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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2009
or
¨ | 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 001-10875
Lyris, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 01-0579490 | |
(State of incorporation) | (I.R.S. Employer Identification No.) |
6401 Hollis Street
Suite 125
Emeryville, CA 94608
(Address of principal executive office, including zip code)
800-768-2929
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller Reporting Company x | |||
(Do not check if a smaller reporting company) |
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
103,221,882 shares of $.01 Par Value Common Stock as of February 10, 2010
Table of Contents
Quarterly Report on Form 10-Q
For Quarter Ended December 31, 2009
Item No. |
Description |
Page Number | ||
PART I FINANCIAL INFORMATION | ||||
Item 1. |
3 | |||
Unaudited Consolidated Balance Sheets as of December 31, 2009 and June 30, 2009 | 3 | |||
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2009 and December 31, 2008 | 4 | |||
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2009 and December 31, 2008 | 5 | |||
Notes to Consolidated Financial Statements | 6 | |||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 27 | ||
Item 4. |
Controls and Procedures | 27 | ||
PART II OTHER INFORMATION | ||||
Item 1. |
28 | |||
Item 1A. |
28 | |||
Item 2. |
28 | |||
Item 3. |
28 | |||
Item 4. |
28 | |||
Item 5. |
29 | |||
30 |
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PART I. FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except per share data)
December 31, 2009 |
June 30, 2009 (1) |
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 369 | $ | 619 | ||||
Accounts receivable, less allowances of $1,046 and $899, respectively |
7,084 | 6,458 | ||||||
Prepaid expenses and other current assets |
1,016 | 1,122 | ||||||
Deferred income taxes |
760 | 714 | ||||||
Deferred financing fees |
70 | 130 | ||||||
Total current assets |
9,299 | 9,043 | ||||||
Capitalized software, net |
870 | 193 | ||||||
Property and equipment, net |
2,388 | 2,331 | ||||||
Intangible assets, net |
9,421 | 11,252 | ||||||
Goodwill |
18,707 | 18,707 | ||||||
TOTAL ASSETS |
$ | 40,685 | $ | 41,526 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 3,527 | $ | 2,987 | ||||
Revolving line of credit - short-term |
2,750 | 1,741 | ||||||
Income taxes payable |
447 | 274 | ||||||
Deferred revenue |
4,180 | 4,255 | ||||||
Total current liabilities |
10,904 | 9,257 | ||||||
Revolving line of credit - long-term |
2,834 | 4,917 | ||||||
Other long-term liabilities |
642 | 338 | ||||||
TOTAL LIABILITIES |
14,380 | 14,512 | ||||||
Commitments and contingencies (Note 11) |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.01 par value; authorized 200,000 shares; issued and outstanding 103,222 and 103,217 shares, respectively |
1,032 | 1,032 | ||||||
Additional paid-in capital |
258,312 | 257,959 | ||||||
Accumulated deficit |
(233,224 | ) | (232,100 | ) | ||||
Cumulative foreign currency translation adjustment |
185 | 123 | ||||||
Total stockholders equity |
26,305 | 27,014 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 40,685 | $ | 41,526 | ||||
(1) | Derived from the audited balance sheet included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009. |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data)
Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues: |
||||||||||||||||
Subscription revenue |
$ | 8,664 | $ | 8,443 | $ | 16,931 | $ | 16,552 | ||||||||
Other services revenue |
1,867 | 1,732 | 3,817 | 3,445 | ||||||||||||
Software revenue |
783 | 833 | 1,394 | 1,971 | ||||||||||||
Total revenues |
11,314 | 11,008 | 22,142 | 21,968 | ||||||||||||
Cost of revenues: |
||||||||||||||||
Subscription, software and other services |
4,716 | 3,585 | 9,127 | 8,030 | ||||||||||||
Amortization of developed technology |
434 | 477 | 866 | 955 | ||||||||||||
Total cost of revenue |
5,150 | 4,062 | 9,993 | 8,985 | ||||||||||||
Gross profit |
6,164 | 6,946 | 12,149 | 12,983 | ||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative |
1,728 | 1,828 | 3,773 | 3,800 | ||||||||||||
Research and development |
740 | 1,207 | 1,460 | 1,769 | ||||||||||||
Sales and marketing |
3,303 | 3,562 | 6,596 | 7,534 | ||||||||||||
Amortization of customer relationship trade names |
500 | 387 | 999 | 776 | ||||||||||||
Total operating expenses |
6,271 | 6,984 | 12,828 | 13,879 | ||||||||||||
Loss from continuing operations |
(107 | ) | (38 | ) | (679 | ) | (896 | ) | ||||||||
Interest expense |
(83 | ) | (110 | ) | (170 | ) | (243 | ) | ||||||||
Loss from continuing operations before income taxes |
(190 | ) | (148 | ) | (849 | ) | (1,139 | ) | ||||||||
Income tax provision |
137 | (19 | ) | 275 | 91 | |||||||||||
Net loss |
$ | (327 | ) | $ | (129 | ) | $ | (1,124 | ) | $ | (1,230 | ) | ||||
Basic and Diluted: |
||||||||||||||||
Net loss per share |
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
Weighted average shares used in calculating net loss income per common share: |
||||||||||||||||
Basic and Diluted |
103,222 | 103,222 | 103,222 | 103,222 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
Six Months Ended December 31, |
||||||||
2009 | 2008 | |||||||
Cash Flow from Operating Activities: |
||||||||
Net loss |
$ | (1,124 | ) | $ | (1,230 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities of continuing operations: |
||||||||
Stock-based compensation expense |
353 | 212 | ||||||
Depreciation and amortization |
2,419 | 2,333 | ||||||
Provision for bad debt |
726 | 425 | ||||||
Deferred income tax benefit |
(46 | ) | (43 | ) | ||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(1,351 | ) | (1,002 | ) | ||||
Prepaid expenses and other current assets |
166 | 269 | ||||||
Accounts payable and accrued expenses |
553 | 283 | ||||||
Deferred revenue |
(75 | ) | (428 | ) | ||||
Income taxes payable |
295 | 53 | ||||||
Net cash provided by operating activities |
1,916 | 872 | ||||||
Cash Flows from Investing Activities: |
||||||||
Purchases of property and equipment |
(408 | ) | (138 | ) | ||||
Capitalized software expenditures |
(689 | ) | | |||||
Net cash used in investing activities |
(1,097 | ) | (138 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Proceeds from debt and credit arrangements |
4,108 | 10,074 | ||||||
Payments of debt and credit arrangements |
(5,182 | ) | (10,436 | ) | ||||
Payments under capital lease obligations |
(15 | ) | | |||||
Net cash used in financing activities |
(1,089 | ) | (362 | ) | ||||
Net effect of exchange rate changes on cash and cash equivalents |
20 | (17 | ) | |||||
Net change in cash and cash equivalents |
(250 | ) | 355 | |||||
Cash and cash equivalents, beginning of period |
619 | 151 | ||||||
Cash and cash equivalents, end of period |
$ | 369 | $ | 506 | ||||
Supplemental cash flow information: |
||||||||
Cash paid for interest |
$ | 130 | $ | 245 | ||||
Cash paid for taxes |
$ | 138 | $ | 80 | ||||
Non-cash investing activities: |
||||||||
Fixed assets acquired under capital leases |
$ | 183 | $ | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Note 1 - Description of Business
Lyris, Inc. (the Company or Lyris) is a leading Internet marketing technology company, serving a wide range of customers from the Fortune 500 to the small and medium-sized business market.
Our software-as-a-service, or SaaS-based, online marketing solutions and services provide customers with solutions to create, deliver and manage online, permission-based direct marketing programs and other communications to customers that use online and mobile channels to communicate with their respective customers and members. We offer the industrys first on-demand integrated marketing suite, Lyris HQ. Our vision is to become the worlds leading provider of online marketing solutions. Our mission is to help online marketers succeed.
