |
% |
12,469 |
|
124 |
% | ||||
Operating loss |
|
(675 |
) |
-21 |
% |
-9 |
% |
(745 |
) |
-22 |
% |
(1,627 |
) |
-17 |
% |
-32 |
% |
(2,408 |
) |
-24 |
% | ||||
Other income (expense)-net |
|
18 |
|
1 |
% |
143 |
% |
(42 |
) |
-1 |
% |
(13 |
) |
0 |
% |
-81 |
% |
(69 |
) |
-1 |
% | ||||
Loss before income taxes |
|
(657 |
) |
-20 |
% |
-17 |
% |
(787 |
) |
-23 |
% |
(1,640 |
) |
-17 |
% |
-34 |
% |
(2,477 |
) |
-25 |
% | ||||
Income tax provision (benefit) |
|
25 |
|
1 |
% |
-176 |
% |
(33 |
) |
-1 |
% |
47 |
|
0 |
% |
-67 |
% |
144 |
|
1 |
% | ||||
Net loss |
|
$ |
(682 |
) |
-21 |
% |
-10 |
% |
$ |
(754 |
) |
-22 |
% |
$ |
(1,687 |
) |
-17 |
% |
-36 |
% |
$ |
(2,621 |
) |
-26 |
% |
Revenue
NET REVENUE. Our revenue is derived principally from two sources: fees from software licensing and fees for post contract technical support. We generally license our database and rapid application development software primarily on a per-CPU, per-server, per-port or per-user basis. Therefore, the addition of CPUs, servers, ports or users to existing systems increases our revenue from our installed base of licenses. Similarly, the reduction of CPUs, servers, ports or users from existing systems decreases our revenue from our installed base of customers. The timing of orders and customer ordering patterns has resulted in fluctuations in license revenue between quarters and year-to-year. Total revenue decreased by $0.2 million or 4%, and $0.4 million or 4% for the three and nine month periods ended December 31, 2012, respectively, when compared to the same periods in the prior year. License revenue for the three and nine month periods ended December 31, 2012 decreased $0.1 million or 6% and $0.1 million or 5%, respectively, when compared to the same periods in the prior year due to lower sales of Omnis licenses in the current year in our European market. Service revenue for the three and nine month periods ended December 31, 2012 decreased $0.1 million or 4% and $0.3 million or 4%, respectively, when compared to the same periods in the prior year mainly due to lower professional service revenue and lower support revenue as some of our customers reduced users in the current year.
We have been actively developing and marketing our newer product lines, including yolink and Postano. Revenue from these new products has been immaterial for the three and nine months ended December 31, 2012 and 2011. While we are committed to research and development efforts that are intended to allow us to penetrate new markets and generate new sources of revenue, such efforts may not result in additional products, services or revenue. As we integrate Storycode technology and evaluate revenue recognition for Storycodes historical products, we are also evaluating and modifying our product offerings and assessing future revenue impact. We can give no assurances as to customer acceptance of any new products or services, or the ability of the current or any new products and services to generate revenue.
Operating Expenses
COST OF LICENSE REVENUE. Cost of license revenue is comprised of direct costs associated with software license sales including software packaging, documentation, physical media costs and royalties. The slight change in cost of license revenue for three and nine months ended December 31, 2012 when compared to the same periods in the prior year was due to lower physical media packaging cost as most of our customers now receive new licenses via electronic downloads.
COST OF SERVICE REVENUE. Cost of service revenue includes primarily personnel costs relating to consulting, technical support and training services. Cost of service revenue for the three and nine month periods ended December 31, 2012 decreased $0.1 million or 7% and $0.2 million or 12%, respectively, when compared to the same periods in the prior year mainly due to lower personnel cost as a result of consolidating our offices in the United Kingdom in the prior year, and lower stock compensation expense due to certain options being fully amortized.
SELLING AND MARKETING. Selling and marketing expense consists primarily of salaries, benefits, advertising, tradeshows, travel and overhead costs for our sales and marketing personnel. Selling and marketing expense for the three and nine month periods ended December 31, 2012 decreased $0.2 million or 18% and $0.7 million or 18%, respectively, when compared to the same periods in the prior year mainly due to lower consulting and product marketing expenses, lower personnel expense in our Germany and United Kingdom offices, and lower stock compensation expenses. In the prior year, we incurred higher consulting and marketing expenses due to the launch of our Postano product. The full amortization of certain stock options and the consolidation of our offices in the United Kingdom also helped to reduce the selling and marketing expense this year. We anticipate that selling and marketing costs related to the yolink and Postano product lines, especially following our acquisition of Storycode, will increase as we further develop the sales channels for these products and if customer acceptance of these products increases. In addition, if our continued research and development efforts are successful, including with respect to our yolink and Postano product lines, and as new products or services are created, we may incur increased sales and marketing expense to promote those new products in future periods.
RESEARCH AND DEVELOPMENT. Research and development expense consists primarily of salaries and other personnel-related expenses and overhead costs for engineering personnel including employees in the United States and the United Kingdom and contractors in the United States. Research and development expense for the three and nine month periods ended December 31, 2012 decreased $0.2 million or 14% and $0.6 million or 13%, respectively, when compared to the same periods in the prior year mainly related to lower personnel and consulting expenses, and lower stock compensation expense as certain options were fully amortized. We remain committed to our research and development efforts. As we integrate Storycode technology into our Postano platform, investigate further applications and delivery options for the yolink technology and Postano, and as we build new technology platforms for our RAD product line and continue enhancing our MDMS product line, our research and development expense will increase in the foreseeable future. Such efforts may not result in additional new products, and new or integrated products may not generate sufficient revenue, if any, to offset the research and development expense.
GENERAL AND ADMINISTRATIVE. General and administrative expense consists primarily of costs associated with our finance, human resources, legal and other administrative functions. These costs consist principally of salaries and other personnel-related expenses, professional fees, depreciation and overhead costs. General and administrative expense for the three and nine month periods ended December 31, 2012 increased $0.2 million or 27% and $0.2 million or 8%, respectively, when compared to the same periods in the prior year mainly due to legal and other expenses incurred in connection with the acquisition of Storycode. We anticipate that these expenses will increase in the foreseeable future due to acquisition and integration costs associated with the Storycode transaction.
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of gains and losses on foreign currency transactions. Other expense-net decreased by $60,000 for the three months ended December 31, 2012 and decreased by $56,000 for the nine months ended December 31, 2012 mainly due to fluctuation in the Euro exchange rate relating to intercompany balances. Due to the uncertainty in exchange rates, we may experience transaction gains or losses in future periods, the effect of which cannot be predicted at this time.
PROVISION FOR INCOME TAXES. Our effective tax rate was (3.8)% and (2.8)% for the three and nine month periods ended December 31, 2012, respectively, and 4.2% and (5.8)% for the three and nine month periods ended December 31, 2011, respectively. The provision for income taxes for the three and nine month periods ended December 31, 2012 reflected the income tax on net earnings from foreign subsidiaries. The provision for income taxes for the three and nine month periods ended December 31, 2011 reflected income tax on net earnings from foreign subsidiaries, and the true up of tax expense of our German subsidiarys deferred tax assets, net of the deferred tax benefits. Due to uncertainties surrounding the timing of realizing the benefits of the net operating loss carryforwards in the future, we continue to carry a full valuation allowance against net deferred tax assets for our subsidiaries in the United States and United Kingdom.
Liquidity and Capital Resources
As of December 31, 2012, we had $7.9 million in cash, of which approximately $0.7 million was held by our foreign subsidiaries and, if repatriated, would not be subject to material tax consequences. In connection with the closing of the Storycode acquisition on January 17, 2013, we made cash payments in the aggregate amount of approximately $0.4 million, and we expect to incur additional cash outflows during the quarter ending March 31, 2013 associated with integration costs and transaction expenses. We believe that our existing cash balances will be sufficient to meet our operating and capital expenditure requirements for the remainder of the fiscal year ending March 31, 2013 and through the foreseeable future. We are committed to research and development and marketing efforts that
are intended to allow us to penetrate new markets and generate new sources of revenue and improve operating results. However, our research and development and marketing efforts have required, and will continue to require, cash outlays without the immediate or short-term receipt of related revenue. Our ability to meet our expenditure requirements is dependent upon our future financial performance, and this will be affected by, among other things, prevailing economic conditions, our ability to integrate the Storycode technology, penetrate new markets, attract new customers, and achieve market acceptance of our new and existing products and services, the success of research and development efforts and other factors beyond our control.
We had no material commitments for capital expenditures as of December 31, 2012.
Net cash used in operating activities was $0.9 million and $2.3 million for the nine month periods ended December 31, 2012 and 2011, respectively. The decrease in net cash used in operating activities for the nine month period ended December 31, 2012 as compared to the same period in the prior year was primarily due to lower selling and marketing expense and research and development expense. Net cash used in investing activities was $134,000 and $61,000 for the nine month periods ended December 31, 2012 and 2011, respectively. Cash used in investing activities for the nine month period ended December 31, 2012 included $100,000 bridge loan to Storycode (see Subsequent Event footnote) and expenditures related to furniture and equipment purchased. Cash used in investing activities for the nine month period ended December 31, 2011 was for purchases of furniture and equipment. Net cash provided by financing activities was $47,000 and $135,000 for the nine month periods ended December 31, 2012 and 2011, respectively. Net cash provided by financing activities was due to proceeds derived from the exercise of stock options and related issuance of common stock.
