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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2015

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 0-29637


SELECTICA, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware

77-0432030

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

2121 South El Camino Real, 10th Floor, San Mateo, CA  94403

(Address of Principal Executive Offices)

 

(650) 532-1500

(Registrant’s Telephone Number)

 

Securities registered under Section 12(b) of the Act:

 

Title of Each Class

Name of Each Exchange On Which Registered

Common Stock, $0.0001 par value per share

The NASDAQ Capital Market

 

Securities registered under Section 12(g) of the Act:

None


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.     Yes  ☐    No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

 

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  ☒    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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ☐

 

 
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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 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  ☐ (Do not check if a smaller reporting company)

Smaller reporting company  ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

As of September 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of $5.99 per share as reported by The NASDAQ Capital Market on that date, was $36,468,653.

 

As of June 12, 2015, the registrant had 9,214,083 outstanding shares of common stock.

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Part III of this Annual Report on Form 10-K incorporates by reference from information to be filed with the Securities and Exchange Commission in the registrant’s definitive proxy statement for its 2015 Annual Meeting of Stockholders (the “Proxy Statement”) or in an amendment to this Annual Report on Form 10-K within 120 days of the registrant’s fiscal year ended March 31, 2015. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as a part hereof.

 

 
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SELECTICA, INC.

 

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED

MARCH 31, 2015

 

Table of Contents

 

 

  

  

  

Part I

Item 1

Business

4

   

Item 1A

Risk Factors

11

   

Item 1B

Unresolved Staff Comments

18

   

Item 2

Properties

18

   

Item 3

Legal Proceedings

18

   

Item 4

Mine Safety Disclosures

18

   

  

   

Part II

   

Item 5

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

19

   

Item 6

Selected Financial Data

22

   

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

   

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

27

   

Item 8

Financial Statements and Supplementary Data

27

   

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

57

   

Item 9A

Controls and Procedures

57

   

Item 9B

Other Information

58

   

  

   

Part III

   

Item 10

Directors, Executive Officers and Corporate Governance

59

   

Item 11

Executive Compensation

59

   

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

59

   

Item 13

Certain Relationships and Related Transactions, and Director Independence

59

   

Item 14

Principal Accounting Fees and Services

59

   

  

   

Part IV

   

Item 15

Exhibits and Financial Statement Schedules

59

   

  

SIGNATURES

61

   
     

 

 
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Cautionary Statement Pursuant to Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995

 

The words “Selectica”, “we”, “our”, “ours”, “us”, and the “Company” refer to Selectica, Inc. This Annual Report on Form 10-K (the “10-K” or Report) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  In addition, we may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of ours and other matters that do not relate strictly to historical facts. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. These forward-looking statements include statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Factors that could cause or contribute to such differences include, but are not limited to, those discussed under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K and in our other Securities and Exchange Commission (the “SEC”) filings. Furthermore, such forward-looking statements speak only as of the date of this Report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

  

  

 

PART I

 

Item 1. Business

 

OVERVIEW

 

We provide cloud-based software solutions that help companies maximize the outcomes of their business relationships, including the formation and management of supplier relationships, the contracting process and the on-going maintenance of these relationships to help the organization to ensure compliance and reduce risk. To enable these outcomes we offer SmartContracts®, SmartSource® and SmartAnalytics®. These offerings tie-together seamlessly to deliver a unified and powerful solution.

 

Selectica SmartContracts combines a single, enterprise-wide contract repository and authoring platform with a flexible workflow engine capable of supporting each organization’s unique contract management processes. SmartContracts streamlines the contract processes, from request, authoring, negotiation, approval and e-signature through ongoing obligations management, analysis, reporting, and renewals. SmartContracts helps companies take control of their contract processes by converting from paper-based to electronic documents and by unlocking multiple layers of critical business data, making it available for the evaluation of risk, the exposure of lost revenue, the evaluation of supplier performance, and other supply chain requirements.. The solution helps to improve the customer buying experience for sales organizations, improve the control of risk and decrease time spent drafting, monitoring and managing contracts, and gain access to previously hidden discounts through the exposure and elimination of unfavorable agreements for procurement and sourcing organizations.

 

Selectica SmartSource provides an enterprise scale solution to support the processes of supplier on-boarding, supplier selection and on-going supplier management. By providing a supplier portal available via the cloud, SmartSource allows suppliers and our customers to seamlessly interact to exchange information and collaborate ultimately helping our customers to build and maintain relationships with their supply base that aligns with internal policies and regulatory requirements. The solution provides sophisticated optimization techniques utilized during the supplier selection process to allow customers to optimize their vendor selection process according to their business context taking into account criteria such as reliance on low-cost countries, exposure to risk, past performance and allocation for diverse spend. Once the supplier relationships have been established, the solution provides for on-going tracking of performance to ensure that the suppliers are delivering to their contractual service levels, KPI and quality.

 

Selectica SmartAnalytics delivers powerful business insights and executive reporting by combining our best in industry knowledge, data analytics and expertise, customer data created SmartContracts and Smartsource, as well as in other enterprise systems, such as ERP, CRM and external market data. And the ability to collaborate and share spends trends and the insights from enterprise-wide spend analysis activities.

 

 
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Selectica Configuration Solution is a patented Configuration engine streamlines the management and dissemination of complex product information, enabling companies to streamline the opportunity-to-order process for manufacturers, service providers, and financial services companies. Our Configuration solution makes it easy to recommend products and services to customers, enabling accurate pricing, and increasing sales of relevant bundles, discounts, and cross-sells. The Configurator organizes sales information and makes it available in real-time to reps and channel partners across the globe, so they can configure flawless deals on the fly. By empowering customers, product management, marketing, sales leadership, sales operations, salespeople, and channel partners to generate error-free sales proposals for their unique requirements, we believe our cloud-based solution helps companies to close sales faster, accelerate revenue generation and enhance customer relationships.

 

Along with our software, we provide our customers with an array of services to assist them in implementations, customizations, system upgrades, migrations, and solution architecture.

 

Selectica was incorporated in California in June 1996 and re-incorporated in Delaware in November 1999. The company’s principal executive offices are located at 2121 South El Camino Real 10th Floor, San Mateo, California, 94403, and 12800 North Meridian Street, Suite 425, Carmel, IN 46032 and its website is www.selectica.com.

  

 
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SELECTICA PRODUCTS

 

Selectica SmartContracts

 

Selectica SmartContracts automates the entire contract lifecycle—from initial request through contract renewal. We believe that our cloud solutions offer a high degree of flexibility, enabling customers across many departments (e.g., sales, services, procurement, finance, IT, leasing, intellectual property, and more) to model their specific contracting processes and to manage the lifecycle of a contract from creation through closure. Our SmartContracts solution meets the needs of many challenging and dynamic organizations:

 

 

Corporate legal organizations. The General Counsel’s office and other legal organizations can use SmartContracts to move paper-bound contracts into a secure, centralized, and searchable electronic repository, and gain visibility and control of all corporate agreements.

 

 

Procurement organizations. Procurement contract managers can use SmartContracts to expose off-contract spending.

 

 

Sales organizations. Sales organizations can use SmartContracts to shorten the sales cycle and speed time to revenue, while potentially protecting the company from inadvertent and expensive contract errors.

 

 

Finance organizations. Finance organizations can use SmartContracts to identify and account for non-standard terms and pricing in the revenue cycle while discovering unrealized revenue buried in sales agreements.