Our flagship offering, Lyris HQ, provides customers an integrated online suite of marketing solutions that enables a 360-degree view of campaigns, from email to search-engine keyword management, to web content management and analytics. Its affordable price allows marketing departments to put an integrated, on-demand toolset in the hands of everyday marketers to simplify their processes, unify their marketing efforts and improve return on investment. For the quarter ended December 31, 2009, we have approximately 811 Lyris HQ subscription customers, a 76% increase from the quarter that ended December 31, 2008.
We also offer the following separate individual online marketing solutions: Lyris List Manager, our licensed software product for email marketing; EmailLabs, our hosted email marketing software; and EmailAdvisor, our deliverability monitoring tool. In addition, we continue to offer our Web Analytics Software, ClickTracks, and Lyris Hot Banana,which enables customers to manage content across their different Web properties.
Note 2 - Summary of Significant Accounting Policies
Fiscal Year
Our fiscal year ends on June 30. References to fiscal year 2010, for example, refer to the fiscal year ending June 30, 2010.
Basis of Presentation and Consolidation
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for financial reporting and with the instructions to Form 10-K and Article 10 of Regulation S-X. Our consolidated financial statements include our accounts and accounts of our subsidiaries. We eliminate from our financial results all significant intercompany transactions. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. There are certain reclassifications that have been made to the prior year consolidated financial statements to conform to the current year presentation. These reclassifications had no impact on net loss or stockholders equity.
Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with the information included in our 2009 Annual Report on Form 10-K filed on September 24, 2009 with the U.S. Securities and Exchange Commission (SEC).
Seasonality
Historically, we have experienced higher net sales in the second quarter compared to other quarters in our fiscal year due to seasonal demand. Accordingly, our results for the three and six months ended December 31, 2009 may not necessarily be indicative of the results that may be expected for the full year ending June 30, 2010.
Subsequent Events
We evaluated events and transactions occurring after our quarter ended December 31, 2009 through February 10, 2010, the date we filed this Form 10-Q and issued our financial statements.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Segment Reporting
Our chief executive officer (CEO) is considered to be our chief operating decision-maker. The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. We have determined that we operate in a single operating segment, as an e-marketing technology and services company.
Use of Estimates and Assumptions
In accordance with U.S. GAAP and Rule 10-01of Regulation S-X of the SEC, for a fair presentation for the periods presented, we make adjustments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. These estimates are based on historical analysis and expectations of future trends, which can require extended periods of time to resolve, and are subject to change from period to period. Accordingly, the actual results may ultimately differ from our estimates and assumptions. Our accounting estimates and assumptions that require the most significant and subjective judgments include, but are not limited to the following:
| assumptions such as the elements comprising multiple-deliverable revenue arrangements; |
| distinction between upgrades/enhancements and new products; |
| when technological feasibility is achieved for our products; |
| the potential outcome of future tax consequences of events that have been recognized in our financial statements or tax returns; |
| the accounting for doubtful accounts; |
| amortization and depreciation (estimated useful lives); |
| goodwill and intangible assets valuation; and |
| valuation and recognition of stock-based compensation and deferred revenue and other contingencies. |
During the second quarter of fiscal year 2010, we changed our operating expense allocation methodology and retroactively reclassified previous year amounts for comparability purposes. This operating expense allocation methodology change was based on business judgment and planning needs to improve financial reporting. We allocate overhead such as rent, insurance costs, utilities and property taxes based on headcount. We allocate employee benefit costs and taxes based upon a percentage of total compensation expense. Accordingly, general overhead expenses are reflected in cost of revenue and operating expenses. This change had no impact on our consolidated net income.
Foreign Currency Translation
We record assets, liabilities and results of our operations outside of the United States based on their functional currency. On consolidation, we translate all assets and liabilities in effect on the balance sheet date. We translate revenues and expenses at the average of the monthly exchange rates that were in effect during the period. We recognize the resulting adjustments as a separate component of equity in other comprehensive loss or gain. Foreign currency transaction gains and losses are included in net income as incurred, for that period.
We will continue to manage foreign currency exposure of our assets and liabilities to mitigate, over time, a portion of the impact of exchange rate changes on net income and earnings per share. The fluctuation in the exchange rates that resulted in foreign currency translation adjustments is reflected as a component of other comprehensive income in stockholders equity. For the three and six months ended December 31, 2009, we incurred $35 and $62 foreign currency translation adjustments, respectively. Foreign currency transaction gains and losses are included in net income for the period in which they are incurred.
Certain Risks and Uncertainties
We operate in a highly competitive and dynamic market. Accordingly, there are factors that could adversely impact our current and future operations or financial results including, but not limited to, the following: our ability to obtain rights to or protect our intellectual property; future impairment charges; our ability to develop new products accepted in the marketplace; changes in regulations; competition including, but not limited to, product pricing, product features and services; litigation or claims against us; and the hiring, training and retention of key employees.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Financial instruments that potentially subject us to a concentration of credit risk consist primarily of cash and trade receivables. We sell our products primarily to customers in the United States. We monitor the credit status of our customers on an ongoing basis and we do not require our customers to provide collateral for purchases on credit. No sales to an individual customer accounted for more than 10% of revenue for quarter ended December 31, 2009. Moreover, there was no single customer or supplier that accounted for more than 10% of our trade receivables for the same period.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, and certain other accrued liabilities approximate their fair values, due to their short maturities.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents primarily consists of cash on deposit with banks and money market funds stated at cost, which approximates fair value. We maintain cash balances with banks in excess of Federal Deposit Insurance Corporation insured limits. We limit credit risk by maintaining accounts with financial institutions of high credit standing.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the shorter of the estimated useful lives of the assets, generally two to seven years, or the lease term including any lease term extensions that we have the right and intention to execute, if applicable. Repair and maintenance costs are expensed in the period incurred.
Revenue Recognition
We recognize revenue from providing services and licensing our software products to our customers. We generally recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for software licenses, revenue is recognized when the customer is given electronic access to the licensed software); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable.
Subscription and Other Services Revenue
Services revenue is derived from several sources, including hosted software for use by customers (subscription revenue), providing professional consulting services and technical support services (other services revenue). Subscription revenue is recognized monthly based on the usage defined in the agreement. Amounts that have been invoiced are recorded in accounts receivable and recognized in revenue or deferred revenue depending on whether the revenue recognition criteria have been met. Thus, excess usage is billed and recognized as revenue when incurred.
Professional services sold with our hosted software arrangements are accounted for separately when these services have value to the customer on a standalone basis and there is objective and reliable evidence of fair value for each deliverable. When accounted for separately, professional services revenue is recognized as the services are performed. If professional services do not qualify for separate accounting, revenue is recognized ratably over the remaining term of the hosted software arrangement.
Technical support (maintenance) revenue, including revenue that is part of a multiple element arrangement, is deferred and recognized ratably over the term of the agreement, which is generally one year.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Software Revenue
We enter into certain revenue arrangements for which we are obligated to deliver multiple products and/or services (multiple elements). For these arrangements, which generally include software products, support and professional services, we allocate and defer revenue for the undelivered elements based on their vendor-specific objective evidence of fair value (VSOE). We establish VSOE (delivered and undelivered) for the majority of our elements. We allocate total earned revenue under the agreement among the various elements based on their relative fair value. In the event that VSOE does not exist for all elements, we use the residual method to determine how much revenue for the delivered elements (software licenses) is recognized upon delivery by assigning VSOE to other elements in multiple element arrangements.
We determine VSOE based on actual prices charged for standalone sales of maintenance. To accomplish this, we track sales for the maintenance product when sold on a standalone basis for a one year term and compare to sales of the associated licensed software product.