There was no outstanding line of credit during the three and nine months ended December 31, 2012 or 2011.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet liabilities or transactions as of December 31, 2012.
Non-GAAP Financial Information
EBITDA or Adjusted EBITDA (each as defined below) should not be construed as a substitute for net income (loss) or as a better measure of liquidity than cash flow from operating activities determined in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA exclude components that are significant in understanding and assessing our results of operations and cash flows. EBITDA or Adjusted EBITDA do not represent funds available for managements discretionary use and are not intended to represent cash flow from operations. In addition, EBITDA and Adjusted EBITDA are not terms defined by GAAP and as a result our measure of EBITDA and Adjusted EBITDA might not be comparable to similarly titled measures used by other companies.
However, EBITDA and Adjusted EBITDA are used by management to evaluate, assess and benchmark our operational results and we believe that EBITDA and Adjusted EBITDA are relevant and useful information widely used by analysts, investors and other interested parties in our industry. Accordingly, we are disclosing this information to permit a more comprehensive analysis of our operating performance, to provide an additional measure of performance and liquidity and to provide additional information with respect to our ability to meet future debt service and capital expenditure and working capital requirements.
EBITDA is defined as net income (loss) with adjustments for depreciation and amortization, interest income (expense)-net, and income tax provision (benefit). Adjusted EBITDA used by our company is defined as EBITDA plus adjustments for other income (expense)-net, and non-cash stock-based compensation expense.
Our Adjusted EBITDA was negative $0.4 million or negative 12.5% of total net revenue for the three month period ended December 31, 2012, as compared to negative $0.3 million or negative 10.3% of total net revenue for same period in the prior year mainly due to lower revenue and higher general and administrative expense relating to the acquisition of Storycode. Our Adjusted EBITDA was negative $0.8 million or negative 8.1% of total net revenue for the nine month period ended December 31, 2012, as compared to negative $1.3 million or negative 13.0% of total net revenue for the same period in the prior year mainly due to lower sales and marketing expense and research and development expense in the current period. The following table reconciles Adjusted EBITDA to the GAAP reported net loss:
RECONCILIATION OF ADJUSTED EBITDA TO NET LOSS
(In thousands)
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Reported net loss |
|
$ |
(682 |
) |
$ |
(754 |
) |
$ |
(1,687 |
) |
$ |
(2,621 |
) |
Depreciation and amortization |
|
31 |
|
37 |
|
97 |
|
119 |
| ||||
Stock-based compensation |
|
244 |
|
361 |
|
744 |
|
990 |
| ||||
Interest expense-net |
|
1 |
|
2 |
|
5 |
|
|
| ||||
Other (income) expense-net |
|
(19 |
) |
40 |
|
8 |
|
69 |
| ||||
Income tax provision (benefit) |
|
25 |
|
(33 |
) |
47 |
|
144 |
| ||||
Adjusted EBITDA |
|
$ |
(400 |
) |
$ |
(347 |
) |
$ |
(786 |
) |
$ |
(1,299 |
) |
Our Adjusted EBITDA financial information can also be reconciled to net cash used in operating activities as follows:
RECONCILIATION OF ADJUSTED EBITDA TO NET CASH USED IN OPERATING ACTIVITIES
(In thousands)
|
|
For the Nine Months Ended |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Net cash used in operating activities |
|
$ |
(894 |
) |
$ |
(2,317 |
) |
Interest expense -net |
|
5 |
|
|
| ||
Other expense-net |
|
8 |
|
69 |
| ||
Income tax provision |
|
47 |
|
144 |
| ||
Change in trade accounts receivable |
|
(10 |
) |
333 |
| ||
Change in other current and non-current assets |
|
17 |
|
330 |
| ||
Change in accounts payable |
|
(53 |
) |
|
| ||
Change in accrued liabilities |
|
(103 |
) |
99 |
| ||
Change in deferred revenue |
|
203 |
|
122 |
| ||
Foreign currency exchange loss |
|
(13 |
) |
(75 |
) | ||
Provision for (recovery from) bad debt |
|
7 |
|
(4 |
) | ||
Adjusted EBITDA |
|
$ |
(786 |
) |
$ |
(1,299 |
) |
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective, as of the end of the period covered by this report, to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls 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, if any, within our company have been detected.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We operate in a rapidly changing environment that involves numerous risks and uncertainties. A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2012 and in our other public filings, including our Annual Report on Form 10-K for the fiscal year ended March 31, 2012. If any of such risks and uncertainties actually occurs, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occurs, our business, financial condition or operating results could be harmed substantially, potentially causing the market price of our stock to decline, perhaps significantly. The following section lists some, but not all, of these risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operation.
IF WE DO NOT DEVELOP NEW PRODUCTS, ENHANCE EXISTING PRODUCTS TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND INDUSTRY STANDARDS, AND SUCCESSFULLY INTEGRATE ACQUIRED PRODUCTS AND TECHNOLOGIES, OUR REVENUE MAY DECLINE.
We have devoted significant resources to the research and development, as well as acquisitions, of products and technologies. We believe that our future success will depend in large part on strong research and development efforts with respect to both our existing and new products, as well as the integration of acquired products and technologies, such as our recently acquired Storycode technology. We have made extensive efforts to leverage our Pick UDM and core intellectual property to create new product lines, including our yolink search technology and our Postano social media visualization platform, which we intend to integrate with the Storycode technology to create, what we believe, will be a new kind of social platform with mobile distribution capabilities. While we intend for these efforts to improve our future operating results and increase cash flow, such new products may not be successful or generate significant revenue. The development of new or enhanced software products is a complex and uncertain process requiring high levels of innovation, as well as accurate anticipation of customer and technical trends. In developing new products and services, we may fail to develop and market products that respond to technological changes or evolving industry standards in a timely or cost-effective manner, or experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products. The development and introduction of new or enhanced products also requires us to manage the transition from older products in order to minimize disruptions in customer ordering patterns and to ensure that adequate supplies of new products can be delivered to meet customer demand. Failure to develop and introduce new products, or enhancements to existing products, in a timely and cost-effective manner in response to changing market conditions or customer requirements, or lack of customer acceptance of our products, will materially and adversely affect our business, results of operations and financial condition. There can be no assurance that we will successfully integrate acquired products and technologies, identify new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive. In addition, if we do not timely optimize complementary product lines and services, or if we fail to adequately support or enhance acquired product lines or services, our business may be adversely affected.
ACQUISITIONS PRESENT MANY RISKS, AND WE MAY NOT REALIZE THE FINANCIAL AND STRATEGIC GOALS AND SYNERGIES THAT WERE CONTEMPLATED OR ANTICIPATED AT THE TIME OF AN ACQUISITION.
One of the elements of our business strategy involves expansion through the acquisition of businesses, assets, products or technologies that allow us to complement our existing product offerings, expand our market coverage, or enhance our technological capabilities. Risks we may face in connection with any such acquisitions include the following:
· Our ongoing business may be disrupted and our managements attention may be diverted by acquisition, transition or integration activities;
· An acquisition may not further our business strategy as we expected, we may not integrate an acquired company or technology as successfully as we anticipated or we may overpay for, or otherwise not realize the expected return on, our investments;
· We may have difficulties (i) managing an acquired companys technologies or lines of business or (ii) entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions;
· Our operating results or financial condition may be adversely impacted by claims or liabilities that we assume from an acquired company or technology or that are otherwise related to an acquisition, including claims from government agencies, terminated employees, current or former customers, former stockholders or other third parties and intellectual property claims or disputes;
· We may fail to identify or assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring a company or technology, which could result in unexpected litigation or regulatory exposure, unfavorable revenue recognition or other accounting treatment, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition;
· We may not realize the anticipated synergies or increases in our revenues for a number of reasons, including if we fail to engage new customers or enter new markets with our integrated products, if we are unable to sell the acquired products to our existing customer base or if contract models of an acquired company do not allow us to recognize revenues on a timely basis;
· We may have difficulty incorporating acquired technologies or products with our existing product lines and maintaining uniform standards, architecture, controls, procedures and policies;
· We may have multiple product lines as a result of our acquisitions that are offered, priced and supported differently, which could cause customer confusion and delays;
· We may incur higher than anticipated costs in continuing support and development of acquired products, and in administrative functions that support new business models, or in compliance with associated regulations that are more complicated than we had anticipated;
· We may be unable to successfully integrate and retain the acquired companies employees and other personnel;
· Our use of cash to pay for acquisitions may limit other potential uses of our cash and may deplete our cash reserves;
· To the extent that we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease; and
· We are required to account for our acquisitions pursuant to U.S. generally accepted accounting principles, including recording goodwill and nonamortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges, incurring amortization expenses related to certain intangible assets, incurring write-offs, restructuring or other related expenses and accounting for arrangements that we assume from an acquisition.
Mergers and acquisitions of high-technology companies are inherently risky and subject to many factors outside of our control. No assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, results of operations, financial condition or cash flows. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. Even when an acquired company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products. In addition, accounting for acquisitions may result in charges during a particular quarter, causing variability in our quarterly earnings. Our effective tax rate for future periods is uncertain and could be impacted by mergers and acquisitions.
OUR FAILURE TO COMPETE EFFECTIVELY MAY HAVE AN ADVERSE IMPACT ON OUR OPERATING RESULTS.