 

 

Contract Administration. Contract administrators can use Selectica ECLM to create visibility into contract obligations not captured by ERP and CRM and empower non-contract professionals to create and execute basic contracts.

 

We believe our SmartContracts provides the following key features:

  

Repository

 

Centralized repository for contracts and attachments

Full-text, Boolean, and fuzzy search functionality

Ability to attach native, scanned, and faxed documents to any contract record

Advanced filtering tools, folders, and hierarchies for document organization

Amendment consolidation in a single auditable “effective view”

 

 

Contract authoring

 

Microsoft Word add-in for creating, authoring, editing, and checking in contracts

Data extraction from .doc, .pdf, and faxed third-party documents

Step-by-step contract creation wizard

 

 

Contract process management

 

Conditional, parallel, and serial approval workflows

e-Signature integrations (wet or electronic)

Composers for contracts, boilerplates, approvals, tasks, notifications, and user accounts

Obligation tracking with alerts, post-execution workflow steps, and advanced reporting

Alerts for contract renewal opportunities

Contract renewal authoring based on previous contract records

 

 

Mobile support

 

Compatibility with iPad, iPhone, Android, and Blackberry devices

Single-click mobile approvals

Mobile interface for approving, rejecting, commenting on, and reassigning contracts

 

 
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Alerts

 

Notifications and tasks for expirations, renewals, obligations, and key milestones

Custom email alerts

 

 

Reporting and analytics

 

Scheduled and ad-hoc reporting capabilities

One-click switching between contract record and report results

Automated report emails in .pdf, .xls, or .xml format

Integrations with external report writers, including Crystal Reports, Cognos, and Adobe

Contract fulfillment tracking

Personalized dashboards

 

 

Integration

 

Integration with Selectica Guided Selling

Integration with ERP and business intelligence tools

Integration with Salesforce.com CRM

Integration with EMC Documentum

 

 

Security

 

Strong network (128-bit SSL) and data security

Permission-based access to data and business processes

Security and audit reporting

 

 

Administration

 

Suite of composers for managing data, templates, clauses, and more

Cloud deployment

Configurable, easy-to-manage interface

 

 

SmartSource

 

With Selectica SmartSource, enterprises qualify and establish optimal supplier relationships that support savings and risk reduction objectives. In addition, the solution provides for the ongoing management of those relationships to ensure compliance with SLAs and other internal and external requirements. We believe our solution will be beneficial for many stakeholders across the enterprise including Procurement, Supply Chain, Line of Business, Finance and Risk.

 

Customizable Project Management

 

 

Customizable dashboards based on user and project activities

 

Wizard driven project design based on project type: RFx, sealed bid or auction

 

Detailed information on project details, timelines, lot information and attachments

 

Quick link access to project attendees, live events, timelines, and sourcing reports

 

Conduct eRFx and Auctions

 

 

Autoscoring/weighting or feedback based on internal stakeholders

 

Supplier feedback and interaction through comment and attachment involvement

 

Event response review and comparison

 

Survey Editor for drag and drop features, questions and templates

 

Roles and Permission settings for managing changes and views

 

 
7

 

 

eRFx and Auction Analysis to enable the sourcing process

 

 

Exporting survey info MS Word or Excel

 

Drill-down to any combination of questions, supplier/respondent and event evaluator results

 

Side-by-side comparison of event results and detailed breakdown by question and section

 

Sourcing dashboards for improving sourcing intelligence through custom screen layouts for prioritizing sourcing projects

 

Advanced Decision Optimization to guide award

 

 

Allocation constraints for deciding how much business to award to one or more suppliers

 

Supplier based exclusions based on suppliers, supplier groups or supplier location for providing goods or services

 

Qualitative constraints and factors applied to an item or set of supplier items graded based on various attributes and ranked based on attributes

 

Limit constraints and factors for setting award maximums on items and groups of items

 

Discount constraints based on volumes or pre-specified dollar values

 

Freight bracket optimization based on estimated and optimized freight brackets

 

Supplier Discovery and Collaboration

 

 

Supplier self-review – Allowing suppliers to enter and submit their own data and provides internal managers the ability to verify or reject individual pieces of supplier profile information

 

Supplier discovery and registration - Allow suppliers to find buying organization efficiency and introduce opportunity for new sourcing opportunities

 

Supplier Information Management

 

 

Supplier profiles – collect and manage data in several formats that aligns with business requirements.

 

Supplier risk management – minimize supplier risk issues by monitoring unqualified suppliers time, labor and inaccuracies

 

Supplier monitoring – keeping supplier information up-to-date by assigning expiration dates to supporting documents and triggering auto email notifications to internal and supplier stakeholders

 

Supplier Performance Measurement and Analysis

 

 

Supplier Scorecards– establish metrics that are custom built to measure performance against suppliers

 

Performance analysis – analyze performance data with reporting tools that show trends in supplier performance and compare across multiple suppliers over specific time ranges

 

Supplier self-assessment – monitor supplier self-assessment scores besides internal evaluator scores for getting a multi-facet view of supplier performance

 

SmartAnalytics

 

With Selectica SmartAnalytics, users can view, manage and create reports and analytics that provide business insiders across Selectica solutions and enable users to identify savings opportunities, non-compliance, opportunities for process efficiencies and many more. As SmartAnalytics spans many process disciplines, we believe the solution will be beneficial across organizational boundaries, including to Procurement, Finance, Supply Chain, Legal and Risk.

 

We believe our SmartAnalytics provides the following features:

 

 

Users can create custom reports or modify report properties

 

View reports in a number of formats including Pareto, heat map, block, or Google Maps

 

Annotate charts with notes

 

Utilize complex calculations as part of report creation

 

Event driven notification for critical scenarios

 

Aggregate data from multiple data sources

 

Selectica Configuration Solution (Configuration)

 

Selectica Configuration Solution technology enables enterprise organizations to create valid product and service combinations that satisfy customer requirements to automate product, solution, and sales Configuration for complex product and service offerings. The Configurator enables sales reps and channel partners to recommend the best combination of products and services, construct accurate quotes, and get contracts signed fast. With powerful, constraint-based Configuration, step-by-step guided selling, and streamlined workflows for quote, proposal, and contract management, Selectica Configuration Solution takes enterprise sales to the next level, increasing average deal size, accelerating sales cycles, and making global business faster and more efficient.

 

 
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Employees

 

 As of March 31, 2015, we had a total of 117 employees, 8 of which are located in the United Kingdom and 109 of which are located in the United States. Of the total, 14 are engaged in research and development, 45 are engaged in professional services, 45 are engaged in sales and marketing, and 13 are engaged in general & administrative. We also have approximately 73 individuals contracted through our Odessa, Ukraine facility, 38 in professional services, 29 engineers in research and development and 6 are engaged in general and administrative. None of our employees are represented by a labor union and we consider our relations with our employees to be good.

 

Selectica Professional Services

 

We offer a range of services to ensure that the solutions meet users’ requirements. Our Professional Services team takes a best-practice, collaborative approach, applying their extensive experience with contract lifecycle management and sales Configuration solutions. We provide these services using both our in-house expertise and that of third parties experienced in our solutions acting under our direction. As of March 31, 2015, the Professional Services organization had 45 employees, as well as approximately 38 individuals contracted through our Odessa, Ukraine facility as noted below.