We perform a quarterly analysis of the actual sales for standalone maintenance and licensed software to establish the percentage of sales relationships for each level of maintenance and licensed software. The result of this analysis has historically been a tight range of percentage of sales relationships centered on a mid-point. Renewal rates, expressed as a consistent percentage of the license fee at each level, represent VSOE of fair value for the maintenance element of the arrangements.
We recognize revenue from our professional services at the time of delivery of the service. We established professional services VSOE based on the use of a consistent rate per hour when similar services are sold separately on a time-and-material basis. In cases where VSOE has not been established, the full value of the arrangement is deferred and recognized ratably over the term of the agreement.
Deferred Revenue
Deferred revenue represents customer billings made in advance for annual support or hosting contracts, professional consulting services to be delivered in the future and bulk purchases of emails to be delivered in the future. Maintenance is typically billed on a per annum basis in advance for software and the revenue is recognized ratably over the maintenance period. Some hosted contracts are prepaid for the month, quarter or year and recognized monthly after the service has been provided. Bulk purchases are typically billed in advance, ranging from monthly to annually, and the revenue is recognized in the periods in which emails are delivered.
Allowance for Doubtful Accounts
We record trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the trade accounts receivable balances and charged to the provision for doubtful accounts.
We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Our estimate is based on historical collection experience, changes in our customer payment history and a review of the current status of trade accounts receivable. If any of these factors change, it is reasonably possible that our estimate of the allowance for doubtful accounts will change. Accounts receivable are presented in our consolidated balance sheet, net of an allowance for doubtful accounts of $1,046 and $899 at December 31, 2009 and June 30, 2009, respectively.
Loss Contingencies and Commitments
We record estimated loss contingencies when information is available that indicates that it is probable that a material loss has been incurred or an asset has been impaired and the amount of the loss can be reasonably estimated. We disclose if the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, or if an exposure to loss exists in excess of the amount accrued. Loss contingencies considered remote are generally not disclosed unless they arise from guarantees, in which case the guarantees would be disclosed. Determining the likelihood of incurring a liability and estimating the amount of the liability involves an exercise of judgment. If the litigation results in an outcome that has greater adverse consequences to us than management currently expects, then we may have to record additional charges in the future. As of December 31, 2009, there were neither material changes to our commitments and obligations, nor were there any probable material losses incurred that could be reasonably estimated.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Goodwill, Long-lived Assets and Other Intangible Assets
We classify our intangible assets into three categories: (1) intangible assets with definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and (3) goodwill.
We evaluate our fixed assets and intangible assets with definite lives for impairment. If the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be recoverable (carrying amount exceeds the gross, undiscounted cash flows from use and disposition), then an impairment loss must be recognized. The impairment loss is measured as the excess of the carrying amount over the assets or asset groups fair value. In addition, the potential impairment of finite life intangibles is assessed whenever events or a change in circumstances indicate the carrying value may not be recoverable.
We test goodwill and intangible assets with indefinite lives not subject to amortization for annual impairment testing. In addition, we consider the following factors that, if significant, could trigger an impairment review prior to annual testing:
a. | underperformance relative to historical or expected projected future operating results; |
b. | change in the manner of our use of the acquired assets or the strategy for our overall business; |
c. | negative industry or economic trends; |
d. | decline in our stock price for a sustained period of time; |
e. | change in our market capitalization relative to net book value; and |
f. | adverse change in legal factors or in the business climate that could affect the value of the asset. |
Capitalized Software Costs
Software licensing. We expense internal costs incurred in researching and developing computer software products designed for sale or licensing until technological feasibility has been established for the product. Once technological feasibility is established, applicable development software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility is established when we have completed all necessary planning and designing and after we have resolved all high-risk development issues through coding and testing. Moreover, these activities are necessary to establish that the product can meet its design specifications including functions, features, and technical performance requirements. We discontinue capitalization when the product is available for general release to customers.
SaaS software costs. We capitalize the direct costs associated with the software we develop for use in providing software-as-a-service to our customers during its application development stage. The types of activities performed during the application development stage create probable future economic benefits. Once the software is available for use in providing services to customers, we depreciate the capitalized amount over three years with the depreciation charged to cost of revenues. We expense activities performed during the preliminary project stage which are analogous to research and development activities. In addition, we expense the types of activities performed during the post-implementation / operation stage. These activities are likely to include release ready and release launch activities.
Total capitalized hosting software costs, net of accumulated amortization, were approximately $193 and $870 during the three and six months ended December 31, 2009. These capitalized costs were primarily subcontractor- and employee-related costs. We started amortizing in the second quarter ended December 31, 2009 and we recorded $12 of amortization expense. During the same periods last year, we had no large development projects that qualified under this capitalization accounting treatment.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date based on the fair value of the award. We determine the fair value of each option grant using a Black-Scholes model. The Black-Scholes model utilizes multiple assumptions to estimate the probability that market conditions will be achieved. We recognized stock-based compensation expenses on a straight-line basis over the requisite service period of the award, which is the option vesting term of 3.2 years. Refer to Note 10 of the Notes to Consolidated Financial Statements.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Accounting for Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics.
We establish valuation allowance if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized. We do not recognize a tax benefit unless we determine that it is more likely than not that the benefit will be sustained upon external examination, an audit by taxing authority. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Refer to Note 7 of the Notes to Consolidated Financial Statements.
Net (Loss) Income per Share
Basic net (loss) income per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted net income (loss) per share is computed similarly to basic net income per share except that it includes the potential dilution that could occur if dilutive securities were exercised.
New Accounting Standards
Effective September 15, 2009, the Financial Accounting Standards Codification Board is a single official source of authoritative U.S. GAAP, except for certain authoritative rules and interpretive releases issued by the SEC. Since the codification did not alter existing U.S. GAAP, it did not have an impact on our Consolidated Financial Statements. We have removed all references to pre-codifications U.S. GAAP from this Form 10-Q.
Recently Adopted Accounting Standards
On July 1, 2009, we adopted authoritative FASB guidance on subsequent events that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date prior to the issuance of the financial statements. The guidance requires disclosure of the date through which subsequent events were evaluated and the basis for that date. The guidance sets forth the following: (1) the period after the balance sheet date during which the management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the required disclosures about events or transactions that occurred after the balance sheet date.
On July 1, 2009, we adopted authoritative FASB guidance on business combinations. The guidance retains the fundamental acquisition method of accounting requirements to be used for all business combinations, but significantly changes the accounting for certain aspects of business combinations, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. We expect this guidance to have an impact on our accounting future business acquisitions.
On July 1, 2009, we adopted authoritative FASB guidance on improving the factors to be considered in developing renewal or extension assumptions used to determine the useful lives of recognized intangible assets. We do not expect this guidance to have a material impact on our accounting for future acquisitions or renewals of intangible assets.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Recently Issued Accounting Standards
In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements.
Note 3 - Intangible Assets
The components of intangible assets consist of the following:
(In thousands) |
December 31, 2009 |
June 30, 2009 |
||||||
Amortizable intangibles: |
||||||||
Customer relationships |
$ | 9,833 | $ | 9,771 | ||||
Developed technology |
12,019 | 11,950 | ||||||
Tradenames |
3,378 | 3,352 | ||||||
25,230 | 25,073 | |||||||
Less: accumulated amortization |
(16,016 | ) | (14,028 | ) | ||||
Less: impairment |
(4,193 | ) | (4,193 | ) | ||||
5,021 | 6,852 | |||||||
Non-amortizable intangibles: |
||||||||
Trade names |
4,400 | 4,400 | ||||||
Total intangible assets, net of amortization |
$ | 9,421 | $ | 11,252 | ||||
During the three and six months ended December 31, 2009, we recorded amortization expenses totaling $945 and $1,877, respectively. Amortization of developed technology during the same periods, classified as cost of revenue was $446 and $879, respectively. The decrease of $1,831 in the intangible assets is attributable to higher amortization expense caused by $107 write-downs during the fourth quarter of fiscal year 2009 of some purchased legacy intangibles combined with the change of its estimated useful lives from indefinite to definite lives (approximately three to five years), as disclosed in our 2009 Annual Report on Form 10-K for fiscal year ended June 30, 2009.