The market for our products is highly competitive, diverse and subject to rapid change. Our products and services compete on the basis of the following key characteristics: performance; inter-operability; scalability; functionality; reliability; pricing; post sale customer support; quality; compliance with industry standards; and overall total cost of ownership. The application development tools software market is rapidly changing and intensely competitive. Our MDMS products compete with products developed by companies such as Oracle, Microsoft and Rocket Software. Our RAD products currently encounter competition from several direct competitors, including Microsoft, and competing development environments, including JAVA. Direct competitors of our yolink search technology include Google, Yahoo, Microsoft, AOL and Ask, as well as a number of smaller companies with products that directly and indirectly compete with our yolink search technology. Direct competitors of our Postano social media visualization product include Facebook and Twitter, as well as numerous smaller companies in the emerging social media marketplace. Direct competitors of our Storycode technology include companies such as salesforce and Oracle. Additionally, as we expand our business and integrate acquired products and technologies, we expect to compete with a different group of companies, including smaller, highly focused companies offering single products.
The strong competition we face in the sales of our products and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect our operating results.
Most of our competitors have significantly more financial, technical, marketing and other resources than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies, evolving markets and changes in customer requirements and may devote greater resources to the development, promotion and sale of their products. Our products and services could fall behind marketplace demands at any time. If we fail to address the competitive challenges, our business and operating results would suffer materially.
BECAUSE OUR MDMS AND RAD PRODUCTS COMPETE WITH PRODUCTS FROM MUCH LARGER AND WELL KNOWN COMPANIES, OUR REVENUE MAY DECLINE IF WE CANNOT MAINTAIN OUR SALES TO EXISTING CUSTOMERS OR GENERATE SALES TO NEW CUSTOMERS.
We face very strong competition from much larger and better known companies in the markets for our MDMS and RAD products. As a result, existing customers and new customers may be inclined to adopt other technologies. To maintain or grow our revenue in these markets, we will need to maintain or grow our sales to existing customers and to generate sales to new customers, including corporate development teams, commercial application developers, system integrators, independent software vendors and independent consultants. If we fail to attract new customers, if we lose our customers to competitors, or if the MDMS or RAD markets decline, our revenue may be adversely affected. In the longer term, it is expected that our revenue from the MDMS and RAD markets will eventually decline as customers adopt newer technologies.
ADVERSE ECONOMIC CONDITIONS COULD CONTINUE TO HARM OUR BUSINESS.
Our operations and performance depend significantly on global economic conditions. Instability in the global credit markets, including the recent European economic and financial turmoil related to sovereign debt issues in certain countries, may continue to put pressure on global economic conditions. If economic conditions remain uncertain in key markets, including without limitation the United States and Western Europe where we derive a majority of our revenue, we will continue to experience adverse impacts on our business, operating results, and financial condition. Unfavorable changes in economic conditions, including recession, rising inflation, diminished credit availability, declining valuation of investments or other changes in economic conditions have resulted in lower information technology spending and have adversely affected our revenue. For example, current or potential customers may have been unable to fund software purchases, potentially causing them to delay, decrease or cancel purchases of our products and services or to not pay us or to delay paying us for previously purchased products and services. Further, since we generally license our MDMS and RAD software on a per-CPU, per-server, per-port or per-user basis, any decrease in CPUs, servers, ports or users by our customers would result in a decrease in our revenue. These and other economic factors could continue to have a material adverse effect on demand for our products and services and on our financial results.
WE HAVE A HISTORY OF LOSSES AND MAY CONTINUE TO INCUR SIGNIFICANT LOSSES IN THE FUTURE.
We incurred net losses of approximately $0.7 million and $1.7 million for the three and nine months ended December 31, 2012, respectively. We had an accumulated deficit of approximately $110.5 million as of December 31, 2012. We may continue to incur significant losses in the future for a number of reasons, including uncertainty as to: (i) the level of our future revenues; (ii) our efforts to monetize newer technologies we have developed, including yolink and Postano; and (iii) our efforts to integrate acquired products and technologies. We plan to continue to pursue strategic opportunities, including investment in new product development and evaluation of strategic acquisitions and dispositions of assets and technologies. Forecasting our revenues and profitability for these new business models is inherently uncertain and volatile. We will need to generate significant increases in our revenues to achieve and maintain profitability, particularly given the current small size of our business relative to the costs associated with being a public reporting company. If our revenue fails to grow or grows more slowly than we currently anticipate or our operating expenses exceed our expectations, our losses would significantly increase which could harm our business and operating results.
OUR PRODUCTS HAVE A LONG SALES CYCLE WHICH COULD RESULT IN DELAYS IN THE RECOGNITION OF REVENUE.
The sales cycle for our MDMS and RAD products typically ranges from three to nine months or longer. Our products are typically used by application developers, system integrators and value added resellers to develop applications that are critical to their corporate end users business. Because our products are often part of an end users larger business process, re-engineering initiative, or implementation of client/server or web-based computing, the end users frequently view the purchase of our products as part of a long-
term strategic decision regarding the management of their workforce-related operations and expenditures. Thus, this sometimes results in end users taking a significant period of time to assess alternative solutions by competitors or to defer a purchase decision as a result of an unrelated strategic issue beyond our control. The adoption cycle for our yolink search technology and Postano social media visualization products is anticipated to be long since the search and social media markets currently have much larger direct competitors such as Google, Yahoo, Microsoft, AOL, Ask, and Facebook and Twitter, respectively. As a result, a significant period of time may elapse between our research and development efforts and recognition of revenue, if any.
THE CONCENTRATION OF OUR STOCK OWNERSHIP GIVES CERTAIN STOCKHOLDERS SIGNIFICANT CONTROL OVER OUR BUSINESS.
As of December 31, 2012, Astoria beneficially owned approximately 53% of our outstanding common stock. Richard W. Koe, Chairman of the Board of Directors and our President and Chief Executive Officer, serves as the Managing General Partner for Astoria Capital Management, Inc., a general partner of Astoria. As of January 17, 2013, after the closing of the acquisition of Storycode, Astorias ownership percentage decreased to slightly below 50% of our outstanding common stock. This concentration of stock ownership allows Astoria, acting alone, to potentially block or delay any actions that require approval of our stockholders, including the election of members to our Board of Directors and the approval of significant corporate transactions. Moreover, this concentration of ownership may delay or prevent a change in control.
WE MAY EXPERIENCE QUARTERLY FLUCTUATIONS IN OPERATING RESULTS, POSSIBLY RESULTING IN VOLATILITY OF OUR STOCK PRICE.
We expect to continue to spend substantial amounts of money in the area of research and development, sales and marketing and operations in order to integrate acquired products and technology and to promote new product development and introduction. Because the expenses associated with these activities are relatively fixed in the short-term, we may be unable to timely adjust spending to offset any unexpected shortfall in revenue growth or any decrease in revenue levels. Operating results may also fluctuate due to factors such as:
· the size and timing of customer orders;
· changes in pricing policies by us or our competitors;
· our ability to develop, introduce, and market new and enhanced versions of our products;
· our ability to integrate acquired products and technologies;
· our ability to realize the anticipated synergies from the businesses we acquire;
· the number, timing, and significance of product enhancements and new product announcements by our competitors;
· the demand for our products;
· non-renewal of customer support agreements;
· the timing and significance of acquisition-related expenses and accounting charges;
· software defects and other product quality problems; and
· personnel changes.
We operate without a significant backlog of orders. As a result, the quarterly sales and operating results in any given quarter are dependent, in large part, upon the volume and timing of orders booked and products shipped during that quarter. Accordingly, we may be unable to adjust spending in a timely manner to compensate for any unanticipated decrease in orders, sales or shipments. Therefore, any decline in demand for our products and services, in relation to the forecast for any given quarter, could materially and negatively impact the results of our operations. As a result, our quarterly operating results may fluctuate, potentially causing our stock price to be volatile. In addition, we believe that period-to-period comparisons of our operating results should not be relied upon as indications of future performance.
A significant drop in our stock price could also expose us to the risk of securities class actions lawsuits, which could result in substantial costs and divert managements attention and resources, which could adversely affect our business.
THE SUCCESS OF OUR BUSINESS DEPENDS IN PART UPON OUR ABILITY TO RECRUIT AND RETAIN KEY PERSONNEL AND MANAGEMENT.
Mr. Koe was appointed Interim President and Chief Executive Officer in February 2009. In connection with the acquisition of Storycode in January 2013, Mr. Koes title was modified to eliminate the interim references, and he continues to serve as our President and Chief Executive Officer. The loss of one or more of our executives could adversely affect our business. In addition, we have in the past restructured or made other adjustments to our workforce in response to management changes, product changes, performance issues, acquisitions and other internal and external considerations. Workforce restructurings could result in a temporary lack of focus and reduced productivity, negatively affecting our revenues.
We believe that our future success will depend to a significant extent on our ability to recruit, hire and retain highly skilled management and employees with experience in engineering, product management, business development, sales, marketing and customer service. Competition for such personnel in the software industry can be intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. If we are unable to do so, we may experience inadequate levels of staffing to develop and license our products and perform services for our customers, adversely affecting our business.
THE INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR ABILITY TO COMPETE.