 

Sales and Marketing

 

We sell our ECLM, Supply Management and Configuration cloud solutions primarily through our direct sales force along with strategic and OEM partners. As of March 31, 2015, our sales team consisted of 30 employees and our marketing team consisted 15 of employees.

 

Our ECLM, SM and Configuration direct sales force is complemented by business partners, supported by telesales and system engineering resources. We have developed programs to attract and retain high quality, motivated sales representatives that have the necessary technical skills and consultative sales experience. We have also developed specific partner relationships to expand our solutions and domain expertise into various targeted markets. We believe that the cultivation and integration of these support networks assists in both the establishment and enhancement of customer relationships.

 

Our marketing department is engaged in revenue-centered, sales-support and awareness-building activities, such as lead generation programs, web marketing, product management, public relations, advertising, speaking programs, seminars, sales collateral creation and production, direct mail, and event hosting.

 

  

Research and Development

 

To date, we have invested substantial resources in research and development. As of March 31, 2015, we had 14 full-time technical writing specialists, as well as approximately 29 engineers contracted through our Odessa, Ukraine facility as noted below. Our team primarily works on product development, enhancements, documentation, and quality assurance. For the fiscal years ended March 31, 2015 and 2014, we incurred approximately $3.7 million and $2.8 million, respectively on research and development.

 

Enhancements to our existing products are released periodically to add new features, improve functionality and incorporate feedback and suggestions from our customers. These updates are usually provided as part of the product subscription or license arrangement.

 

International Operations

 

During fiscal 2011, we entered into a relationship with a third party that opened a research and operations center in Odessa, Ukraine. This facility represents a significant investment for us as we continue to execute on our global expansion strategy. Our operations in Ukraine with our third-party partner have not been materially affected by the recent political events in that country, and we have put certain contingency plans in place to minimize any disruption. As of March 31, 2015, as of result of our acquisition of Iasta and Iasta Resources, we have 8 employees working in the United Kingdom. As of March 31, 2014, we had two contractors performing sales services in Europe, both of whom were terminated during fiscal year 2015.

 

Competition

 

The market for cloud-based software solutions in general, including our Sourcing, Supplier Management and Contract Management and Configuration solutions, continues to rapidly change. Competitors vary in size and in the scope and breadth of the products and services offered. We encounter competition primarily from companies such as SAP, Apptus, Coupa and IBM, as well as (i) software companies that offer integrated solutions or specific products that compete with our ECLM Configuration solutions, (ii) information systems departments of potential or current customers that internally develop custom software, and (iii) professional services organizations. Some of these competitors are larger than us and may only compete in a segment of ours.

 

 
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We believe that the principal competitive factors affecting our market include product reputation, functionality, ease-of-use, ability to integrate with other products and technologies, quality, performance, price, customer service and support, and the vendors’ reputation. Although we believe that our products currently compete favorably with regard to such factors, we cannot assure you that we can maintain our competitive position against current and potential competitors. Increased competition may result in price reductions, less beneficial contract terms, reduced gross margins and loss of market share, any of which could materially and adversely affect our business, operating results and financial condition.

 

 Intellectual Property and Other Proprietary Rights

 

We rely on a combination of trademark, trade secret and copyright law and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection for our technology. We currently hold five patents in the United States. In addition, we have various trademarks registered or pending registration in various jurisdictions. Our trademark applications might not result in the issuance of any trademarks. Our patents or any future issued patents or trademarks might be invalidated or circumvented or otherwise fail to provide us any meaningful protection. We seek to protect the source code for our software, documentation and other written materials under trade secret and copyright laws. We license our software pursuant to license agreements, which impose certain restrictions on the licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Our failure to adequately protect our intellectual property could have a material adverse effect on our business and operating results.

 

 

 

AVAILABLE INFORMATION

 

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding Selectica, Inc. and other companies that file materials with the SEC electronically. You may also obtain copies of reports filed with the SEC, free of charge, on our website at www.selectica.com.

 

 
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Item 1A. Risk Factors

 

Set forth below and elsewhere in this Annual Report on Form 10-K, and in the other documents we file with the SEC, are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K. Prospective and existing investors are strongly urged to carefully consider the various cautionary statements and risks set forth in this annual report and our other public filings.

 

We have a history of losses and may incur losses in the future.

 

We incurred net losses of approximately $13.7 million and $8.2 million for the fiscal years ended March 31, 2015 and 2014, respectively. We had an accumulated deficit of approximately $288 million as of March 31, 2015. We may continue to incur losses in the future for a number of reasons, including uncertainty as to the level of our future revenues and the timing and impact of our cost reduction efforts. While we have made significant progress towards aligning our research and development, sales and marketing, and general and administrative expenses with revenue, given the size of our business relative to the costs associated with being a public reporting company, we will need to continue to control our expenses while maintaining and increasing revenue in order to achieve profitability. If our revenue fails to grow or grows more slowly than we currently anticipate or our operating expenses exceed our expectations, our losses may continue or increase, which would harm our business and operating results.

 

Our business could be seriously harmed if we lose the services of our key personnel.

 

Our success depends substantially on the contributions and abilities of our executive management team and other key employees.  We believe that these individuals understand our operational strategies and priorities and the steps necessary to drive our long-term growth and stockholder value.  The loss of services of one or more members of our management team or other key personnel could disrupt our operations and seriously harm our business.

 

We have relied and expect to continue to rely on orders from a relatively small number of customers for a substantial portion of our revenues, and the loss of any of these customers would significantly harm our business and operating results.

 

Our revenues are dependent on orders from a relatively small number of customers. We derived 16% of our revenues from our top three customers in fiscal year 2015, and 25% in fiscal year 2014. We expect that we will continue to depend upon a relatively small number of customers for a substantial portion of our revenues for the foreseeable future. As a result, if we fail to successfully sell our products and services to one or more large customers in any particular period or a large customer purchases fewer of our products or services, defers or cancels orders, or terminates its relationship with us, our business and operating results would be significantly harmed. 

 

 

Our annual and quarterly revenues and operating results are inherently unpredictable and subject to fluctuations, and as a result, we may fail to meet the expectations of securities analysts and investors, which could cause volatility or adversely affect the trading price of our common stock.

 

The Company generates revenue by providing its Software-as-a-Service (“SaaS”) solutions through subscription license arrangements and related professional services, as well as through perpetual and term licenses and related software maintenance and professional services.  The Company recognizes revenue in accordance with generally accepted accounting standards for software and service companies.  The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) fees are fixed or determinable and (4) collectability is probable. If we determine that any one of the four criteria is not met, we will defer recognition of revenue until all the criteria are met.

 

Our annual and quarterly recurring and non-recurring revenues may fluctuate due to our inability to perform services, achieve specific milestones and obtain formal customer acceptance of specific elements of the overall completion of a project. As we provide such services and products, the timing of delivery and acceptance, changed conditions with the customers and projects could result in changes to the timing of our revenue recognition, and thus, our operating results.

 

Likewise, if our customers do not renew maintenance services or purchase additional products, our operating results could suffer. Historically, we have derived and expect to continue to derive a significant portion of our total revenue from existing customers who purchase additional products or renew maintenance agreements. Our customers may not renew such maintenance agreements or expand the use of our products. In addition, as we introduce new products, our current customers may not require or desire the features of our new products. If our customers do not renew their subscriptions or maintenance agreements with us or choose not to purchase additional products, our operating results could suffer.