During the three and six months ended December 31, 2008, we recorded amortization expenses totaling $864 and $1,732, respectively. Amortization of developed technology during the same periods, classified as cost of revenue was $477 and $956, respectively.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Note 4 - Property and Equipment
Property and equipment consists of the following:
(In thousands) |
December 31, 2009 |
June 30, 2009 |
||||||
Computers |
$ | 3,625 | $ | 3,280 | ||||
Furniture and fixtures |
583 | 597 | ||||||
Leasehold improvements |
785 | 107 | ||||||
Software |
253 | 758 | ||||||
Other equipment |
467 | 360 | ||||||
5,713 | 5,102 | |||||||
Less: accumulated depreciation and amortization |
(3,325 | ) | (2,771 | ) | ||||
Ending balance |
$ | 2,388 | $ | 2,331 | ||||
Depreciation expense for the three and six months ended December 31, 2009 were approximately $256 and $542, respectively, and during the same periods last year, we recorded depreciation expenses totaling $297 and $601, respectively.
Note 5 - Credit Facility
On October 23, 2009, Lyris and our wholly owned subsidiaries, Lyris Technologies, Inc. and Commodore Resources (Nevada), Inc. (each a Borrower and collectively, the Borrowers) entered into a Fourth Amendment (the Amendment) to the Amended and Restated Loan and Security Agreement with Comerica Bank (the Bank). The Amendment revises the terms of the Amended and Restated Loan and Security Agreement entered into on March 6, 2008, by and among the Bank and the Borrowers (the Agreement), as amended by (1) the First Amendment to the Agreement, dated July 30, 2008 (the First Amendment), (2) the Waiver Letter, dated September 12, 2008 (the Waiver Letter), (3) the Second Amendment to the Agreement, dated December 31, 2008, and (4) the Third Amendment to the Agreement, dated June 19, 2009 (the Third Amendment), each by and among the Bank and the Borrowers (collectively, the Agreement, the First Amendment, the Waiver Letter, the Second Amendment and the Third Amendment, the Amended and Restated Agreement).
Under the Amended and Restated Agreement, as amended by the Amendment, the Banks commitment is $8,175. The revolving line of credit (the Revolving Line) was increased by $750 to a maximum amount of $3,925 and the term loan (the Term Loan) was reduced by $2,000 to $4,250. Both the Revolving Line and the Term Loan mature on April 30, 2011.
The maximum amount available under the Revolving Line is reduced by $92 on the last day of each month through the maturity date. In addition, the amount available under the Revolving Line is limited by a borrowing base, which is 80% of the amount of the aggregate of the Borrowers accounts receivable, less certain exclusions.
Under the Amended and Restated Agreement, as amended by the Amendment, the Term Loan is reduced on the last day of each month by approximately $117 through December 2009 and by $138 on the last day of each month thereafter.
This description is a summary of the Amendment; we filed the full text as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on October 27, 2009.
As of December 31, 2009, we were in compliance with the bank loan covenant as required by the Amendment. Our availability under this credit facility was approximately $3,650 at the end of December 31, 2009. The amount available is limited by the aggregate outstanding borrowings and the letter of credits issued under the facility.
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LYRIS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Note 6 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are summarized as follows:
(In thousands) |
December 31, 2009 |
June 30, 2009 | ||||
Accounts payable |
$ | 1,050 | $ | 535 | ||
Accrued compensation and benefits |
1,209 | 1,242 | ||||
Accrued other |
1,268 | 1,210 | ||||
Ending balance |
$ | 3,527 | $ | 2,987 | ||
Accounts payable and accrued expenses increased $540, or 18%, to $3,527 at December 31, 2009 from $2,987 at June 30, 2009. This increase was primarily driven by higher trade accounts payable associated with larger contracts renewals, and increased accruals related to our marketing programs and taxes.
Note 7 - Income Taxes
Our effective tax rates for the quarters ended December 31, 2009 and 2008 were 32.4% and 7.6%, respectively. The following table provides a reconciliation of the income tax provision at the statutory U.S. federal rate to our actual income tax provisions for the six months ended December 31, 2009 and 2008:
Six Months Ended December 31, | ||||||||||||||
(In thousands) |
2009 | % | 2008 | % | ||||||||||
Income tax expense at the statutory rate |
$ | (254 | ) | (35.0 | %) | $ | (423 | ) | (35.0 | %) | ||||
State income taxes, net of federal benefit |
179 | 20.5 | % | 31 | 2.5 | % | ||||||||
Utilization of NOL carryover |
(689 | ) | (79.0 | %) | (507 | ) | (42.0 | %) | ||||||
Amortization of intangible assets |
653 | 74.9 | % | 606 | 50.1 | % | ||||||||
Other, net |
386 | 51.0 | % | 384 | 32.0 | % | ||||||||
Income tax provision |
$ | 275 | 32.4 | % | $ | 91 | 7.6 | % | ||||||
We establish a valuation allowance if we believe that it is more likely than not that some or all of our deferred tax assets will not be realized. We do not recognize a tax benefit unless we determine that it is more likely than not that the benefit will be sustained upon external examination, which is an audit by taxing authority. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.
Note 8 - Comprehensive Loss
The following table shows the computation of total comprehensive loss:
Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
(In thousands) |
2009 | 2008 | 2009 | 2008 | ||||||||||||
Net loss |
$ | (327 | ) | $ | (129 | ) | $ | (1,124 | ) | $ | (1,230 | ) | ||||
Other comprehensive income: |
||||||||||||||||
Foreign currency translation adjustments |
35 | (307 | ) | 62 | (407 | ) | ||||||||||
Total comprehensive loss |
$ | (292 | ) | $ | (436 | ) | $ | (1,062 | ) | $ | (1,637 | ) | ||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Other comprehensive income is primarily related to gains and losses on the translation of foreign currency denominated financial statements. Adjustments resulting from these translations are accumulated and reported as a component of other comprehensive income in stockholders equity section of the balance sheet.
Note 9 - Net Loss per Share
We calculate our basic earnings per share by dividing net income by the weighted average number of shares of common stock outstanding during the period. Our diluted earnings (loss) per share are calculated in a similar manner, but include the effect of dilutive securities. In the period of loss, we exclude securities that are anti-dilutive from the calculation of diluted (loss) per share.
The following table sets forth the computation and reconciliation of net loss per share:
Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
(In thousands) |
2009 | 2008 | 2009 | 2008 | ||||||||||||
Net loss |
$ | (327 | ) | $ | (129 | ) | $ | (1,124 | ) | $ | (1,230 | ) | ||||
Weighted average shares outstanding: |
||||||||||||||||
Basic and diluted shares |
103,222 | 103,222 | 103,222 | 103,222 | ||||||||||||
Effective of dilutive securities: |
||||||||||||||||
Stock options |
| | | | ||||||||||||
Basic and Diluted |
||||||||||||||||
Net loss per share |
(0.00 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) |
The dilutive loss per common share calculated for the quarters ended December 31, 2009 and 2008 excludes the effect of 6,908, and 5,900 options outstanding, respectively. These amounts were excluded since their inclusion would be anti-dilutive.
Note 10 - Stock- Based Compensation
We recognized stock-based compensation costs, including employee stock awards and purchases under stock purchase plans, at the grant date fair value of the award. Determining the fair value of stock-based awards at the grant date requires judgment. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be impacted.