Our ability to compete successfully will depend, in part, on our ability to protect our proprietary technology and operations without infringing upon the rights of others. We may fail to do so. We rely primarily on a combination of patent, trade secret, copyright and trademark laws and contractual provisions to protect our intellectual property and proprietary rights. Our trademarks include TigerLogic, Postano, Storycode, yolink, Pick, D3, Omnis, Omnis Studio, mvEnterprise, mvBase, and mvDesigner, among others. We have eleven issued U.S. patents and five pending U.S. patent applications as of January 8, 2013. Although we have been issued numerous patents and other patent applications are currently pending, there can be no assurance that any of these patents or other proprietary rights will not be challenged, invalidated, or circumvented or that our rights will, in fact, provide competitive advantages to us. In addition, there can be no assurance that patents will be issued from pending applications or that claims allowed on any patents will be sufficiently broad to protect our technology. Further, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. The outcome of any actions taken in these foreign countries may be different than if such actions were determined under the laws of the United States. Although we are not dependent on any individual patents or group of patents for particular segments of the business for which we compete, if we are unable to protect our proprietary rights to the totality of the features (including aspects of products protected other than by patent rights) in a market, we may find ourselves at a competitive disadvantage to others who need not incur the substantial expense, time, and effort required to create innovative products. In addition to trademark and copyright protections, we generally license our products to end users on a right to use basis pursuant to license agreements that restrict use of products to a specified number of users or a specified usage.
We generally rely on click-wrap licenses that become effective when a customer downloads and installs software on its system or accesses and uses our software. In order to retain exclusive ownership rights to our software and technology, we generally provide our software in object code only, with contractual restrictions on copying, disclosure and transferability. There can be no assurance that these protections will be adequate, that our license agreements will be enforceable in the United States or foreign jurisdictions or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology.
THIRD PARTIES COULD ASSERT THAT OUR SOFTWARE PRODUCTS OR SERVICES INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, POTENTIALLY RESULTING IN COSTLY LITIGATION, PRODUCT SHIPMENT DELAYS, PRODUCT LICENSING PROHIBITIONS OR REQUIREMENTS TO ENTER INTO ROYALTY OR LICENSING AGREEMENTS.
There has been a substantial amount of litigation in the software and online services industry regarding intellectual property rights and there is significant uncertainty in our industry as many of the legal principles associated with software and online services continue to evolve rapidly. Third parties may claim that our current or potential future products or services, including our acquired products and technologies, infringe upon their intellectual property rights, and we may be periodically involved in any number of ordinary course of business proceedings of this type. We expect that software product developers and providers of software applications and online services will increasingly be subject to infringement claims as the number of products, services and competitors in our industry segment grow and the functionality of products and services in different industry segments overlap. Because of the existence of a large number of patents in the software field, the secrecy of some pending patents, and the rapid rate of issuance of new patents, it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others. The asserted claims and/or initiated litigation can include claims against us or our suppliers or customers, alleging infringement of their proprietary rights with respect to our existing or future products or components of those products. Regardless of the merit of these claims, they can be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop a non-infringing technology or enter into royalty or licensing agreements. Where claims are made by customers, resistance even to unmeritorious claims could damage customer relationships. There can be no assurance that licenses will be available on acceptable terms and conditions, if at all, or that our indemnification by our suppliers will be adequate to cover our costs if a claim were brought directly against us or our customers. Furthermore, because of the potential for high court awards that are not necessarily predictable, it is not unusual to find even arguably unmeritorious claims settled for significant amounts. If any infringement or other intellectual property claim made against us by any third party is successful, if we are required to indemnify a customer with respect to a claim against the customer, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, operating results, and financial condition could be materially and adversely affected.
OUR PRODUCTS MAY CONTAIN SOFTWARE DEFECTS POTENTIALLY HARMING OUR BUSINESS.
Our enterprise applications software, search technology, and social media products may contain undetected errors or failures. This includes our higher risk yolink and Postano products because they are in the early stages of the product life cycle, and especially our recently acquired Storycode products and technology. This may result in loss of, or delay in, customer acceptance of our products and could harm our reputation and our business. Undetected errors or failures in computer software programs are not uncommon.
The detection and correction of any security flaws can be time consuming and costly. Errors in our software products could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of products, including products integrated with our acquired technologies, and could adversely affect market acceptance of our products. If we experience errors or delays in releasing new products or new versions of products, we could lose revenues. End users who rely on our products and services for applications that are critical to their businesses may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Software product errors and security flaws in our products or services could expose us to product liability, performance or warranty claims as well as harm our reputation, which could impact our future sales of products and services.
IF ASTORIA OR OTHER SECURITIES HOLDERS REQUEST REGISTRATION OF THEIR RESTRICTED SECURITIES, OR THESE SECURITIES HOLDERS SELL A SUBSTANTIAL AMOUNT OF RESTRICTED SECURITIES IN THE OPEN MARKET, OUR STOCK PRICE MAY DECLINE.
As of December 31, 2012, we had 28,217,980 outstanding shares of common stock, of which approximately 15 million shares were restricted securities held by Astoria and other holders. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration promulgated under the Securities Act. At present, all of our outstanding restricted securities may be registered or are eligible for public sale under Rule 144, subject to volume limitations and other requirements of Rule 144.
Sales of a substantial number of shares of common stock by Astoria or other securities holders in the public market, or the perception that those sales may occur, could cause the market price of our common stock to decline. In addition, if we register shares of our common stock in connection with a public offering of securities, we may be required to include shares of restricted securities in the registration, including shares we issued in connection with the Storycode acquisition, possibly adversely affecting our ability to raise capital.
OUR GLOBAL OPERATIONS EXPOSE US TO ADDITIONAL RISKS AND CHALLENGES ASSOCIATED WITH CONDUCTING BUSINESS INTERNATIONALLY.
We operate on a global basis with offices or distributors in Europe, Africa, Asia, Latin America, South America, Australia and North America and development efforts in North America and Europe. Approximately 30% and 29% of our revenue for the three and nine months ended December 31, 2012, respectively, was generated from our international offices. We face several risks inherent in conducting business internationally, including but not limited to the following:
· general economic conditions in each country or region;
· fluctuations in interest rates or currency exchange rates;
· language and cultural differences;
· local and governmental requirements;
· political or social unrest;
· difficulties and costs of staffing and managing international operations;
· potentially adverse tax consequences;
· differences in intellectual property protections;
· difficulties in collecting accounts receivable and longer collection periods;
· seasonal business activities in certain parts of the world; and
· trade policies.
In addition, compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business in foreign jurisdictions. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the Foreign Corrupt Practices Act, and also local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations could result
in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products and services in one or more countries, could delay or prevent potential acquisitions, and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties. These factors or any combination of these factors may adversely affect our revenue or our overall financial performance.
CHANGES IN OUR PROVISION FOR INCOME TAXES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR INCOME TAX RETURNS COULD ADVERSELY AFFECT OUR OPERATING RESULTS
Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by expiration of or lapses in the R&D tax credit laws; by transfer pricing adjustments, including our intercompany cost sharing arrangements and legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, including possible U.S. changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, or the foreign tax credit rules. Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The accounting guidance for uncertainty in income taxes applies to all income tax positions, including the potential recovery of previously paid taxes, which if settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital. In addition, we have and may become subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these examinations will not have an adverse effect on our operating results and financial condition.
THE FAILURE OF OUR PRODUCTS TO CONTINUE TO CONFORM TO INDUSTRY STANDARDS MAY HARM OUR OPERATING RESULTS.
A key factor in our future success will continue to be the ability of our products to operate and perform well with existing and future, industry-standard enterprise software applications intended to be used in connection with our MDMS and RAD products. Inter-operability may require third party licenses, which may not be available to us on favorable terms or at all. Failure to meet existing or future inter-operability and performance requirements of industry standard applications in a timely manner could adversely affect our business. Uncertainties relating to the timing and nature of new product announcements or introductions or modifications of third party software applications could delay our product development, increase our product development expense or cause customers to delay evaluation, purchase, and deployment of our products.
INEFFECTIVE INTERNAL CONTROLS COULD IMPACT OUR BUSINESS AND OPERATING RESULTS.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. As a smaller reporting company under the SEC rules and regulations, we are currently not subject to the requirements of independent auditor attestation of managements assessment of our internal controls over financial reporting set forth in Section 404(b) of the Sarbanes Oxley Act of 2002 because the Dodd Frank Wall Street Reform and Consumer Protection Act signed into law on July 21, 2010 permanently exempted companies that are not accelerated filers or large accelerated filers under the SEC rules from Section 404(b) requirements. If, in the future, we no longer qualify as a smaller reporting company and become an accelerated filer or a large accelerated filer (which may occur if the trading price of our stock, and therefore, our public float, increase significantly, as calculated on an annual basis), we will become subject to the requirements of Section 404(b) in such fiscal years. If such audit identifies any material weaknesses in our internal control over financial reporting, we may be required to provide appropriate disclosures and implement costly and time consuming remedial measures. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
BUSINESS DISRUPTIONS COULD HURT OUR ABILITY TO EFFECTIVELY PROVIDE OUR PRODUCTS AND SERVICES, DAMAGING OUR REPUTATION AND HARMING OUR OPERATING RESULTS.
The availability of our products and services depends on the continuing operation of our information technology systems. Our business operations are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunication failures, computer viruses, computer denial of service attacks, or other attempts to harm our systems. A significant portion of our research and development activities and certain other critical business operations are located in areas with a high risk of major earthquakes. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our services, which could damage our reputation and harm our operating results.