 

 
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Because we rely on a limited number of customers, the timing of customer acceptance or milestone achievement, or the amount of services we provide to a single customer can significantly affect our operating results or the failure to replace a significant customer. Because expenses are relatively fixed in the near term, any shortfall from anticipated revenues could cause our quarterly operating results to fall below anticipated levels.

 

We may also experience seasonality in revenues. For example, our annual and quarterly results may fluctuate based upon our customers’ calendar year budgeting cycles. These seasonal variations may lead to fluctuations in our annual and quarterly revenues and operating results.

 

Our ECLM customers license our software in a number of ways including subscription licenses and perpetual licenses, which may be hosted in our third-party hosting center or on the customer’s own facilities. Historically the bulk of our license revenues have come from perpetual licenses which, if revenue recognition requirements are met, are recognized upon execution or release of contingencies, if any

 

Based upon the foregoing, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance. In some future period, our operating results may be below the expectations of public market analysts and investors, which could cause volatility or a decline in the price of our common stock.

 

Our future success depends on our proprietary intellectual property, and if we are unable to protect our intellectual property from potential competitors, our business may be significantly harmed.

 

We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect the proprietary aspects of our technology. These legal protections afford only limited protection for our technology. We currently hold five patents in the United States. In addition, we have various trademarks registered or pending registration in various jurisdictions. Our trademark applications might not result in the issuance of any trademarks. Our patents or any future issued trademarks might be invalidated or circumvented or otherwise fail to provide us any meaningful protection. We seek to protect the source code for our software, documentation and other written materials under trade secret and copyright laws. We license our software pursuant to license agreements, which impose certain restrictions on the licensee’s ability to utilize the software. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others.  Our failure to adequately protect our intellectual property could have a material adverse effect on our business and operating results.

 

It is possible that in the future, other third parties may claim that our current or potential future products infringe their intellectual property rights. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert management’s time from developing our business, cause product shipment delays, require us to enter into royalty or licensing agreements or require us to satisfy indemnification obligations to our customers. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could seriously harm our business.

 

Our lengthy sales cycle for our products makes it difficult for us to forecast revenue and exacerbates the variability of quarterly fluctuations, which could cause our stock price to decline.

 

The sales cycle of our products has historically averaged between nine to twelve months, and may sometimes be significantly longer. We are generally required to provide a significant level of education regarding the use and benefits of our products, and potential customers tend to engage in extensive internal reviews before making purchase decisions. In addition, the purchase of our products typically involves a significant commitment by our customers of capital and other resources, and is therefore subject to delays that are beyond our control, such as customers’ internal budgetary procedures and the testing and acceptance of new technologies that affect key operations. In addition, because we target large companies, our sales cycle can be lengthier due to the decision process in large organizations. As a result of our products’ long sales cycles, we face difficulty predicting the quarter in which sales to expected customers may occur. If anticipated sales from a specific customer for a particular quarter are not realized in that quarter, our operating results for that quarter could fall below the expectations of financial analysts and investors, which could cause our stock price to decline.  

 

 
12

 

 

Developments in the market for cloud-based software solutions, including our ECLM and Configuration solutions, may harm our operating results, which could cause a decline in the price of our common stock.

 

The market for cloud-based software solutions, including ECLM and Configuration solutions, is evolving rapidly. In view of changing market trends, including vendor consolidation, the competitive environment growth rate and potential size of the market are difficult to assess. The growth of the market is dependent upon the willingness of businesses and consumers to purchase complex goods and services over the Internet and the acceptance of the Internet as a platform for business applications. In addition, companies that have already invested substantial resources in other methods of Internet selling may be reluctant or slow to adopt a new approach or application that may replace, limit or compete with their existing systems. With the transition of our focus to a subscription sales SaaS model which may help address certain market challenges, the rapid change in the marketplace nonetheless poses a number of concerns. Any decrease in technology infrastructure spending may reduce the size of the market for our solutions. Our potential customers may decide to purchase more complete solutions offered by larger competitors instead of individual applications. If the market for our solutions is slow to develop, or if our customers purchase more fully integrated products, our business and operating results would be significantly harmed.

 

We face intense competition, which could reduce our sales, prevent us from achieving or maintaining profitability and inhibit our future growth.

 

The market for software and services that enable electronic commerce is intensely competitive and rapidly changing. We expect competition to persist and intensify, which could result in price reductions, reduced gross margins and loss of market share. Our principal competition comes from (i) publicly held and private software companies that offer integrated solutions or specific contract management and/or sales Configuration solutions and (ii) internally developed solutions. Existing and potential competitors include public companies such as Oracle Corporation, Ariba, OpenText and SAP, as well as companies such as IBM and SciQuest.

 

Our competitors may intensify their efforts in our market. In addition, other enterprise software and SaaS companies may offer competitive products in the future. Competitors vary in size, in the scope and breadth of the products and services offered. Although we believe we have advantages over our competitors including the comprehensiveness of our solution, our use of Java and mobile technology and our multi-threaded architecture, some of our competitors and potential competitors have significant advantages over us, including:

 

 

a longer operating history;

 

 

preferred vendor status with our customers;

 

 

more extensive name recognition and marketing power; and

 

 

significantly greater financial, technical, marketing and other resources, giving them the ability to respond more quickly to new or changing opportunities, technologies, and customer requirements.

 

Our competitors may also bundle their products in a manner that may discourage users from purchasing our products. Current and potential competitors may establish cooperative relationships with each other or with third parties, or adopt aggressive pricing policies to gain market share. Competitive pressures may require us to reduce the prices of our products and services. We may not be able to maintain or expand our sales if competition increases, and we are unable to respond effectively.

 

If we do not keep pace with technological change, including maintaining interoperability of our products with the software and hardware platforms predominantly used by our customers, our products may be rendered obsolete, and our business may fail.

 

Our industry is characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements and emerging industry standards. In order to achieve broad customer acceptance, our products must be compatible with major software and hardware platforms used by our customers.  In addition, our products are required to interoperate with electronic commerce applications and databases. We must continually modify and enhance our products to keep pace with changes in these operating systems, applications and databases. Our Configuration, pricing and quoting products are complex, and new products and product enhancements can require long development and testing periods. If our products were to be incompatible with a popular new operating system, electronic commerce application or database, our business would be significantly harmed. In addition, the development of entirely new technologies to replace existing software could lead to new competitive products that have better performance or lower prices than our products and could render our products obsolete and unmarketable.

 

 
13

 

 

Our failure to meet customer expectations on deployment of our products could result in negative publicity and reduced sales, both of which would significantly harm our business and operating results.

 

In the past, a small number of our customers have experienced difficulties or delays in completing implementation of our products. We may experience similar difficulties or delays in the future. Deploying our products typically involves integration with our customers’ legacy systems, such as existing databases and enterprise resource planning software as well adding their data to the system. Failing to meet customer expectations on deployment of our products could result in a loss of customers and negative publicity regarding us and our products, which could adversely affect our ability to attract new customers. In addition, time-consuming deployments may also increase the amount of service personnel we must allocate to each customer, thereby increasing our costs and adversely affecting our business and operating result.

 

If we are unable to maintain our direct sales force, sales of our products and services may not meet our expectations, and our business and operating results will be significantly harmed.

 

We depend on our direct sales force for a significant portion of our current sales, and our future growth depends in part on the ability of our direct sales force to develop customer relationships and increase sales to a level that will allow us to reach and maintain profitability. If we are unable to retain qualified sales personnel or if newly hired personnel fail to develop the necessary skills or to reach productivity when anticipated, we may not be able to increase sales of our products and services, and our results of operation could be significantly harmed.

