The Company And Summary Of Significant Accounting Policies (Policy)

12 Months Ended

Apr. 30, 2014

The Company And Summary Of Significant Accounting Policies [Abstract]

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.”).

We have also prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Such financial statements include our accounts and those of our subsidiaries that we control due to ownership of a controlling interest. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include revenue recognition and the assessment of the valuation of goodwill and other intangible assets, valuation allowance for deferred taxes, valuation of common stock warrant liabilities, estimates of stock based compensation, and the allowance for doubtful accounts receivable. Actual results could differ from these estimates.

Foreign Currency

Foreign currency

The functional currencies of our operations outside the U.S. are the U.S. dollar. The gain or loss on foreign currency transactions are included in other, net, on our consolidated statements of operations. The total gain on foreign currency transactions for fiscal 2014 was $14,000. The total loss on foreign currency transactions for fiscal 2013 and 2012 was $0.2 million and $80,000, respectively.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable and accounts payable approximate fair value because of the short-term maturity of these instruments. The fair values of our long term borrowings are estimated based on borrowing rates currently available to us for similar types of borrowing arrangements. Such values approximate the carrying value of the borrowings as of fiscal year end.

Concentrations of Credit Risk and Credit Evaluations

Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of cash and accounts receivable. We place our cash primarily with one financial institution which, at times, may exceed federally insured levels. We have not experienced any losses with this financial institution.

We license our products principally to companies in the United States, Europe, Canada, Latin America, Russia, Japan, Singapore and Australia. For the year ended April 30, 2014, we had one client that accounted for 17% of consolidated revenues and constituted 19% of consolidated accounts receivable at April 30, 2014. For the year ended April 30, 2013, the same client accounted for 21% of consolidated revenues and constituted 27% of consolidated accounts receivable at April 30, 2013. For the year ended April 30, 2012, the same client accounted for 23% of consolidated revenues and constituted 24% of consolidated accounts receivable at April 30, 2012. We perform periodic credit evaluations of our clients and generally do not require collateral. Allowances are maintained for potential credit losses. International revenues include all our software license and service revenues from customers and clients located outside the United States. International revenues accounted for 47%, 32%, and 32% of total revenues in fiscal years 2014, 2013 and 2012, respectively.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable is reported at the outstanding balance adjusted for any charge-offs and net of allowance for doubtful accounts. Accounts receivable includes unbilled accounts receivable representing amounts recognized as revenue for which invoices have not yet been sent to customers and clients. The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience and other currently available evidence. A receivable is impaired when it is probable that all amounts related to the receivable will not be collected according to the contractual terms of the agreement. Activity in the allowance for doubtful debts and allowance for long-term accounts receivable was as follows:


		2014		2013		2012
		(In thousands)
Allowance for doubtful accounts receivable:
Balance, beginning of period	$	278	$	345	$	503
Charges to operating expenses		163		123		3
Write-offs of accounts, net		(230)		(190)		(161)
Balance, end of period	$	211	$	278	$	345

Allowance for long-term accounts
receivable – reflected in other assets:
Balance, beginning of period	$	-	$	-	$	91
Charges (credits) to operating expenses		-		-		8
Write-offs of accounts		-		-		(99)
Balance, end of period	$	-	$	-	$	-

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, generally three to seven years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the lease term.

Capitalized Software

Under the criteria set forth in Financial Accounting Standards Board (“FASB”) guidance on accounting for the costs of computer software to be sold, leased or otherwise marketed, capitalization of software development costs begins upon the establishment of technological feasibility of the product. With respect to our software development process, technological feasibility is established upon completion of a working model. To date, our products have been released shortly after reaching technological feasibility. Therefore, development costs incurred after completion of a working model and prior to general release have not been significant. Accordingly, no software development costs have been capitalized to date.

Long-Lived Assets

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may be in excess of fair value or not recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

We periodically reevaluate the original assumptions and rationale utilized in the establishment of the carrying value and estimated useful lives of the long-lived assets. The criteria used for these evaluations include management’s estimate of the asset’s continuing ability to generate income from operations and positive cash flows in future periods.

Goodwill

Goodwill is not amortized and is instead tested at least annually for impairment. Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) annually on April 30, and between annual tests whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carrying value. We determined that our reporting units are the same as our operating segments as of April 30, 2014. The goodwill allocated to the Archive and eDiscovery reportable segment at April 30, 2014 and 2013 was $6.1 million for both years. The goodwill allocated to the Development, Database and Migration Tools reportable segment at April 30, 2014 and 2013 was $5.6 million for both years.

Pursuant to the accounting guidance for goodwill and other intangible assets, we perform a two-step impairment test. In the first step, the fair value of the reporting unit is compared to its carrying value. We determine the fair value of the reporting unit by incorporating existing market-based considerations as well as using a discounted cash flow methodology based on current results and projections. If the implied fair value of goodwill is less than the carrying value, the difference is recorded as an impairment loss.

In fiscal 2012 we recorded impairment charges of $13.5 million for the goodwill related to the acquisition of the eDiscovery business, representing 69% of its carrying value. The impairment charge is included in impairments of goodwill and intangible assets in the consolidated statements of operations.

We also tested the other long-lived assets of the eDiscovery business for recoverability and concluded that the carrying value of the eDiscovery intangible assets was partially recoverable. As a result, we recorded impairment charges of $1.5 million for the intangible assets of eDiscovery in fiscal 2012. The intangible assets impaired were $0.2 million of trademarks, $1.2 million of technology-based, and $0.1 million of non-compete. All other long-lived assets were deemed fully recoverable. These impairment charges are included in impairments of goodwill and intangible assets in the consolidated statements of operations.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit. We evaluate the recoverability of intangible assets periodically and take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization.