Exhibit: |
|
Description |
|
|
|
10.13 |
|
Agreement and Plan of Merger, dated December 27, 2012, by and between the Registrant, Storycode, Inc., TLSC Merger Sub, Inc. and Jon Maroney (included as Exhibit 10.1 to the Registrants Form 8-K filed with the Commission on December 28, 2012 and incorporated herein by reference). |
|
|
|
10.14 |
|
Amendment to Agreement and Plan of Merger, dated January 17, 2013, by and between the Registrant, Storycode, Inc., TLSC Merger Sub, Inc. and Jon Maroney (included as Exhibit 10.1 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.15 |
|
Registration Rights Agreement, dated January 17, 2013, by and between the Registrant and the former holders of Storycode, Inc.s common stock named therein (included as Exhibit 10.2 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.16* |
|
Amended and Restated Employment and Severance Agreement, dated January 17, 2013, by and between the Registrant and Richard Koe (included as Exhibit 10.3 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.17* |
|
Amended and Restated Employment and Severance Agreement, dated January 17, 2013, by and between the Registrant and Thomas Lim (included as Exhibit 10.4 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.18* |
|
Employment Agreement, dated January 9, 2012, by and between Storycode, Inc. and James McDermott, as amended by the First Amendment to Employment Agreement, dated as of January 17, 2013, by and between Storycode, Inc. and James McDermott (filed herewith). |
|
|
|
31.1 |
|
Certification of Chief Executive Officer. |
|
|
|
31.2 |
|
Certification of Chief Financial Officer. |
|
|
|
32.1 |
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 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.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
*Indicates management contracts or compensatory plans and arrangements filed pursuant to Item 601 of Regulation S-K under the Exchange Act.
XBRL information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act and Section 18 of the Exchange Act, and is not subject to liability under these sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
SIGNATURES
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.
Date: February 12, 2013 |
TIGERLOGIC CORPORATION |
|
|
|
/S/ THOMAS LIM |
|
Thomas Lim |
|
Chief Financial Officer and Duly Authorized Officer |
EXHIBIT INDEX
Exhibit: |
|
Description |
|
|
|
10.13 |
|
Agreement and Plan of Merger, dated December 27, 2012, by and between the Registrant, Storycode, Inc., TLSC Merger Sub, Inc. and Jon Maroney (included as Exhibit 10.1 to the Registrants Form 8-K filed with the Commission on December 28, 2012 and incorporated herein by reference). |
|
|
|
10.14 |
|
Amendment to Agreement and Plan of Merger, dated January 17, 2013, by and between the Registrant, Storycode, Inc., TLSC Merger Sub, Inc. and Jon Maroney (included as Exhibit 10.1 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.15 |
|
Registration Rights Agreement, dated January 17, 2013, by and between the Registrant and the former holders of Storycode, Inc.s common stock named therein (included as Exhibit 10.2 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.16* |
|
Amended and Restated Employment and Severance Agreement, dated January 17, 2013, by and between the Registrant and Richard Koe (included as Exhibit 10.3 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.17* |
|
Amended and Restated Employment and Severance Agreement, dated January 17, 2013, by and between the Registrant and Thomas Lim (included as Exhibit 10.4 to the Registrants Form 8-K filed with the Commission on January 18, 2013 and incorporated herein by reference). |
|
|
|
10.18* |
|
Employment Agreement, dated January 9, 2012, by and between Storycode, Inc. and James McDermott, as amended by the First Amendment to Employment Agreement, dated as of January 17, 2013, by and between Storycode, Inc. and James McDermott (filed herewith). |
|
|
|
31.1 |
|
Certification of Chief Executive Officer. |
|
|
|
31.2 |
|
Certification of Chief Financial Officer. |
|
|
|
32.1 |
|
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 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.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
*Indicates management contracts or compensatory plans and arrangements filed pursuant to Item 601 of Regulation S-K under the Exchange Act.
XBRL information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act and Section 18 of the Exchange Act, and is not subject to liability under these sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this Agreement) is made and entered into this 9th day of January, 2012 (the Effective Date), by and between FreeRange Communications, Inc, a Delaware corporation (the Company), and James McDermott, an individual (the Executive).
RECITALS
A. The Company desires that the Executive be employed by the Company to carry out the duties and responsibilities described below, and wishes to provide the Executive with certain compensation and benefits in return for such employment duties and responsibilities, all on the terms and conditions hereinafter set forth.
B. The Executive desires to accept such employment on such terms and conditions.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Retention and Duties.
1.1 Retention. Beginning on the Effective Date and continuing during the term of the Executives employment with the Company, the Company shall employ Executive, and the Executive hereby accepts such employment, all on the terms and conditions expressly set forth in this Agreement.
1.2 Duties. During the term of the Executives employment with the Company, the Executive shall serve the Company as its President and Chief Executive Officer and shall have the powers, duties and obligations of management usually vested in the office of the chief executive officer of a corporation, as determined by and subject to the directives of the Companys Board of Directors (the Board), and as governed by the corporate policies of the Company as they are in effect from time to time throughout the Executives employment (including, without limitation, the Companys business conduct and ethics policies, as they may change from time to time). The Executive shall report solely to the Board.
1.3 Location. The Executives principal place of employment shall initially be the Companys offices in Portland, Oregon (the Principal Place of Employment). The Executive agrees that he will be regularly present at the Principal Place of Employment, unless otherwise assigned by Company. The Executive acknowledges that the Executive may be required to travel from time to time in the course of performing his duties for the Company.
2. Compensation.
2.1 Base Salary. The Executives base salary (the Base Salary) shall be paid in accordance with the Companys regular payroll practices in effect from time to time, but not less frequently than in monthly installments. The Base Salary shall be payable on a salary basis under state and federal wage and hour laws. The Executives initial Base Salary shall be paid at the monthly rate of $12,500 (annual rate of $150,000), subject to standard payroll deductions and withholdings. The Company will review the Executives Base Salary at least once per year.
2.2 Bonus Compensation. The Executive will be eligible to receive an annual discretionary incentive bonus (Incentive Bonus). The target amount of the bonus for any given bonus period, whether the Executive receives any such bonus, and the amount of any such bonus will be determined by the Board in its sole discretion, based on performance objectives established in writing by the Board for that particular period. The Executive must remain an active employee through the end of any given calendar year in order to earn an Incentive Bonus for that year and any such bonus will be paid prior to March 15 of the year following the year in which the Executives right to such amount became vested. The Executive will not be eligible for, and will not earn, any Incentive Bonus (including a prorated bonus) if the Executives employment terminates for any reason before the end of the calendar year. The Executives initial target Incentive Bonus amount (for 2012) shall equal One Hundred Fifty Thousand Dollars (US $150,000). The Executives target Incentive Bonus for each bonus period after 2012 shall be determined by the Board.
2.3 Stock Option Grant. The Company shall grant the Executive an option (the Option) to purchase a total of 1,000,000 shares of common stock (Stock) at the fair market value at the time of the grant, as determined by the Board. The Option shall be subject to the terms and conditions of the Stock Incentive Plan (the Stock Plan) and such further terms and conditions as are set forth in a written stock option agreement entered into by the Company and the Executive with respect to the Option. Except as expressly modified in this Agreement, the Option will vest in accordance with the Executives stock option agreement, which provides, among other terms, that the unvested portion of any Option is forfeited upon termination of the Executives employment. All Options issued both now or in the future shall be incentive stock options to the maximum extent permitted by law. The initial option set forth herein will vest twenty-five percent (25%) as of December 31, 2012 (the end of the first calendar year of the Executives start date) with the remaining shares to vest in thirty-six equal monthly components at the end of each calendar month thereafter, until the Option is fully vested or the Executives employment ends, whichever occurs first. Any future option grant will vest over similar terms (one year cliff, and then equal monthly vesting thereafter over the following three (3) years), as will be set forth in and governed in all respects by the applicable plan documents and option agreements between the Executive and the Company governing such options.
3. Benefits.
3.1 Retirement, Welfare and Fringe Benefits. The Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs, if any, made available by the Company to the Companys employees generally, in accordance with the eligibility and participation provisions of such plans and as such plans or programs may be in effect from time to time.
3.2 Reimbursement of Business Expenses. Subject to the Companys expense reimbursement policy, the Company will reimburse reasonable and necessary business expenses the Executive incurs in performing his duties hereunder. Reimbursement for such expenses shall be subject to the Companys policies and procedures for documenting such expenses and submitting requests for reimbursement.
3.3 Vacation and Other Leave. The Executive will be entitled to accrue paid vacation time as he performs work, at the rate of four (4) weeks (or 160 hours) per year, up to a maximum accrual amount of 240 hours. Once the Executive reaches the maximum accrual, additional vacation time will not accrue until Executive brings his vacation time balance below the maximum accrual amount. The Executive shall accrue and be entitled to take paid vacation in accordance with the Companys policies in effect from time to time, including the Companys policies regarding vacation accruals and payout of vacation. During the first six (6) months of employment, the Executive may borrow up to two (2) weeks of paid vacation time in excess of any accrued amount, subject to recoupment from future accruals. The Executive shall also be entitled to all other sick leave and paid holidays available to Company employees generally pursuant to, and subject to the conditions of applicable Company policies.
3. Confidential Information and Outside Activities.
4.1 Confidential Information Agreement. As a condition of employment, concurrently with entering into this Agreement, the Executive shall execute and abide by the Companys standard form of At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement), a copy of which is attached hereto as Exhibit B (the Confidentiality Agreement).