 

If we are unable to successfully manage our professional services organization, we will be unable to provide our customers with technical support for our products, which could significantly harm our business and operating results.

 

Non-recurring revenues are comprised of revenues from professional services for system implementations, enhancements, and training and, to a lesser extent, perpetual license sales. Professional services generated 22% and 23% of our total revenues during the fiscal years ended March 31, 2015 and 2014, respectively.  Our professional services revenues have incurred losses more than recurring revenues. We often charge for our professional services on a fixed-fee basis. If we are required to spend more hours than planned without being able to bill for customers, our cost of services revenues could exceed the fees charged to our customers on certain engagements and could cause us to recognize a loss on a contract, which would adversely affect our operating results. In addition, if we are unable to provide these professional services, we may lose sales or incur customer dissatisfaction, and our business and operating results could be significantly harmed. 

 

If new versions and releases of our products contain errors or defects, we could suffer losses and negative publicity, which would adversely affect our business and operating results.

 

Complex software products such as ours may contain errors or defects, including errors relating to security, particularly when first introduced or when new versions or enhancements are released. In the past, we have discovered defects in our products and provided product updates to our customers to address such defects. Our products and other future products may contain defects or errors that could result in lost revenues, a delay in market acceptance or negative publicity, each which would significantly harm our business and operating results.

 

Demand for our products and services will decline significantly if our software cannot support and manage a substantial number of users.

 

Our strategy requires that our products be highly scalable. To date, only a limited number of our customers have deployed our products on a large scale. If our customers cannot successfully implement large-scale deployments, or if they determine that we cannot accommodate large-scale deployments, our business and operating results would be significantly harmed.

 

If we become subject to product liability litigation, it could be costly and time consuming to defend and could distract us from focusing on our business and operations.

 

Since our products are company-wide, mission-critical computer applications with a potentially strong impact on our customers’ sales, errors, defects or other performance problems could result in financial or other damages to our customers. Although our license agreements generally contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could negate such limitation of liability provisions. Product liability litigation, even if it were unsuccessful, would be time consuming and costly to defend.

 

 
14

 

 

Our results of operations will be reduced by charges associated with stock-based compensation.

 

We have in the past and expect in the future to incur a significant amount of charges related to securities issuances, which will negatively affect our operating results. We adopted the provisions of ASC 718, Compensation-Stock Compensation (ASC 718), using a modified prospective application. We use the Black-Scholes option pricing model to determine the fair value of our share-based payments and recognize compensation cost on a straight-line basis over the vesting periods. This pronouncement from the FASB provides for certain changes to the method for valuing stock-based compensation. Among other changes, ASC 718 applies to new awards and to awards that are outstanding which are subsequently modified or cancelled. Compensation expense calculated under ASC 718 will continue to negatively impact our operating results.

 

We may fail to realize the anticipated benefits of our recent acquisitions.

 

On June 2, 2014, the Company entered into an Agreement and Plan of Merger, with Selectica Sourcing Inc., a Delaware corporation and wholly owned subsidiary of the Company, Iasta.com, Inc., an Indiana corporation (“Iasta.com”), Iasta Resources, Inc., an Indiana corporation (“Iasta Resources” and, together with Iasta.com, “Iasta”) and the shareholders of Iasta pursuant to which the Company acquired Iasta on July 2, 2014 (the “Iasta Acquisition”).  The combined company has less than one year of operations, and we may fail to realize the expected benefits of the Iasta Acquisition if we are not able to fully integrate the two businesses.

 

In addition, on March 30, 2015, the Company entered into an Agreement and Plan of Merger with Selectica France SAS, a French société par actions simplifiée (pending incorporation) and wholly owned subsidiary of the Company, b-pack SAS, a French société par actions simplifiée (“b-pack”), and the shareholders of b-pack, pursuant to which the Company would acquire b-pack (the “b-pack Acquisition”). The b-pack Acquisition is anticipated to close during the Company’s first fiscal quarter of the 2016 fiscal year.

 

The success of the b-pack Acquisition will depend on, among other things, our ability to combine our business with the business of b-pack in a manner that does not materially disrupt existing relationships and that allows us to achieve anticipated operational synergies.  We will face significant challenges in combining b-pack’s operations into our operations in a timely and efficient manner, in part due to the fact that b-pack’s primary operations are in France, and the Company historically has not had a meaningful operational presence in France.  The failure to integrate successfully and to manage successfully the challenges presented by the integration process may result in us not achieving the anticipated benefits of the b-pack Acquisition.

 

The closing of the b-pack Acquisition is subject to the satisfaction of a number of closing conditions, including certain third-party and governmental consents being obtained, the absence of a material adverse change to the assets, liabilities, results of operations or financial condition of b-pack, and the parties’ compliance with other customary requirements.  A delay in the closing of the b-pack Acquisition or a failure to consummate the b-pack Acquisition may inhibit our ability to execute our business plan.

 

Additionally, we have made certain assumptions relating to the forecast level of cost savings, synergies and associated costs of the b-pack Acquisition, which assumptions may be inaccurate based on the information available to us, including as the result of the failure to realize the expected benefits of the b-pack Acquisition, higher than expected transaction and integration costs, as well as general economic and business conditions that may adversely affect the combined company following the completion of the b-pack Acquisition.

 

The combination of our business with the b-pack business will require significant management attention, and we expect to incur substantial costs because of integration challenges.

 

The combined company will be required to devote significant management attention and other resources to integrating the two businesses.  We may not successfully complete the integration of our operations in a timely manner and may experience disruptions in relationships with customers, suppliers and employees as a result.

 

We expect to incur substantial costs integrating the companies’ operations, product offerings, and personnel, which cannot be estimated accurately at this time.  Although we expect that the realization of efficiencies related to the integration of the business will offset incremental transaction, integration and restructuring costs over time, we cannot give any assurance that this net benefit will be achieved.  If the total costs of the integration exceed the anticipated benefits of the b-pack Acquisition, our results of operations could be adversely affected.

 

 
15

 

 

Some of our customers are hosted by a third-party provider.

 

Some of our ECLM customers’ licenses are hosted by a third-party data center provider under contract to us. Failure of the data center provider to maintain service levels as contracted could result in customer dissatisfaction, customer losses and potential product warranty or performance liabilities.

 

Anti-takeover defenses that we have in place could prevent or frustrate attempts by stockholders to change our board of directors or the direction of our company.

 

Provisions of our amended and restated certificate of incorporation, as amended to date, and amended and restated bylaws, Delaware law and our stockholder rights agreement, as amended to date, may make it more difficult for or prevent a third party from acquiring control of us without approval of our directors. These provisions include:

 

  

requiring a majority vote in uncontested elections of directors;

  

restricting the ability of stockholders to call special meetings of stockholders;

  

prohibiting stockholder action by written consent;

  

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;

  

granting our board of directors the ability to designate the terms of and issue new series of preferred stock without stockholder approval; and

  

issuing shareholders rights to purchase additional shares of stock in the event that any person, together with its affiliates and associates, (i) acquires beneficial ownership of 4.99% or more of our outstanding common stock or (ii) commences a tender offer for our shares if upon consummation of the tender offer such person would beneficially own 4.99% or more of the outstanding common stock, subject, in each case, to certain exceptions.