We determine the fair value of each option grant using a Black-Scholes model. The Black-Scholes model utilizes multiple assumptions including expected volatility, expected life, expected dividends and interest rates. We recognized stock-based compensation expenses on a straight-line basis over the requisite service period of the award, which is the option vesting term of 3.2 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table:
Three Months Ended, December 31, |
Six Months Ended December 31, |
|||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Weighted average fair value of options at grant date |
$ | 0.50 | $ | 0.47 | $ | 0.50 | $ | 0.49 | ||||||||
Expected dividends |
| | | | ||||||||||||
Expected volatility |
79 | % | 53 | % | 59 | % | 53 | % | ||||||||
Expected term of the option |
3.9 years | 4.5 years | 3.9 years | 4.5 years | ||||||||||||
Risk-free interest rates |
2.00-3.55 | % | 2.83-3.22 | % | 2.00-3.55 | % | 2.83-3.22 | % |
The expected term of the options is based on the period of time that options are expected to be outstanding and is derived by analyzing historical exercise behavior of employees in our peer group and the options contractual terms. Expected volatilities are based on implied volatilities from traded options on our common stock, its historical volatility and other factors. The risk-free rates are for the period matching the expected term of the option and are based on the U.S. Treasury yield curve rates as published by the Federal Reserve in effect at the time of grant. The dividend yield is zero based on the fact that we have no intention of paying dividends in the near term.
The following table summarizes the allocation of stock-based compensation expense included in the Consolidated Statements of Operations for the three months ended December 31, 2009 and 2008.
Three Months Ended, December 31, |
Six Months Ended December 31, | ||||||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||
Cost of revenues |
$ | 66 | $ | (19 | ) | $ | 94 | $ | 44 | ||||
General and administration |
62 | 141 | 117 | 70 | |||||||||
Research and development |
15 | 24 | 65 | 44 | |||||||||
Sales and marketing |
17 | 29 | 76 | 51 | |||||||||
Total stock based compensation expense |
$ | 160 | $ | 175 | $ | 352 | $ | 209 | |||||
Our total stock-based compensation expense was approximately $160 and $352 for the three and six months ended December 31, 2009, respectively. During the same periods last year, we recorded stock-based compensation expense totaling $175 and $209, respectively. The $143 increase in stock-based compensation expense is driven by our stock-option repricing that occurred in the first quarter of fiscal year 2010.
Stock-based compensation expense as part of software development costs was not significant for the quarter ended December 31, 2009.
Note 11 - Commitments and Contingencies
Our commitments consist of obligations under operating leases for corporate office space and co-location facilities for data center capacity for research and test data centers.
As of December 31, 2009, there had been no material changes to our lease commitments and obligations since we filed our 2009 Annual Report on Form 10-K for fiscal year ended June 30, 2009 other than as set forth below.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Acquired leases. At December 31, 2009, obligations for minimum future payments under the capital leases acquired from Dell Financial Services, LLC. are as follows:
(In thousands) | |||
2010 |
$ | 66 | |
2011 |
$ | 66 | |
Thereafter |
$ | 33 | |
Total future minimum lease payments |
$ | 166 | |
Corporate office relocation. On May 1, 2009, we entered into an operating lease for new corporate office space and data center capacity in Emeryville, California (as disclosed in our 2009 Annual Report on Form 10-K for fiscal year ended June 30, 2009). The commencement date of this lease and our corporate office relocation was November 1, 2009.
Legal claims
As of December 31, 2009, there had been no material development in our litigation matters since we filed our 2009 Annual Report on Form 10-K for fiscal year ended June 30, 2009.
From time to time, we are also a party to other litigation and subject to claims incident to the ordinary course of business, including customer disputes, breach of contract claims, and other matters. Although the results of such litigation and claims cannot be predicted with certainty, we believe that the final outcome of such litigation and claims will not have a material adverse effect on our business, consolidated financial position, results of operations and cash flows. Due to the inherent uncertainties of such litigation and claims, our view of such matters may change in the future.
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LYRIS INC. AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Consolidated Financial Statements and accompanying Notes in this Quarterly Report on Form 10-Q (the Form 10-Q) and our Annual Report on Form 10-K (the Form 10-K) for fiscal year ended June 30, 2009, filed September 24, 2009 with Securities and Exchange Commission (the SEC).
The discussion and analysis below includes certain forward-looking statements that are subject to risk, uncertainties and other factors, as described in Risk Factors in Item 1A of the Form 10-K, and those found elsewhere in this Form 10-Q, that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this quarter and the periods that follow to differ materially from those expressed in, or implied by, those forward-looking statements.
Our Business
Lyris, Inc. (the Company or Lyris) is a leading Internet marketing technology company, serving a wide range of customers from the Fortune 500 to the small and medium-sized business market.
Our software-as-a-service, or SaaS-based, online marketing solutions and services provide customers with solutions to create, deliver and manage online, permission-based direct marketing programs and other communications to customers that use online and mobile channels to communicate with their respective customers and members. We offer the industrys first on-demand integrated marketing suite, Lyris HQ. Our vision is to become the worlds leading provider of online marketing solutions. Our mission is to help online marketers succeed.
Our flagship offering, Lyris HQ, provides customers an integrated online suite of marketing solutions that enables a 360-degree view of campaigns, from email to search-engine keyword management, to web content management and analytics. Its affordable price allows marketing departments to put an integrated, on-demand toolset in the hands of everyday marketers to simplify their processes, unify their marketing efforts and improve return on investment. For the quarter ended December 31, 2009, we have approximately 811 Lyris HQ subscription customers, a 76% increase from the quarter that ended December 31, 2008.
We also offer the following separate individual online marketing solutions: Lyris List Manager, our licensed software product for email marketing; EmailLabs, our hosted email marketing software; and EmailAdvisor, our deliverability monitoring tool. In addition, we continue to offer our Web Analytics Software, ClickTracks, and Lyris Hot Banana,which enables customers to manage content across their different Web properties.
We operate in a highly competitive industry and face strong competition from other general and specialty software companies. In order to increase our revenues and improve our financial results, we expect to continue expanding and upgrading our all-in-one on demand marketing offering, Lyris HQ, and increase the number of hosted customers. We also continue to implement key growth initiatives in order to achieve long-term sustainable growth, create value for our stockholders, and deliver valued products and services to our customers.
Financial Results of Operations for the Three & Six Months Ended December 31, 2009 and 2008
Overview
Our financial results for the three and six months ended December 31, 2009 and 2008 reflect the current economic conditions that continue to persist in most markets around the world and our investment in the expansion of our business.
Historically, we have experienced higher net sales in the second quarter compared with other quarters in our fiscal year due to seasonal demand. Accordingly, our results for the three and six months ended December 31, 2009 may not necessarily be indicative of the results that may be expected for the full year ending June 30, 2010.
During the second quarter of fiscal year 2010, we changed our operating expense allocation methodology and retroactively reclassified previous year amounts for comparability purposes. This operating expense allocation methodology change is based on business judgment and planning needs to improve financial reporting. We allocate overhead such as rent, insurance costs, utilities and property taxes based on headcount. Employee benefit costs and taxes are allocated based upon a percentage of total compensation expense. Accordingly, general overhead expenses are reflected in cost of revenue and operating expenses. This change did not have any impact on our consolidated net income.