4.2 No Other Employment; Minimum Time Commitment. During the term of the Executives employment with the Company, the Executive shall devote substantially all of the Executives business time, energy and skill to the performance of the Executives duties for the Company, and the Executive will not, except with the prior written consent of the Board, undertake or engage in any other employment, occupation or business enterprise, other than ones in which the Executive is a passive investor. Notwithstanding the foregoing, the Executive will be permitted to continue to serve, to the extent such service does not interfere with the performance of the Executives duties hereunder, on the boards of directors (or similar bodies) of the entities on which the Executive serves as of the Effective Date, as listed on Exhibit A hereto.
4.3 No Adverse Interests. During the Executives employment with the Company. the Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise.
4.4 No Breach of Contract. The Executive hereby represents to the Company that: (i) the execution and delivery of this Agreement by the Executive and the performance by the Executive of the Executives duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or otherwise bound; (ii) the Executive does not possess confidential information arising out of prior employment, consulting, or other third party relationships, that would be used in connection with the Executives employment by the Company, except as expressly authorized by that third party; (iii) the Executive will not improperly use any information (including, without limitation, confidential information and trade secrets) relating to any other person or entity in carrying out his duties hereunder; (iv) during the Executives employment by the Company, the Executive will use in the performance of the Executives duties only information which is generally known and used by persons with training and experience comparable to the Executives own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by the Executive in the course of the Executives work for the Company; and (v) except as disclosed in writing to Company on Exhibit A hereto, and except for the Confidentiality Agreement, the Executive is not bound by any confidentiality, trade secret, non-competition, non-solicitation, or similar agreement.
5. At-Will Employment; Termination.
5.1 At-Will Employment. The Executives employment relationship is at-will. Either the Executive or the Company may terminate the employment relationship at any time, with or without Cause or advance notice.
5.2 Benefits Upon Termination. Upon termination of the Executives employment for any reason, unless otherwise required by law, the Company shall have no further obligation to make or provide to the Executive, and the Executive shall have no further right to receive or obtain from the Company, any payments or benefits after his last day of employment (the Separation Date), except as follows:
(a) The Company shall pay the Executive any Accrued Obligations (as defined in Section 5.4). The Accrued Obligations shall be paid within the time required by law or when otherwise due pursuant to any applicable Company plan or policy. In the event of the Executives death, the Accrued Obligations shall be paid to such beneficiary as is required by law. In addition, the Executive shall be entitled to: (i) receipt of benefits otherwise due terminated employees under group insurance coverage consistent with the terms of the applicable Company welfare benefit plan; (ii) the Executives rights under the Consolidated Omnibus Budget Reconciliation Act to continue participation in medical, dental, hospitalization and life insurance coverage at his own expense; and (iii) any benefits available to the Executive pursuant to Companys 401(k) plan (if any), according to the plan provisions applicable upon termination of employment.
(b) If the Executives employment with the Company terminates as a result of an Involuntary Termination (as defined in Section 5.4 below), the Company shall provide Executive with the following severance benefits:
(i) The Company shall pay Executive, as severance, the equivalent of twelve (12) months of his Base Salary, subject to standard payroll deductions and withholdings, which will be paid over the twelve (12) month period following the Separation Date, on the Companys regular payroll dates running from the Separation Date; provided, however, that for compliance with Internal Revenue Code Section 409A, no payments will begin prior to the 60th day following the Separation date. On that 60th date, the Company will pay a lump sum payment to Executive equal to the payments that would have been paid earlier but for compliance with Section 409A, with the balance paid thereafter as originally scheduled; and
(ii) Provided that Executive timely elects continued coverage under COBRA, the Company shall pay Executives COBRA premiums to continue his coverage (including coverage for eligible dependents, if applicable) (COBRA Premiums) through the period (the COBRA Premium Period) starting on the Separation Date and ending on the earliest to occur of: (1) the duration of the salary continuation period set forth in Section 5.2(b)(i) above; (2) the date Executive becomes eligible for group health insurance coverage through a new employer; or (3) the date Executive ceases to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event Executive becomes covered under another employers group health plan or otherwise ceases to be eligible for COBRA during the COBRA Premium Period, Executive must immediately notify the Company of such event. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA Premiums without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the applicable COBRA premiums for that month (including premiums for Executive and Executives eligible dependents who have elected and remain enrolled in such COBRA coverage), subject to applicable tax withholdings (such amount, the 1pecial Cash Payment), for the remainder of the COBRA Premium Period. Executive may, but is not obligated to, use such Special Cash Payments toward the cost of COBRA premiums. In the event the Company opts for the Special Cash Payments, then on the sixtieth (60th) day following the Separation Date, the Company will make the first payment to Executive under this paragraph, in a lump sum, equal to the aggregate Special Cash Payments that the Company would have paid to Executive through such date had the Special Cash Payments commenced on the first day of the first month following the Separation Date through such sixtieth (60th) day, with the balance of the Special Cash Payments paid thereafter on the schedule described above.
(c) If the Executives employment with the Company terminates as a result of an Involuntary Termination (as defined in Section 5.4 below) within twelve (12) months following the date of a Change of Control (as defined in Section 5.4 below), the Company shall pay Executive, as severance, the equivalent of twelve (12) months of his Base Salary, subject to standard payroll deductions and withholdings, which will be paid
over the twelve (12) month period following the Separation Date, on the Companys regular payroll dates running from the Separation Date and as to each Company stock option grant and restricted stock award, if any, held by the Executive on the Separation Date, all outstanding options shall automatically accelerate and become vested on the Separation Date. In all other circumstances involving Involuntary Termination, any and all then unvested Company options, stock option grants, and restricted stock awards held by Executive shall become subject to accelerated vesting in the amount of the greater of twelve (12) months or fifty percent (50%).
(c) Notwithstanding the foregoing provisions of this Section 5.2, if: (A) the Company determines that the Executive has materially breached his obligations under this Agreement, the Confidentiality Agreement, or the Release of Claims contemplated by Section 5.3, then, in addition to any other remedies available to Company, the Executive shall not be entitled to, and the Company will not be obligated to continue to pay or provide, any severance or other benefits or option/restricted stock acceleration otherwise available pursuant to this Section 5.2. The Company shall provide written notice to the Executive of any such determination.
5.3 Release of Claims. The Executive agrees that the benefits contemplated by Section 5.2 are in lieu of any other severance benefit, plan, or program that may be otherwise applicable to the Executive. All amounts paid to the the Executive pursuant to Section 5.2 shall be paid without regard to whether the Executive has taken or takes actions to secure other employment or income. The Executive shall be eligible for the payments and other benefits provided in Section 5.2 only upon the Executives entering into, within the time required by Company, and not revoking (if such document contains a revocation clause), a separation agreement and release of claims in a form reasonably satisfactory to the Company (the Release of Claims), whereby the Executive releases all claims whatsoever against Company, its related corporations, and their respective current and former employees, agents, officers and shareholders. No severance or other benefits or option/restricted stock acceleration will be paid or provided until the Release of Claims becomes effective.
5.4 Certain Defined Terms. For purposes of this Agreement, the following terms have the definitions set forth below.
(a) Accrued Obligations means:
(i) any Base Salary that had accrued but had not been paid (including accrued and unused vacation time) on or before the Separation Date; and
(ii) any Incentive Bonus pursuant to Section 2.2, to the extent earned as of the Separation Date but not paid to the Executive; and
(iii) any reimbursement due to the Executive pursuant to Section 3.2 for expenses incurred by the Executive on or before the Separation Date.
(b) Cause shall mean: (i) an intentional material act of fraud or dishonesty in connection with Employees duties, or in the course of his employment with the Company; (ii) the conviction of a felony; (iii) a willful act by the Executive which constitutes gross misconduct and which is materially injurious to the Company; or (iv) intentional wrongful disclosure of material trade secrets or material confidential information of the Company; and (v) a willful failure by the Executive to substantially perform his duties under this Agreement that is not cured by the Executive within thirty (30) days after written notice is given to him by the Company identifying such misconduct, other than a failure resulting from the Executives complete or partial incapacity due to physical or mental illness or impairment. No act or failure to act by the Executive shall be considered willful unless committed without good faith and without a reasonable belief that the act or omission was in the Companys best interest.
(c) Change of Control shall mean the earlier occurrence of any of the following events:
(i) any person (as such terms are used in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 as amended) becomes the beneficial owner (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Companys then outstanding voting securities; or
(ii) the consummation of a merger, reorganization or consolidation of the Company with any other entity, other than a merger, reorganization, or consolidation which would result in the voting securities of the Company immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power of such surviving entity outstanding immediately after such merger or consolidation; or
(iii) the Company liquidates or dissolves, or sells, leases, exchanges or otherwise transfers or disposes of all or substantially all of its assets; or
(iv) any sale or exchange of the membership or other equity interests by the owners of the Company in one transaction or series of related transactions where more than 50% of the outstanding voting power of the Company is acquired by a person or entity or group of related persons or entities;
(v) any other transactions or series of related transactions occur which have substantially the same effect as the transactions specified in any of the preceding subsections (i)-(v); or
(vi) an initial public offering of the Company.