Revenue Recognition

We generate revenue from the sale of software license and related services, including maintenance and professional services. We also receive revenue from subscription and hosting fees for the use of our hosted software solutions. We license our products to end-user customers and clients, including corporate legal and IT departments, law firms, independent software vendors (“ISVs”), international distributors and value-added resellers (“VARs”). Our software is sold with a perpetual license.

The basis for our revenue recognition is governed by the accounting guidance contained in Accounting Standards Codification (“ASC”) 985-605, Software-Revenue Recognition. We begin to recognize revenue for a customer or client when all of the following criteria are satisfied:

There is persuasive evidence of an arrangement;

The service has been or is being provided and software has been delivered

The collection of the fees is reasonably assured; and

The amount of fees to be paid by the customer or client is fixed or determinable.

Determining whether and when these criteria have been met can require significant judgment and estimates. We consider all revenue-generating activity fees to be fixed or determinable unless the fees are subject to refund or adjustment or are not payable within our standard payment terms. In determining whether collection of these fees is reasonably assured, we consider financial and other information about customers and clients, such as the current credit-worthiness and payment history. Historically, our bad debt expenses have not been significant. In general, revenue recognition commences when our solutions are implemented and made available for use by the customer or client.

Revenue from software licenses are recognized as the software licenses are delivered and are available for use in the customer or client’s environment. The software licenses are delivered either electronically or by physical shipment.

Certain of our software solutions are available for use in hosted application arrangements under hosting fee agreements. Hosting fees from these applications are recognized ratably over the customer or client’s stated term.

We also provide professional and consulting services to our customers and clients. When these services are not included as part of a software license arrangement, we recognize revenue as the services are performed.

We enter into arrangements with multiple-elements that generally include software license, maintenance and professional services related to the software. For those software related multiple-element arrangements, we have applied the residual method to determine the amount of software license revenues to be recognized pursuant to ASC 985-605, Software-Revenue Recognition. Under the residual method, if fair value exists for undelivered elements in a multiple-element arrangement, such fair value of the undelivered elements is deferred with the remaining portion of the arrangement consideration recognized when the software license or services arrangement is delivered. We allocate the fair value of each element of a software related multiple-element arrangement based upon its fair value as determined by our vendor specific objective evidence (“VSOE”) with any remaining amount allocated to the software license. VSOE of fair value is defined as: (i) the price charged when the same element is sold separately, or (ii) if the element has not yet been sold separately, the price for the element established by management having the relevant authority when it is probable that the price will not change before the introduction of the element into the marketplace.

We defer revenue for any undelivered elements, and recognize revenue for delivered elements only when VSOE of fair value of undelivered elements is known, uncertainties regarding customer or client acceptance have been resolved, and there are no customer-negotiated refunds or return rights affecting the revenue recognized for delivered elements.

Software licenses sold with maintenance, which entitles the customer to differing levels of technical support and updates to the software made available on a when-and-if-available basis, are accounted for under ASC 985-605, Software-Revenue Recognition. We recognize fees related to maintenance arrangements ratably over the maintenance period, typically one year, and record the associated costs in direct cost of revenues when incurred.

At April 30 2014 and 2013, the remaining unpaid accounts receivable balances included in deferred revenue was $1.2 million and $3.5 million, respectively.

Taxes collected from customers and clients and remitted to the government are presented on a gross basis on the consolidated balance sheet and are not included in revenue on the consolidated statements of operations.

Warranties and Indemnification

We offer a limited warranty for product and service sales that generally provide the customer or client a ninety-day warranty period against defects. To date, the Company has not incurred any material costs as a result of such warranties and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

The Company’s license agreements generally include certain provisions for indemnifying customers and clients against liabilities if its product or services infringe upon a third-party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

Stock-Based Compensation

We measure stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting period of the stock award (generally four years) using the straight-line method.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, we use various valuation approaches and establish a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Observable inputs other than those included in Level 1, such as quoted market prices for similar assets and liabilities in active markets or quoted prices for identical assets in inactive markets.

Level 3 – Unobservable inputs are used when little or no market data is available and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

We value our common stock warrant liability on a recurring basis based on open form option pricing models which, based on the relevant inputs, render the fair value estimate Level 3. Changes in the fair value of the warrants are reflected in the consolidated statements of operations as “Gain (loss) from change in fair value of common stock warrant liability.”

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to tangible fixed assets, goodwill and other intangible assets, which are remeasured when the derived fair value is below carrying value on the consolidated balance sheets. We do not periodically adjust carrying value to fair value except in the event of impairment. If it is determined that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recording within income (loss) from operations.

Income Taxes

Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. We record a valuation allowance against particular deferred income tax assets if it is more likely than not that those assets will not be realized. The provision for income taxes comprises our current tax liability and changes in deferred income tax assets and liabilities.

We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

We are subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In general, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the fiscal years prior to 2007. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months. Therefore, no reserves for uncertain tax positions have been recorded.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of April 30, 2014, we did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor did we record any interest expense associated with any unrecognized tax benefits for the fiscal year ended April 30, 2014.

Reclassification

Certain prior period balances in our consolidated statements of operations have been reclassified between direct costs of eDiscovery revenue and selling, general and administrative expenses to conform with current presentation.

Recently Accounting Pronouncements

Recent accounting pronouncements

In July 2013, the FASB issued authoritative guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Under the new guidance, an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. The new guidance will be effective for us beginning May 1, 2014. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No, 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently evaluating the impact of adopting the guidance on our financial statements.