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FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
The following table summarizes our Consolidated Statements of Operations data as a percentage of total revenue for the periods presented:
Three Months Ended December 31, 2009 |
Six Months Ended December 31, 2009 |
|||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||
Total revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of revenue |
45.5 | % | 36.9 | % | 45.1 | % | 40.9 | % | ||||
Gross profit |
54.5 | % | 63.1 | % | 54.9 | % | 59.1 | % | ||||
Operating expenses |
55.4 | % | 63.4 | % | 57.9 | % | 63.2 | % | ||||
Loss from continuing operations |
(0.9 | %) | (0.3 | %) | (3.1 | %) | (4.1 | %) | ||||
Interest expense |
(0.7 | %) | (1.0 | %) | (0.8 | %) | (1.1 | %) | ||||
Loss from continuing operations before taxes |
(1.7 | %) | (1.3 | %) | (3.8 | %) | (5.2 | %) | ||||
Income tax provision |
1.2 | % | (0.2 | %) | 1.2 | % | 0.4 | % | ||||
Net Loss |
(2.9 | %) | (1.2 | %) | (5.1 | %) | (5.6 | %) | ||||
Subscription and Other Services Revenues
Subscription revenue is primarily comprised of subscription fees from customers accessing our hosted services application, and from customers purchasing additional offerings that are not included in the standard hosting agreement. Subscription revenue accounts for 77% and 75% of our total revenue from subscription revenue during the three and six months ended December 31, 2009 and 2008. Other services revenue is derived from related professional consulting services and technical support services, including training and implementation fees.
Three Months Ended December 31, 2009 | |||||||||||||||||||
% of Total Company Revenue |
% of Total Company Revenue |
Quarter Change 2009 vs. 2008 |
|||||||||||||||||
(In thousands, except percentages) |
2009 | % | 2008 | % | Dollars | Percent | |||||||||||||
Subscription revenue |
$ | 8,664 | 77 | % | $ | 8,443 | 76 | % | $ | 221 | 3 | % | |||||||
Other services revenue |
1,867 | 17 | % | 1,732 | 16 | % | 135 | 8 | % | ||||||||||
Total subscription and services revenues |
10,531 | 94 | % | 10,175 | 92 | % | 356 | 3 | % | ||||||||||
Software revenue |
$ | 783 | 6 | % | $ | 833 | 8 | % | $ | (50 | ) | (6 | %) | ||||||
Total revenue |
$ | 11,314 | 100 | % | $ | 11,008 | 100 | % | $ | 306 | 3 | % | |||||||
Six Months Ended December 31, 2009 | |||||||||||||||||||
% of Total Company Revenue |
% of Total Company Revenue |
Quarter Change 2009 vs. 2008 |
|||||||||||||||||
(In thousands, except percentages) |
2009 | % | 2008 | % | Dollars | Percent | |||||||||||||
Subscription revenue |
$ | 16,931 | 77 | % | $ | 16,552 | 75 | % | $ | 379 | 2 | % | |||||||
Other services revenue |
3,817 | 17 | % | 3,445 | 16 | % | 372 | 11 | % | ||||||||||
Total subscription and services revenues |
20,748 | 94 | % | 19,997 | 91 | % | 751 | 4 | % | ||||||||||
Software revenue |
$ | 1,394 | 6 | % | $ | 1,971 | 9 | % | $ | (577 | ) | (29 | %) | ||||||
Total revenue |
$ | 22,142 | 100 | % | $ | 21,968 | 100 | % | $ | 174 | 1 | % | |||||||
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LYRIS INC. AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Three Months Ended December 31, 2009 and 2008
Subscription and other services revenue increased approximately by $356 thousand, or 3%, in the three months ended December 31, 2009, compared with the same period during the previous fiscal year. This increase reflects the continued strong hosted revenue growth, mainly driven by our Lyris HQ offering. We achieved 46% Lyris HQ growth during the second quarter of fiscal year 2010 compared with the same period last year. This strong performance was attributable to a 76% increase of new subscription customer contracts in the second quarter ended December 31, 2009 to 811 from 460 in the second quarter ended December 31, 2008. This positive result was partially offset by a $50 thousand or 6% decline in our software revenue, due to lower sales volume.
For the three months ended December 31, 2009, our other services revenue reflects a $135 thousand, or 8% increase compared with the three months ended December 31, 2008. The 8% increase in other services revenue was due primarily to an increased number of new customers driven by our full service support offering. We anticipate continued revenue growth in our full service offering.
Six Months Ended December 31, 2009 and 2008
Subscription and other services revenue increased by approximately $751 thousand, or 4%, during the six months ended December 31, 2009, compared with the same period during the previous fiscal year. We experienced a substantial 125% Lyris HQ revenue growth during the six months of fiscal year 2010 compared to the same period during the previous fiscal year. However, this positive result was partially offset by a $577 thousand or 29% decline in our software revenue, resulting from lower sales volume. Despite our sustained Lyris HQ revenue growth, we also continued to experience lower renewal rates and customer cancellations due to the challenging economic environment.
For the six months ended December 31, 2009, our other services revenue shows a $372 thousand, or 11% increase compared to the same period during the previous fiscal year. The increase in other services revenue is primarily due to the sustained growth of our full service support offering. Lyris Limited (acquired in May 2009), our international operation in the U.K., is growing and represents both 21% of our total service revenue for the three and six months ended December 31, 2009.
We anticipate sustained revenue growth for our fiscal year 2010 primarily due to our vision and determination to be the worlds leader in providing online marketing solutions. Accordingly, we intend to continue, as part of our business strategic plan, to focus on investing our resources in expanding and developing the first all-in-one online marketing solution in the industry, Lyris HQ. In response to the persistent difficult economic conditions, we remain focused on executing our key business initiatives, upgrading and providing quality products and offerings at the lowest possible costs of ownership while managing our operating expenses. Additionally to increase our sales, we are expanding the number of distribution channels particularly in the international markets.
While we expect revenue and customer growth in fiscal year 2010, we are unable to determine the negative impact that the weakened global economy may have on our overall business operations.
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FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2009
Cost of Revenue
Cost of revenue includes expenses primarily related to engineering employee costs, support and hosting of our services, data center costs, amortization of developed technology, depreciation of computer equipment, website development costs, credit card fees and overhead allocated costs.
For the Three Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||||
Cost of revenue |
$ | 5,150 | $ | 4,062 | $ | 1,088 | 27 | % | |||||||
As percent of revenue |
46 | % | 37 | % | 9 | % | |||||||||
For the Six Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||||
Cost of revenue |
$ | 9,993 | $ | 8,985 | $ | 1,008 | 11 | % | |||||||
As percent of revenue |
45 | % | 41 | % | 4 | % |
Cost of revenue increased 27% and 11% in the three and six months ended December 31, 2009. During the second quarter, we incurred higher employee-related costs including stock-based compensation expenses, the cost of subcontractors and allocated overhead to support and maintain our Lyris HQ offering. In addition, we recognized increased data center costs primarily due to our efforts in increasing data center capacity.
Gross Profit
For the Three Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | |||||||||||||
Gross Profit |
$ | 6,164 | $ | 6,946 | $ | (782 | ) | (11 | %) | ||||||
As percent of revenue |
54 | % | 63 | % | (9 | %) | |||||||||
For the Six Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | |||||||||||||
Gross Profit |
$ | 12,149 | $ | 12,983 | $ | (834 | ) | (6 | %) | ||||||
As percent of revenue |
55 | % | 59 | % | (4 | %) |
Gross profit decreased 11% and 6% in the three and six months ended December 31, 2009. We experienced higher costs of revenues in the current fiscal year 2010 compared with previous fiscal year 2009. These higher costs of revenues were associated with supporting and maintaining our flagship offering, Lyris HQ.