(d) Good Reason shall mean a resignation by the Executive after the occurrence of any of the following events or circumstances without the Executives express written consent, and provided the Executive must have provided written notice to the Company of the event giving rise to Good Reason stating the Executives intent to resign and identifying the circumstances the Executive believes qualify as Good Reason pursuant to this Section 5.4(d), 30 days shall have passed from such notice with no correction having occurred, and the Executive has resigned from all positions the Executive holds not later than 90 days after the expiration of such correction period: (i) a material reduction in Executives title, material reduction of the Executives duties, authority or responsibilities: (ii) a material reduction by the Company of the Executives Base Salary. which the parties agree is a reduction of at least 10% of the Base Salary (unless pursuant to a salary reduction program applicable generally to the Companys similarly situated employees), (iii) a material reduction by the Company of the Executives target Incentive Bonus, excluding any reduction generally applicable to senior executives, (iv) material violation by the Company of any material term of any employment, severance, or change of control agreement between the Executive and the Company, or (v) failure by successor entity to assume this Agreement..
(e) Disability shall mean the Executives physical or mental impairment that, as determined in good faith by the Board, renders the Executive unable to perform the essential functions of his employment, with or without reasonable accommodation that does not impose an undue hardship on the Company, for more than 120 days in any 12-month period. The Executive shall cooperate in providing such records and examinations as may be reasonably requested by the Board in making a determination of Disability.
Involuntary Termination shall mean a resignation by the Executive for Good Reason or the Companys termination of the Executive without Cause. For purposes of clarity, the term Involuntary Termination does not include a termination of the Executives employment due to the Executives death or Disability, the Executives resignation under circumstances that do not qualify as Good Reason, or the Companys termination of Executives employment for Cause.
5.5 Notice of Termination. Except for termination in the event of the Executives death, which shall be automatic, any termination of the Executives employment under this Agreement shall be communicated by written notice of termination or resignation from the terminating or resigning party to the other party. The notice of termination or resignation shall indicate the specific provision(s) of this Agreement relied upon in effecting the termination or resignation.
5.6 409A Compliance. It is intended that all of the severance benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent no so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), the Executives right to receive any installment payments under this Agreement (whether severance payments, reimbursements or otherwise) shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. Notwithstanding any provision to the contrary in this Agreement, if the Executive is
deemed by the Company at the time of the Executives Separation from Service to be a specified employee for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon Separation from Service set forth herein and/or under any other agreement with the Company are deemed to be deferred compensation, then to the extent delayed commencement of any portion of such payments is required in order to avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments shall not be provided to the Executive prior to the earliest of (i) the expiration of the six-month period measured from the date of the Executives Separation from Service with the Company, (ii) the date of the Executives death or (iii) such earlier date as permitted under Section 409A without the imposition of adverse taxation. Upon the first business day following the expiration of such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph shall be paid in a lump sum to the Executive, and any remaining payments due shall be paid as otherwise provided herein or in the applicable agreement. No interest shall be due on any amounts so deferred.
6. Withholding and Taxes. Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to this Agreement such federal, state and local income, employment, or other taxes or withholding, as may be required to be withheld pursuant to any applicable law or regulation.
7. Assignment. This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that in the event of a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company with or to any other individual(s) or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.
8. Number and Gender. Where the context requires, the singular shall include the plural, the plural shall include the singular, and any gender shall include all other genders.
9. Section Headings. The section headings of and titles of paragraphs and subparagraphs contained in, this Agreement are for the purpose of convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation thereof.
10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Oregon, irrespective of its conflict of laws rules.
11. Severability. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable.
12. Entire Agreement. This Agreement, together with the Confidentiality Agreement and any stock option agreement referenced in Section 2.3, embodies the entire agreement of the parties hereto respecting the matters within its scope. This Agreement supersedes all prior and contemporaneous agreements of the parties hereto that directly or indirectly bears upon the subject matter hereof Any prior negotiations, correspondence, agreements, proposals or understandings relating to the subject matter hereof shall be deemed to have been merged into this Agreement, and to the extent inconsistent herewith, such negotiations, correspondence, agreements, proposals, or understandings shall be deemed to be of no force or effect. There are no representations, warranties, or agreements, whether express or implied, or oral or written, with respect to the subject matter hereof except as expressly set forth herein.
13. Modifications. This Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by both of the parties hereto.
14. Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other ccurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
15. Arbitration. To ensure the timely and economical resolution of disputes that may arise in connection with the Executives employment with the Company, the Executive and the Company agree that any and all disputes, claims, or causes of action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this Agreement, the Executives employment, or the termination of the Executives employment, including but not limited to statutory claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single arbitrator, in San Francisco, California, conducted by JAMS, Inc. (JAMS) under the then applicable JAMS rules (which can be found at http://www.jamsadr.corn/rulesclausest). By agreeing to this arbitration procedure, both the Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The Company acknowledges that the Executive will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the
dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrators essential findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that the Executive or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS arbitration fees in excess of the amount of court fees that would be required of the Executive if the dispute were decided in a court of law. Nothing in this Agreement is intended to prevent either the Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.
16. Notices.
(a) All notices required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand or (iii) sent by registered or certified mail, postage prepaid, return receipt requested. Any notice shall be duly addressed to the parties as follows:
(i) if to the Company:
attn.: Jon Maroney
[home address]
(ii) if to the Executive:
James McDermott
[home address]
(b) Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 16 for the giving of notice and, in the case of the Executive, the address may be updated through the normal process by which Company employees inform Company of a change in their mailing address. Any communication shall be effective when delivered by hand, when otherwise delivered against receipt therefor, or five (5) business days after being mailed in accordance with the foregoing.
17. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Facsimile, electronic image or other photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.
18. Legal Counsel; Mutual Drafting. Each party recognizes that this is a legally binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice. Each party has cooperated in the drafting, negotiation and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such language. The Executive agrees and acknowledges that he has read and understand this Agreement, is entering into it freely and voluntarily, and has advised to seek counsel prior to entering into this Agreement and has had ample opportunity to do so.
19. Attorneys Fees. In the event of the bringing of any action, proceeding, arbitration or suit by a party hereto against another party hereunder by reason of any breach of any of the covenants, agreement, or provisions arising out of this Agreement, the prevailing party shall be entitled to recover all costs and expenses of that action or suit, or at trial, arbitration or on appeal, and in collection of judgment, including reasonable attorneys fees, accounting, and other professional fees resulting therefrom, provided, however, in no event, shall the Executive be required to pay any JAMs arbitration fees in excess of the amount of court fees that would be required of the Executive if the dispute were decided in a court of law, as referenced above.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the Effective Date.
|
COMPANY | |
|
| |
|
a Delaware corporation | |
|
| |
|
By: |
/s/ Jon Maroney |
|
| |
|
Name: Jon Maroney | |
|
Title: Chairman of the Board, FreeRange Communication, Inc. | |
|
| |
|
| |
|
EXECUTIVE | |
|
/s/ James McDermott |
Exhibit A
As of the Effective Date, the Executive Serves on the Board of Directors (or Similar Body) of the Following Entities:
None
List:
Submittable
SpinSimple
ChirpSocial
The Executive Is Bound By The Following Confidentiality. Trade Secret, Non-Competition, Non Solicitation, Or Similar Agreement(s).
None
List Parties:
Exhibit B
Confidentiality Agreement
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement (this Amendment) is dated as of January 17, 2013, by and between Storycode, Inc., a Delaware corporation formerly known as Free Range Communications, Inc. (the Company), and James McDermott, an individual (the Executive).
WHEREAS, the Company and Executive are parties to that certain Employment Agreement dated as of January 9, 2012 (the Employment Agreement);
WHEREAS, pursuant to that certain Agreement and Plan of Merger dated as of December 27, 2012, by and between the Company, TigerLogic Corporation (Parent), TLSC Merger Sub, Inc. (Merger Sub), and Jon Maroney, the Company is merging with and into Merger Sub, with the Company surviving (the Merger); and
WHEREAS, as a condition to the Merger, Parent is requiring the Company and Executive to amend the Employment Agreement as provided herein, with the amendment effective on the effectiveness of the Merger.
NOW, THEREFORE, in consideration of the agreements and undertakings set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the conditions set forth herein, the Company and Executive agree as follows:
1. Certain Terms. Capitalized terms used herein but not defined in this Amendment have the meanings given to such terms in the Employment Agreement.
2. Amendments to Employment Agreement.
(a) Section 1.2: Duties. Section 1.2 of the Employment Agreement shall be amended and restated as follows:
1.2 Duties. During the term of Executives employment with the Company, the Executive shall serve the Company as its Senior Vice President, Mobile and Social, as determined by and subject to the directives of Parents President and Chief Executive Officer, and as governed by the corporate policies of the Company and Parent as they are in effect from time to time throughout Executives employment (including, without limitation, the Companys business conduct and ethics policies, as they may change from time to time). Executive shall report to Parents President and Chief Executive Officer.
(b) Section 2.1: Base Salary. Section 2.1 of the Employment Agreement shall be amended to provide that Executives Base Salary for 2013 is $200,000 annually, paid in accordance with the Companys normal payroll procedures and subject to standard deductions and withholdings.
(c) Section 2.2: Bonus Compensation. Section 2.2 shall be amended to add that Executives target Incentive Bonus for 2013 shall equal 50% of his Base Salary for 2013, with performance objectives to be established by Parents President and Chief Executive Officer and board of directors, with the determination of whether Executive receives any such bonus, and the amount, determined by the Parents board of directors in their sole discretion.