 

These provisions may have the effect of entrenching our board of directors and may deprive or limit your strategic opportunities to sell your shares.

 

Restrictions on export of encrypted technology could cause us to incur delays in international product sales, which would adversely impact the expansion and growth of our business.

 

Our software utilizes encryption technology, the export of which is regulated by the United States government. If our export authority is revoked or modified, if our software is unlawfully exported or if the United States adopts new legislation restricting export of software and encryption technology, we may experience delay or reduction in shipment of our products internationally. Current or future export regulations could limit our ability to distribute our products outside of the United States. While we take precautions against unlawful exportation of our software, we cannot effectively control the unauthorized distribution of software across the Internet.

 

Unauthorized break-ins or other assaults on our computer systems could harm our business.

 

Our servers are vulnerable to physical or electronic break-ins and similar disruptions, which could lead to loss of data or public release of proprietary information. In addition, unauthorized persons may improperly access our data. These and other types of attacks could harm us. Actions of this sort may be very expensive to remedy and could adversely affect results of operations.

 

Increasing government regulation of the Internet could limit the market for our products and services, or impose greater tax burdens on us or liability for transmission of protected data.

 

As electronic commerce and the Internet continue to evolve, federal, state and foreign governments may adopt laws and regulations covering issues such as user privacy, taxation of goods and services provided over the Internet, pricing, content and quality of products and services. If enacted, these laws and regulations could limit the market for electronic commerce, and therefore the market for our products and services. Although many of these regulations may not apply directly to our business, we expect that laws regulating the solicitation, collection or processing of personal or consumer information could indirectly affect our business.

 

We are subject to international business uncertainties that could harm our business and results of operations or slow our growth.

 

Our ability to grow our business and our future success will depend in part on our ability to expand our operations and customer base worldwide.  During fiscal 2011, we entered into a relationship with a third party that opened a research and operations center in Odessa, Ukraine.  The Ukraine has experienced considerable political events recently, and while we have put certain contingency plans in place to minimize any disruption, such turmoil may impact our operations and, in turn, could compromise our ability to develop our products at the pace and cost that we desire.

 

 
16

 

 

Risk Related to Ownership of Common Stock

 

 

Our stock price could decline because of the potentially dilutive effect of the b-pack Acquisition and recent financing activities.

 

The aggregate purchase price for the b-pack Acquisition is 1,841,244 shares of common stock of the Company (the “Acquisition Shares”) and $1.25 million in cash.  Following the closing of the b-pack Acquisition, the Company would issue options to certain b-pack employees to purchase up to an aggregate of 700,000 shares of Common Stock of the Company, as employment inducement awards (the “Inducement Grants”).  Assuming the b-pack Acquisition is completed, the Acquisition Shares are issued in full and the Inducement Grants are exercised in full, an additional 2,541,244 shares of common stock will be issued and outstanding, diluting our stockholders.  Any additional acquisitions in the future using Company stock as consideration could result in further dilution to our stockholders.

 

On February 6, 2014, the Company entered into a Purchase Agreement with certain institutional funds and other accredited investors, and a Subscription Agreement with certain members of the Company’s management and board of directors (collectively, the “Investors”), pursuant to which the Company sold and issued 118,829.1 shares of Series F Convertible Preferred Stock (which converted into 1,188,291 shares of common stock of the Company upon stockholder approval on May 5, 2015) and 65,955 shares of common stock, for an aggregate number of shares equal to 1,254,246 (on an as-converted basis).  In addition, the Company issued to the investors warrants to purchase an aggregate of 627,118 shares of common stock (the “Warrants”).

 

On March 11, 2015, the Company entered into a Junior Secured Convertible Note Purchase Agreement with Lloyd I. Miller, III (“Mr. Miller”), the Company’s largest stockholder, and MILFAM II L.P. and the Lloyd I. Miller Trust A-4, two affiliates of Mr. Miller (collectively the “Debt Investors”), pursuant to which the Company issued and sold junior secured convertible promissory notes (the “Notes”) to the Debt Investors in the aggregate principal amount of $3 million. The Notes are due on March 11, 2020. The Company has the option to pay any amounts of interest due under the Notes by converting such interest into shares of common stock of the Company at a conversion price of $5.70 per share (as may be adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or similar event occurring prior to such record date), based upon an interest rate amount calculated at 10% per year, provided that the Company is not then under default under the Notes or related financing agreements. The outstanding principal and interest under the Notes may be converted into shares of Company common stock at the sole option of the Debt Investors at any time prior to the maturity date, at a conversion price of $5.70 per share (as may be adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or similar event occurring prior to such record date).

 

Assuming conversion in full all obligations under the Notes at the end of the term, approximately an additional 789,473 shares of common stock will be issued and outstanding, diluting our stockholders. Existing stockholders also will suffer significant dilution in ownership interests and voting rights and our stock price could decline as a result of potential future application of anti-dilution features of the Warrants.  Additionally, sales in the public market of the Acquisition Shares or the shares of common stock acquired upon conversion of the Notes or exercise of the Warrants, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock and impair our ability to raise funds in additional stock financings. Any additional equity or convertible debt financings in the future could result in further dilution to our stockholders.

 

The Investors and Debt Investors have substantial voting power on matters submitted to a vote of stockholders.

 

Based on 9,214,083 shares of common stock outstanding as of June 12, 2015, the shares of common stock issued or issuable to the Investors, and the shares of common stock issuable to the Debt Investors upon conversion of the Notes, would represent, in the aggregate, approximately 26.7% of the voting power of our stock.  Additionally, Mr. Miller, together with his affiliated entities, participated in the equity financing and the debt financing described above and is the Company’s largest existing stockholder.  Because the Investors and Debt Investors own a significant percentage of our voting power, they may have considerable influence in determining the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including the election of directors and approval of mergers, consolidations and the sale of all or substantially all of our assets.

 

 
17

 

 

In addition, the ownership by the Investors and Debt Investors of a substantial percentage of our total voting power could make it more difficult and expensive for a third party to pursue a change of control of the Company, even if a change of control would generally be beneficial to our stockholders.

 

We have agreed to give the Investors the right to participate in subsequent stock issuances.

 

Under the terms of the equity financing Purchase Agreement described above, the Company has agreed that if it issues and sells any new equity securities, subject to certain exceptions, the Investors would have the right to purchase a portion of those new securities so as to permit each of them to maintain their proportional ownership in our stock.  The existence of this right may make it more difficult for us to obtain financing from third parties that do not wish to have any of the Investors participating in their financing. 

 

 Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

Facilities

 

In July 2011, we entered into a new lease for office space in San Mateo, California, to which we relocated our headquarters on October 1, 2011.  The lease is for approximately 10,287 square feet of office space.  

 

On May 15, 2014, Selectica, Inc. (the “Company”) entered into a First Amendment to Lease (the “Lease Amendment”) with SKBGS I, L.L.C. amending the Office Lease dated July 2011 to cover a 25 month period expiring January 31, 2017 and carries a base rent of $2.85 per rentable square foot, escalating 3% each year.

 

 In connection with the acquisition of Iasta, we assumed leases for offices in Carmel, Indiana and in London, United Kingdom. The lease in Indiana, dated January 7, 2008, and as amended on June 5, 2009, is for approximately 9,948 square feet of office space, expires April 13, 2016 and carries a base rent of $1.80 per rentable square foot, escalating 9% in the last two years of the lease.