Operating Expenses
During the second quarter of fiscal year 2010, we changed our operating expense allocation methodology and retroactively reclassified previous year amounts for comparability purposes. This operating expense allocation methodology change is based on
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business judgment and planning needs to improve financial reporting. We allocate overhead such as rent, insurance costs, utilities and property taxes based on headcount. Employee benefit costs and taxes are allocated based upon a percentage of total compensation expense. Accordingly, general overhead expenses are reflected in cost of revenue and operating expenses. This change did not have any impact on our consolidated net income
For the Three Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||
Operating expenses: |
|||||||||||||
General and administrative |
$ | 1,728 | $ | 1,828 | $ | (100 | ) | (5 | %) | ||||
Research and development |
740 | 1,207 | (467 | ) | (39 | %) | |||||||
Sales and marketing |
3,303 | 3,562 | (259 | ) | (7 | %) | |||||||
Amortization of customer relationship trade names |
500 | 387 | 113 | 29 | % | ||||||||
Total operating expenses |
$ | 6,271 | $ | 6,984 | $ | (713 | ) | (10 | %) | ||||
For the Six Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||
Operating expenses: |
|||||||||||||
General and administrative |
$ | 3,773 | $ | 3,800 | $ | (27 | ) | (1 | %) | ||||
Research and development |
1,460 | 1,769 | (309 | ) | (17 | %) | |||||||
Sales and marketing |
6,596 | 7,534 | (938 | ) | (12 | %) | |||||||
Amortization of customer relationship trade names |
999 | 776 | 223 | 29 | % | ||||||||
Total operating expenses |
$ | 12,828 | $ | 13,879 | $ | (1,051 | ) | (8 | %) | ||||
General and administrative
General and administrative expenses consist primarily of compensation and benefits for administrative personnel, professional services (which include consultants, legal fees and accounting), audit and tax fees, and costs related to corporate operations (which include stock-based compensation and other corporate development costs).
General and administrative expenses decreased 5% and 1% in the first three and six months ended December 31, 2009, compared with the corresponding periods in the previous fiscal year. The decrease is driven by our continued implementation of cost-benefit reduction initiative to manage our operating expenses efficiently.
Research and development
Research and development expenses include payroll, employee benefits, stock-based compensation and other headcount related expenses associated with product developments.
Research and development expenses decreased 39% and 17% in the three and six months ended December 31, 2009, compared with the same periods in the previous fiscal year. These expenses declined because we capitalized certain software development expenses in the three and six months ended December 31, 2009 that were associated with major product upgrading and development of our Lyris HQ offering. For the three and six months ended December 31, 2009, we capitalized software costs, net of accumulated amortization approximately $193 thousand and $870 thousand, respectively. During the same periods in the previous fiscal year, we had no large development projects that qualify under the computer software cost capitalization FASB guidance.
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Sales and marketing
Sales and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related expenses associated with advertising our services and software. Sales and marketing expenses also include promotions, trade shows, seminars and other programs.
Sales and marketing expenses decreased 7% and 12% in the first three and six months ended December 31, 2009, compared with the same periods in the prior fiscal year. During the three and six months ended December 31, 2009, we sponsored fewer marketing events and tradeshows. In addition, we made personnel adjustments in our sales and marketing departments. However, we expect sales and marketing costs to continue to represent a significant portion of operating expenses in the future as we continue to expand awareness of our products and services and increase our participation in a number of marketing industry events.
Amortization of customer relationships
Amortization of customer relationships increased 29% in the three and six months ended December 31, 2009, compared with the same periods in the prior fiscal year. The 29% increase represents higher amortization expense directly related to the change in the estimated useful lives from indefinite to definite lives of approximately three to five years. We made this change during fiscal year ended June 30, 2009.
Interest expense
For the Three Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||||
Interest expense |
$ | (83 | ) | $ | (110 | ) | $ | 27 | (25 | %) | |||||
As percent of revenue |
(1 | %) | (1 | %) | 0 | % | |||||||||
For the Six Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||||
Interest expense |
$ | (171 | ) | $ | (243 | ) | $ | 72 | (30 | %) | |||||
As percent of revenue |
(1 | %) | (1 | %) | 0 | % |
Interest expense decreased 25% and 30% in the three and six months ended December 31, 2009, compared to the same periods in the previous fiscal year. Lower interest expense was attributable to minimum borrowings during the three and six months ended December 31, 2009.
Provision for income taxes
Our effective tax rate was approximately 32.4% and 7.6% for the three and six months ended December 31, 2009 and 2008, respectively. For additional information about income taxes, refer to Note 7 of the Notes to Consolidated Financial Statements in this Form 10-Q.
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Liquidity, Capital Resources and Financial Condition
Cash and Cash equivalents
Our primary source of cash, during the first three and six months of fiscal year 2010 was from the collection of accounts receivable balances generated from net sales. For additional operational funds requirements, we have an available revolving line of credit with Comerica Bank. As of December 31, 2009, our cash equivalents totaled $369 thousand compared to $619 thousand at the fiscal year ended June 30, 2009.
Subject to the Risk Factors set forth and referred to in Item 1A of Part II of our Form 10-K for fiscal year ended June 30, 2009, we anticipate that we will continue to improve our cash flow from operations. We expect to increase growth in our hosted revenue offerings, particularly with Lyris HQ, and to increase efficiency within our operating expenses, enabling us to generate available cash to satisfy our capital needs and debt obligations.
Summary of Cash Activities
For the Six Months Ended December 31, |
Variance 2009 vs. 2008 |
||||||||||||||
(In thousands, except percentages) |
2009 | 2008 | $ | % | |||||||||||
Net cash provided by operating activities |
$ | 1,916 | $ | 872 | $ | 1,044 | 120 | % | |||||||
Net cash used in investing activities |
(1,097 | ) | (138 | ) | (959 | ) | 695 | % | |||||||
Net cash used in financing activities |
(1,089 | ) | (362 | ) | (727 | ) | 201 | % | |||||||
Effect of exchange rate changes on cash |
20 | (17 | ) | 37 | (218 | %) | |||||||||
Net change in cash and cash equivalents |
$ | (250 | ) | $ | 355 | $ | (605 | ) | (170 | %) | |||||
Operating Activities
Net cash derived from operations was $2.0 million during the six months ended December 31, 2009 versus $872 thousand in the six months ended December 31, 2008. The $1.1 million improvement of net cash flow provided by operating activities was due primarily to the growth in our Lyris HQ customer base and the associated increase in billings and collections. Historically, net cash provided by operating activities has been affected by net income and non-cash adjustments such as depreciation and amortization and stock-based compensation expense.
Investing Activities
Our net cash used in investing activities was $1.1 million during the six months ended December 31, 2009 versus $138 thousand in the six months ended December 31, 2008. We experienced higher infrastructure costs driven by our corporate office and data centers relocation in November 2009. In addition, we incurred expenditures associated in upgrading and developing new products.
We expect that future capital expenditures will be primarily for developing new products and purchases to upgrade our information technology capabilities.
Financing Activities
Our net cash used in financing activities was $1.1 million in the six months ended December 31, 2009 versus $362 thousand in the six months ended December 31, 2008. Net cash used for financing activities primarily represents revolving line of credit payments with Comerica Bank. We anticipate to continue paying down our term loan and revolving line of credit with Comerica Bank.
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During the three and six months ended December 31, 2009, we entered into capital lease agreement with Dell Financial Services, LLC. At December 31, 2009, obligations for minimum future payments under the capital lease obligations acquired from Dell Financial Services, LLC. are as follows:
(In thousands) | |||
2010 |
$ | 66 | |
2011 |
$ | 66 | |
Thereafter |
$ | 33 | |
Total future minimum lease payments |
$ | 166 | |
We currently satisfy our working capital needs and other financing requirements with our increased cash collection from our accounts receivable and cash available with our revolving line of credit with Comerica Bank. We may need additional funds through public equity or additional short-term borrowings to satisfy our future capital needs, financing requirements and support our future business activities.
Legal Claims
Refer to Note 11 of the Notes to the Consolidated Financial Statements contained in this Form 10-Q for a discussion of legal claims.
Off-Balance Sheet Arrangements
There have been no material changes in our off-balance sheet arrangements since we filed our Form 10-K for the fiscal year ended June 30, 2009.
Revolving Line of Credit
For summary description of the Credit Facility Amendment, please refer to Note 5 of the Notes to Consolidated Financial Statements in this Form 10-Q.