(d) Section 2.4: Signing Bonus. A new Section 2.4 of the Employment Agreement shall be added as follows:
2.4 Signing Bonus. Effective immediately following the effectiveness of the Merger (the Closing), Executive will be entitled to receive a special signing bonus in the amount of $45,000 (the Signing Bonus), subject to standard deductions and withholdings. The Signing Bonus is payable in two installments, with the first payment of $25,000 made on the Closing and the second payment of $20,000 made on the six month anniversary thereof. If, prior to the six month anniversary of the Closing, Executive resigns without Good Reason or is terminated for Cause, Executive must repay a pro-rated portion of the first installment of the Signing Bonus equal to $4,167 for each month of employment not provided between Closing and the second payment date. If Executives employment terminates for any reason prior to the six month anniversary of the Closing, Executive shall not be entitled to receive the second installment of the Signing Bonus. If, prior to the one year anniversary of the Closing, Executive resigns without Good Reason or is terminated for Cause, Executive must repay a pro-rated portion of the second installment of the Signing Bonus equal to $3,333 for each month of employment not provided between the six month anniversary of the Closing and the first anniversary of the Closing. Annual or other bonuses thereafter shall be in the sole discretion of Parent and subject to approval of the Compensation Committee of the Parents board of directors.
(e) Section 3.3: Vacation and Other Leave. Section 3.3 of the Agreement shall be amended to delete the fourth sentence of such section in its entirety.
(f) Section 5.2: Benefits Upon Termination.
(i) Section 5.2(b)(i) shall be amended to replace the references to 12 months with six months.
(ii) A new Section 5.2(b)(iii) of the Employment Agreement shall be added as follows:
5.2(b)(iii) If the Executives employment with the Company terminates as a result of an Involuntary Termination prior to, or more than twelve (12) months following the date of a Change of Control (as defined in Section 5.4 below), all then-outstanding unvested stock option awards held by the Executive on the Separation Date will become vested and exercisable, as to a number of shares per award equal to the greater of (x) the number of shares that would have vested under the award as of the first anniversary of the Separation Date and (y) 50% of the then-unvested shares.
(iii) Section 5.2(c) is hereby deleted in its entirety and replaced with the following new Section 5.2(c):
5.2(c) If the Executives employment with the Company terminates as a result of an Involuntary Termination on or within twelve (12) months following the date of a Change of Control, then in addition to receiving the severance benefits provided in Section 5.2(b), and in lieu of the accelerated vesting provided in Section 5.2(b)(iii), all then-outstanding unvested stock option awards and shares of restricted stock held by the Executive on the Separation Date will become fully vested and, as applicable, exercisable.
(g) Section 5.4: Certain Defined Terms.
(i) By entering into this Amendment, the Executive expressly consents to the terms of his title, duties, authority and responsibilities as described in this Amendment, as permitted by Section 5.4 of the Agreement. Therefore, as of the date of this Amendment, the Executive acknowledges that he is waiving his right to resign for Good Reason solely to the extent of the change to his title, duties, authority and responsibilities, as expressly described in this Amendment. This wavier is not a waiver of any subsequent changes to the terms and conditions of the Executives employment that may give rise to Good Reason.
(ii) Section 5.4 shall be amended to add the following sentence at the end of the section:
Notwithstanding the foregoing, the Executive must provide the Company with the written notice (referred to in the first sentence of this Section 5.4(d)) identifying the event or condition giving rise to Good Reason (and his intent to resign) within ninety (90) days following the initial existence of such event or condition.
(iii) Parent and the Executive agree that the definition of Change of Control applies not only to the Closing but also to future transactions involving the Company and Parent.
(h) Section 5.6. Section 5.6 is hereby deleted in its entirety and replaced with the following new Section 5.6.
It is intended that all of the benefits provided under the Agreement (including the Amendment) satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A) provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and the Agreement will be construed to the greatest extent possible as consistent with those provisions. To the extent not so exempt, the Agreement (and any definitions under the Agreement) will be construed in a manner that complies with Section 409A, and incorporates by reference all required definitions and payment terms. When termination of employment is used in reference to the triggering of Executives rights to severance payments and benefits, a termination of employment will only be deemed to occur when the Executive has a separation from service (as defined under Treasury Regulations Section 1.509A-1(h)). For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulations Section 1.409A-2(b)(2)(iii)), the Executives right to receive any installment payments under the Agreement will be treated as a right to receive a series of separate and distinct payments.
If the Company, in consultation with qualified external legal counsel, determines that any of the payments in connection with a separation from service constitute deferred compensation under Section 409A, and if the Executive is a specified employee (as such term is defined in Section 409A(a)(2)(B)(i)) of the Company or Parent at the time of his separation from service, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the payments due on a separation from service will
be delayed as follows: on the earlier to occur of (i) the date that is six months and one day after the effective date of the Executives separation from service, and (ii) the date of the Executives death (such earlier date, the Delayed Initial Payment Date), the Company will (A) pay to the Executive a lump sum amount equal to the sum of the payments that the Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying the balance of the payments in accordance with the applicable payment schedules set forth above. No interest will be due on any amounts so deferred.
With respect to expenses eligible for reimbursement or in-kind benefits, if any, provided to the Executive under this or any other Agreement, (i) the amount of such expenses eligible for reimbursement or in-kind benefits provided in any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits provided in another taxable year, (ii) any reimbursements of such expenses and the provision of any in-kind benefits shall be made no later than the end of the calendar year following the calendar year in which the related expenses were incurred, except, in each case, to the extent that the right to reimbursement does not provide for a deferral of compensation within the meaning of Section 409A, and (iii) the right to reimbursement or in-kind benefit shall not be subject to liquidation or exchange for another benefit.
(i) Section 7: Assignment. Section 7 of the Agreement shall be amended to add the following sentence: On effectiveness of the Merger, the Company may assign this Agreement to Parent or one of Parents other direct or indirect subsidiaries for which Executive shall be providing services following the Merger. All references to the Company following the Merger shall include Parent and the direct or indirect subsidiary of Parent for which Executive provides services.
(j) Section 20: Nonsolicitation. A new Section 20 shall be added to the Agreement as follows:
20. Nonsolicitation. For a period of one year following the termination of Executives employment for any reason, Executive agrees that he will not, directly or indirectly, (A) divert or attempt to divert from the Company (or Parent or its other direct or indirect subsidiaries) any business of any kind in which it is engaged, including, without limitation, the solicitation of or interference with any of its suppliers or customers; or (B) solicit, hire, recruit, or employ any person or entity who is employed by or has a contractual relationship with the Company (or Parent or its other direct or indirect subsidiaries), or encourage any person or entity who is employed by or has a contractual relationship with the Company (or Parent or its other direct or indirect subsidiaries) to terminate their employment or contractual relationship with the Company (or Parent or its other direct or indirect subsidiaries).
3. Effectiveness. This Amendment shall become effective only on the effectiveness of the Merger. If the Merger Agreement terminates pursuant to its terms, this Amendment shall terminate and shall have no further force or effect.
4. No Other Amendments. Except for the amendments specified in Section 2 of this Amendment, this Amendment shall not be deemed to effect any amendment, modification or waiver of any provision of the Employment Agreement.
5. Governing Law. This Amendment shall be construed, and the rights and obligations of the Parties determined, according to the laws of the State of Oregon, irrespective of its conflict of law rules.
6. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall be deemed signed and effective as of the date set forth above upon the Parties exchanging facsimile or electronic copies of the executed signature pages.
[signature page attached]
IN WITNESS WHEREOF, intending to be legally bound hereby, the Parties have executed this Amendment as of the day and year first above written.
|
COMPANY | |
|
| |
|
STORYCODE, INC. | |
|
| |
|
| |
|
By: |
/s/ Jon Maroney |
|
Name: Jon Maroney | |
|
Title: Chairman of the Board | |
|
| |
|
| |
|
EXECUTIVE | |
|
| |
|
| |
|
/s/ James McDermott | |
|
JAMES MCDERMOTT |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Richard W. Koe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TigerLogic Corporation;
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(s) 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(s) 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: February 12, 2013
/S/ Richard W. Koe |
|
|
|
Richard W. Koe |
|
President and Chief Executive Officer |
|
(Principal Executive Officer) |
|
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Thomas Lim, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TigerLogic Corporation;
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(s) 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(s) 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: February 12, 2013
/S/ Thomas Lim |
|
Thomas Lim |
|
Chief Financial Officer |
|
(Principal Financial and Accounting Officer) |
|
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard W. Koe, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of TigerLogic Corporation on Form 10-Q for the quarterly period ended December 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of TigerLogic Corporation for the periods presented therein.
Date: February 12, 2013
|
|
By: |
/s/ Richard W Koe |
|
|
Name: |
Richard W Koe |
|
|
Title: |
President and Chief Executive Officer |
I, Thomas Lim, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of TigerLogic Corporation on Form 10-Q for the quarterly period ended December 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of TigerLogic Corporation for the periods presented therein.
Date: February 12, 2013
|
|
By: |
/s/ Thomas Lim |
|
|
Name: |
Thomas Lim |
|
|
Title: |
Chief Financial Officer |
FAIR VALUE MEASUREMENT
|
9 Months Ended |
---|---|
Dec. 31, 2012
|
|
FAIR VALUE MEASUREMENT | |
FAIR VALUE MEASUREMENT | 4. FAIR VALUE MEASUREMENT
The Company maintains all of its cash on deposit at financial institutions. As such, there were no cash equivalents on the Company’s balance sheets as of December 31, 2012 or March 31, 2012 and no other financial assets or liabilities requiring fair value measurement on a recurring basis. There were no nonfinancial assets or liabilities that required recognition or disclosure at fair value on a nonrecurring basis in the Company’s balance sheets as of December 31, 2012 or March 31, 2012. |