  

Item 3. Legal Proceedings

 

In the future we may be subject to lawsuits, including claims relating to intellectual property matters or securities laws. Any litigation, even if not successful against us, could result in substantial costs and divert management’s and other resources away from the operations of our business. If successful against us, we could be liable for large damage awards and, in the case of patent litigation, subject to injunctions that significantly harm our business.

 

Item 4. Mine Safety Disclosures

 

 Not applicable.

 

 
18

 

 

PART II

 

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Our common stock is traded over the counter on The NASDAQ Capital Market (“NASDAQ”) under the symbol “SLTC.” Our common stock began trading in March 2000.

 

As of May 31, 2015, there were approximately 101 holders of record of our common stock. Brokers and other institutions hold many of such shares on behalf of stockholders.

 

   

High

   

Low

 

Fiscal 2015

               

First Quarter

  $ 6.88     $ 5.85  

Second Quarter

  $ 6.61     $ 5.60  

Third Quarter

  $ 6.11     $ 5.18  

Fourth Quarter

  $ 6.82     $ 4.54  

Fiscal 2014

               

First Quarter

  $ 9.17     $ 8.00  

Second Quarter

  $ 9.00     $ 5.04  

Third Quarter

  $ 7.06     $ 5.45  

Fourth Quarter

  $ 7.18     $ 6.36  

 

The trading price of our common stock could be subject to wide fluctuations in response to quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates or purchase recommendations by securities analysts and other events or factors. In addition, the stock market has experienced volatility that has affected the market prices of equity securities of many high technology companies and that often has been unrelated to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock.

 

Equity Compensation Plan Information

 

The following table sets forth as of March 31, 2015, certain information regarding our equity compensation plans.

 

   

A

   

B

   

C

 
                   

Plan category

 

Number of securities to be issued upon exercise of outstanding options warrants and rights

   

Weighted-average exercise price of outstanding options warrants and rights

   

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A)

 
   

(in thousands, except for per share amounts below)

 

Equity compensation plans approved by stockholders

    596     $ 6.20     $ 379  (1)(2)

Equity compensation plans not approved by stockholders

    851     $ 6.54     $ 185  

Total

    1,447     $ 6.46     $ 564  

 

(1)

These plans permit the grant of options, stock appreciation rights, shares of restricted stock and stock units.

 

(2)

 

Effective November 7, 2012 there is no provision to automatically increase the number of shares reserved for issuance under our equity compensation plans approved by stockholders.

 

 
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 Stock Option Plans—Not Required to be Approved by Stockholders

 

2001 Supplemental Plan

 

We adopted the 2001 Supplemental Plan (the “Supplemental Plan”) on May 30, 2001; the Supplemental Plan did not require stockholder approval. A total of approximately 250,000 shares of common stock have been reserved for issuance under the Supplemental Plan. With limited restrictions, if shares awarded under the Supplemental Plan are forfeited, those shares will again become available for new awards under the Supplemental Plan. The Supplemental Plan permits the grant of non-statutory options and shares of restricted stock. Employees and consultants, who are not officers or members of the Board of Directors, are eligible to participate in the Supplemental Plan. Options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the Supplemental Plan have a maximum term of ten years.

 

The Compensation Committee of the Board of Directors administers the Supplemental Plan and has complete discretion to make all decisions relating to the interpretation and operation of the Supplemental Plan. The Compensation Committee has the discretion to determine which eligible persons are to receive an award, and to determine the type, number, vesting requirements and other features and conditions of each award. The exercise price of options may be paid with: cash, outstanding shares of common stock, the cashless exercise method through a designated broker, a pledge of shares to a broker or a promissory note. The purchase price for newly issued restricted shares may be paid with: cash, a promissory note or the rendering of past or future services. The Compensation Committee may reprice options and may modify, extend or assume outstanding options. The Compensation Committee may accept the cancellation of outstanding options in return for the grant of new options. The new option may have the same or a different number of shares and the same or a different exercise price. If a merger or other reorganization occurs, the agreement of merger or reorganization shall provide that outstanding options and other awards under the Supplemental Plan shall be assumed or substituted with comparable awards by the surviving corporation or its parent or subsidiary, shall be continued by the Company if it is the surviving corporation, shall have accelerated vesting and then expire early or shall be cancelled for a cash payment. If a change in control occurs, awards will become fully exercisable and fully vested if the awards do not remain outstanding, are not assumed by the surviving corporation or its parent or subsidiary and if the surviving corporation or its parent or subsidiary does not substitute its own awards that have substantially the same terms for the awards granted under the Supplemental Plan. If a change in control occurs and a plan participant is involuntarily terminated within 12 months following this change in control, then the vesting of awards held by the participant will accelerate, as if the participant provided another 12 months of service. A change in control includes: a merger or consolidation after which the then-current stockholders own less than 50% of the surviving corporation, a sale of all or substantially all of the assets, a proxy contest that results in replacement of more than one-half of the directors over a 24-month period or an acquisition of 50% or more of the outstanding stock by a person other than a person related to the Company, including a corporation owned by the stockholders. The Board of Directors may amend or terminate the Supplemental Plan at any time. The Supplemental Plan will continue in effect indefinitely unless the Board of Directors decides to terminate the plan earlier.

 

Dividend Policy

 

We have never declared or paid any cash dividends on our capital stock. Whether or not a dividend will be paid in the future will be determined by our Board of Directors. The Series F Convertible Preferred Stock (the “Series F Stock”) was not entitled to a liquidation or dividend preference. If the Series F Stock had not been converted into Common Stock following stockholder approval on May 5, 2015, beginning on May 15, 2015, the Series F Stock would have been entitled to 10% accruing dividends per annum. The dividends would have been payable quarterly in cash, beginning on June 30, 2015.

 

Recent Sales of Unregistered Securities

 

Reference is made to the description of our sale and issuance of unregistered shares of common stock, shares of Series E Convertible Preferred Stock and warrants and options to purchase shares of common stock on July 2, 2014, as disclosed in our Current Report on Form 8-K previously filed on June 5, 2014 and Form 8-K previously filed on June 6, 2014, as amended by our Current Report on Form 8-K/A previously filed on June 11, 2014, and as supplemented by our Current Report on Form 8-K previously filed on July 3, 2014, which are incorporated herein by reference (excluding Item 2.02 and Exhibit 99.2 of Form 8-K filed on June 5, 2014 and Item 2.02 and Exhibit 99.1 of Form 8-K filed on February 9, 2015).

 

Reference is made to the description of our sale and issuance of unregistered shares of common stock, shares of Series F Stock and warrants to purchase shares of common stock on February 6, 2015, as disclosed in our Current Report on Form 8-K previously filed on February 9, 2015, which is incorporated herein by reference. 

 

 
20

 

 

Reference is made to the description of our sale and issuance of unregistered securities on March 11, 2014, as disclosed in our Current Report on Form 8-K previously filed on March 16, 2015.

 

 
21

 

 

Item 6. Selected Financial Data.

 

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K.

  

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations and estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the “Forward-Looking Statements” set forth above.

 

Overview

 

We provide cloud-based software solutions that help growing companies to close deals faster, more profitably, and with lower risk.