Critical Accounting Policies and Use of Estimates
In accordance with U.S. GAAP and Rule 10-01of Regulation S-X of the SEC, for a fair presentation for the periods presented, we make adjustments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. These estimates are based on historical analysis and expectations of future trends, which can require extended periods of time to resolve, and are subject to change from period to period. Accordingly, the actual results may ultimately differ from our estimates and assumptions. Our accounting estimates and assumptions that require the most significant and subjective judgments include, but are not limited to the following:
| assumptions such as the elements comprising multiple-deliverable revenue arrangements; |
| distinction between upgrades/enhancements and new products; |
| when technological feasibility is achieved for our products; |
| the potential outcome of future tax consequences of events that have been recognized in our financial statements or tax returns; |
| the accounting for doubtful accounts; |
| amortization and depreciation (estimated useful lives); |
| goodwill and intangible assets valuation; and |
| valuation and recognition of stock-based compensation and deferred revenue and other contingencies. |
During the second quarter of fiscal year 2010, we changed our operating expense allocation methodology and retroactively reclassified previous year amounts for comparability purposes. This operating expense allocation methodology change was based on business judgment and planning needs to improve financial reporting. We allocate overhead such as rent, insurance costs, utilities and
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property taxes based on headcount. We allocate employee benefit costs and taxes based upon a percentage of total compensation expense. Accordingly, general overhead expenses are reflected in cost of revenue and operating expenses. This change had no impact on our consolidated net income.
Capitalized Software Costs
Software licensing. We expense internal costs incurred in researching and developing computer software products designed for sale or licensing until technological feasibility has been established for the product. Once technological feasibility is established, applicable development software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility is established when we have completed all necessary planning and designing and after we have resolved all high-risk development issues through coding and testing. Moreover, these activities are necessary to establish that the product can meet its design specifications including functions, features, and technical performance requirements. We discontinue capitalization when the product is available for general release to customers.
SaaS software costs. We capitalize the direct costs associated with the software we develop for use in providing software-as-a-service to our customers during its application development stage. The types of activities performed during the application development stage create probable future economic benefits. Once the software is available for use in providing services to customers, we depreciate the capitalized amount over 3 years with the depreciation charged to cost of revenues. We expense activities performed during the preliminary project stage which are analogous to research and development activities. In addition, we expense the types of activities performed during the post-implementation / operation stage. These activities are likely to include release ready and release launch activities.
Total capitalized software costs, net of accumulated amortization, were approximately $193 thousand and $870 thousand during the three and six months ended December 31, 2009. These capitalized costs were primarily subcontractor and employee-related costs. We started amortizing in the second quarter ended December 31, 2009 and we recorded $12 thousand of amortization expense. During the same periods last year, we had no large development projects that qualified under this capitalization accounting treatment.
Valuation Allowances and Reserves
We record trade accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the trade accounts receivable balances and charged to the provision for doubtful accounts.
In estimating our allowance for doubtful accounts, we use the percentage of sales application and specific-identification reserve methodology. We establish the general reserve rate based on the percentage of sales for four quarters of previous fiscal year 2009, deriving the average quarterly rate. Because write-offs are booked when deemed uncollectible and delinquent accounts are analyzed for potential additional write-offs as of the balance sheet date for a given reporting period, we believe that using the average quarterly rate is consistent with our review of allowance for doubtful account. Then, the determined factor is applied to revenue in the current quarter, net of cash and credit sales to establish the general reserve portion of the total accounts receivable reserve. To determine the specific reserve, we established the criteria to use in assessing the collectability of the past due balance over 90 days. To establish the criteria, we reviewed each questionable account. Our criteria are based on all outstanding receivables greater than 90 days in the following uncollectible categories: (1) receivables sent to collection agency; (2) receivables under legal determination; and (3) receivables in higher collection risk. For each established criteria, we determine the percentage of the required reserve.
Our allowance for doubtful accounts increased approximately $147 thousand from $899 thousand at June 30, 2009 to $1,046 million at December 31, 2009. During the three months ended September 30, we incurred approximately $366 thousand in bad debts expense, which is mainly associated to the negative impact of the current economic downturn. Accounts receivable are presented in our consolidated balance sheet, net of an allowance for doubtful accounts.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign Currency Exchange
We record assets, liabilities and results of our operations outside of the United States based on their functional currency. On consolidation, we translate all assets and liabilities in effect on the balance sheet date. We translate revenues and expenses at the average of the monthly exchange rates that were in effect during the period. We recognize the resulting adjustments as a separate component of equity in other comprehensive loss or gain. Foreign currency transaction gains and losses are included in income as incurred, for that period.
Two of our entities, Hot Banana (Canada) and Lyris Limited (U.K.) are subject to market risks relating to foreign currency fluctuation. We will continue to manage foreign currency exposure to mitigate, over time, a portion of the impact of exchange rate changes on net income and earnings per share. The fluctuation in the exchange rates that resulted in foreign currency translation adjustments is reflected as a component of other comprehensive income in stockholders equity. For the three and six months ended December 31, 2009, we incurred $35 thousand and $62 thousand foreign currency translation adjustments, respectively. Foreign currency transaction gains and losses are included in net income for the period in which they are incurred.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act), our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information we are required to disclose in the reports that we file or submit under the Exchange Act 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 and is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Based on the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2009.
As of December 31, 2009, there were no changes in internal control over financial reporting during the second quarter of fiscal year 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Operating Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Legal claims
There have been no material developments in our litigation matters since we filed our Annual Report on Form 10-K for fiscal year ended June 30, 2009.
From time to time, we are also a party to other litigation and subject to claims incident to the ordinary course of business, including customer disputes, breach of contract claims, and other matters. Although the results of such litigation and claims cannot be predicted with certainty, we believe that the final outcome of such litigation and claims will not have a material adverse effect on our business, consolidated financial position, results of operations and cash flows. Due to the inherent uncertainties of such litigation and claims, our view of such matters may change in the future.
ITEM 1A. | RISK FACTORS |
Careful consideration should be given to the risk factors discussed under the caption Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009. This Quarterly Report on Form 10-Q is qualified in its entirety by these risks. This Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described in the Form 10-K and elsewhere in this Form 10-Q. The market price of our common stock could decline due to any of these risks and uncertainties, or for other reasons, and a stockholder may lose part or all of its investment.
There have been no material changes in our risk factors from those disclosed in the Form 10-K for fiscal year ended June 30, 2009.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable
ITEM 4. | OTHER INFORMATION |
Our certificate of incorporation contains transfer restrictions that prohibit transfers of our capital stock that would result in a stockholder exceeding a five percent (5%) ownership threshold.
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ITEM 5. | EXHIBITS |
Exhibit No. |
Exhibit | |
3.1(a) | Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(a)(i) to the Companys Annual Report on Form 10-K for the year ended June 30, 2007). | |
3.1(b) | Certificate of Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3(a)(ii) to the Companys Annual Report on Form 10-K for the year ended June 30, 2007). | |
3.1(c) | Certificate of Ownership and Merger, merging NAHC, Inc. with and into J. L. Halsey Corporation (incorporated by reference to Exhibit 3(a)(iii) to the Companys Annual Report on Form 10-K for the year ended June 30, 2007). | |
3.2 | First Amended and Restated Bylaws of the Company, as amended as of February 14, 2007 (incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on February 21, 2007). | |
31.1 | Certification of Luis A. Rivera, Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** | |
31.2 | Certification of Heidi L. Mackintosh, Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.** | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
** | Furnished herewith |
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Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: February 10, 2010
LYRIS, INC. | ||
By: | /s/ Luis A. Rivera | |
Luis A. Rivera | ||
Chief Executive Officer and President | ||
By: | /s/ Heidi L. Mackintosh | |
Heidi L. Mackintosh | ||
Chief Financial Officer |
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