 

Selectica’s SmartContracts, cloud solution combines a single, company-wide contract repository with a flexible workflow engine capable of supporting each organization’s unique contract management processes. Our cloud-based solution streamlines contract processes, from request, authoring, negotiation, and approval through ongoing obligations management, analysis, reporting, and renewals. It helps companies take control of their contract management processes by converting from paper-based to electronic repositories and by unlocking multiple layers of critical business data, making it available for the evaluation of risk, the exposure of lost revenue, the evaluation of supplier performance, and other purposes. The solution helps to improve the customer buying experience for sales organizations, improve the control of risk and decrease time spent drafting, monitoring and managing contracts, and gain access to previously hidden discounts through the exposure and elimination of unfavorable agreements for procurement and sourcing organizations.

 

Selectica’s Configuration Solution is a cloud solution that streamlines the management and dissemination of complex product information enabling companies to streamline the opportunity-to-order process for manufacturers, service providers, and financial services companies. Our Configuration solution can be seamlessly integrated with leading CRM systems, as well as ERP systems like Oracle and SAP, to ensure that the latest product, customer, and pricing data is always being used. This helps to simplify and automate the Configuration, pricing, and quoting of complex products and services. By empowering customers, product management, marketing, sales leadership, sales operations, salespeople, and channel partners to generate error-free sales proposals for their unique requirements, we believe our cloud solution helps companies to close sales faster, accelerate revenue generation and enhance customer relationships.

 

Summary of Operating Results for Fiscal 2015

 

During the fiscal year ended March 31, 2015, our total revenues increased by 32% or $5.09 million, to $20.9 million compared with total revenues of $15.8 million for the fiscal year ended March 31, 2014. Recurring revenues, comprised of subscription license sales, maintenance revenues from previously sold perpetual licenses, manage application services, and hosting revenues, totaled $16.2 million or 78% of total revenues, representing an increase of $4.0 million, or 33% over fiscal 2014. Non-recurring revenues, comprised of revenues from professional services for system implementations, enhancements, and training, totaled $4.7 million, or 22%, of total revenues, representing an increase of $1.1 million or 30% over fiscal 2014. The increase in recurring and non-recurring revenues year over year resulted primarily from the acquisition of Iasta in the first quarter of fiscal 2015.

 

During the fiscal year ended March 31, 2015, our net loss increased by 68% or $5.57 million to $13.7 million compared to a net loss of $8.18 million for the fiscal year ended March 31, 2014. The most significant factors affecting the increase of our net loss were (i) a decrease of $0.5 million in gross margin related to non-recurring revenues, and (ii) an increase in operating expenses in connection with the acquisition of Iasta and our ongoing investments in new and differentiated product offerings and additional headcount.

 

 
22

 

 

Shift in Business Model

 

In response to market demand, beginning in fiscal 2012, and continuing in fiscal 2015, we have shifted our primary business focus from the sale of perpetual licenses to subscription license arrangements for our cloud-based solutions. Our business and revenue model is now focused on recurring revenues. This shift has adversely affected our short-term financial results and cash flows since the financial terms of the subscription arrangements typically require smaller periodic payments over the term of the arrangement versus the larger, initial payments we have historically received under the perpetual license arrangements. However, we believe that the subscription licensing arrangements will help to increase our ability to attract new customers and improve the predictability of our revenues and cash flows by reducing our dependency on the larger, perpetual licensing arrangements. Despite the shift in our business model to focus more on our subscription licensing arrangements, which has had the corresponding effect of increasing our recurring revenue, our customers have varied preferences for how they want to deploy our solutions. As such, we will continue to offer and support the traditional software license model that some of our customers still prefer.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in notes accompanying the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. The preparation of the consolidated financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. Estimates are based on information available as of the date of the financial statements, and accordingly, actual results in future periods could differ from these estimates. Significant judgments and estimates used in the preparation of the consolidated financial statements apply critical accounting policies described in the notes to our consolidated financial statements.

 

We consider our recognition of revenue, collectability of accounts receivable, calculation of liabilities and stock-based compensation to be the most critical judgments that are involved in the preparation of the consolidated financial statements.

 

Results of Operations

 

Revenues

 

   

2015

   

2014

   

Change

 
   

(in thousands, except percentages)

 

Recurring revenues

  $ 16,207     $ 12,210       3,997  

Percentage of total revenues

    78 %     77 %     1 %

Non-recurring revenues

  $ 4,670     $ 3,579       1,091  

Percentage of total revenues

    22 %     23 %     (1% )

Total revenues

  $ 20,877     $ 15,789       5,088  

 

 

Recurring revenues. Recurring revenues consist of subscription license sales, maintenance revenues from previously sold perpetual licenses, and hosting revenues.  Our fiscal 2015 recurring revenues increased by $4.0 million from the prior year. Subscription revenue growth continued to drive the overall growth in recurring revenues. Subscription and hosting revenues grew to $10.2 million for fiscal year 2015, compared to $5.3 million for fiscal year 2014, representing a 92% increase year over year. These increases in recurring revenue were mainly due to the acquisition of Iasta. Maintenance revenues were $6.0 million for fiscal year 2015, compared $6.9 million for fiscal year 2014, representing a 13% decrease year over year. Recurring revenues continue to account for over 78% of our total revenues and we expect this trend to continue going forward.

 

Non-recurring revenues. Non-recurring revenues are comprised of professional services for system implementations, enhancements, and training. The increase in our fiscal 2015 as compared to our fiscal 2014 was primarily due to the acquisition of Iasta. Our fiscal 2015 non-recurring revenue increased by $1.1 million from the prior year. These increases in non-recurring revenue were mainly due to the acquisition of Iasta.

 

We expect non-recurring revenues to continue to fluctuate in future periods as a percentage of total revenues and in absolute dollars. This will depend on new license revenue and the number and size of new software implementations and follow-on services to our existing customers. We expect recurring revenues to fluctuate in absolute dollars and as a percentage of total revenues with respect to the number of maintenance renewals, and number and size of new subscription license contracts. In addition, maintenance renewals are extremely dependent upon economic conditions, customer satisfaction and the level of need to make changes or upgrade versions of our software by our customers. Fluctuations in revenue are also due to timing of revenue recognition, achievement of milestones, customer acceptance, changes in scope or renegotiated terms, and additional services.

 

 
23

 

 

Factors Affecting Operating Results

 

A small number of customers account for a significant portion of our total revenues. We expect that our revenue will continue to depend upon a limited number of customers. If we were to lose a customer, it would have a significant impact upon future revenue. Customers who accounted for at least 10% of total revenues were as follows:

 

   

2015

   

2014

 
    (in thousands, except percentages)  

Revenues from Customer A

  $ 2,102     $ 2,263  

Percentage of total revenues

    10 %     14 %

 

Sales to foreign customers accounted for only 13% of total revenue, and only 4% of revenues were denominated in foreign currency in fiscal 2015.

 

 

Cost of Revenues

 

   

2015

   

2014

   

Change

 

Cost of recurring revenues

  $ 5,026     $ 2,823       2,203  

Percentage of total cost of revenue

    41 %     33 %     8 %

Cost of non-recurring revenues

  $ 7,277     $ 5,738       1,539  

Percentage of total cost of revenue

    59 %     67 %     (8% )

Total cost of revenues

  $ 12,303     $ 8,561       3,742  

 

 

Cost of recurring revenues. Cost of recurring revenues consist of costs associated with supporting our data center, a fixed allocation of our research and development costs, and salaries and related expenses of our support organization.  During fiscal 2015, cost of recurring revenues increased $2.2 million or 78% compared to the prior year primarily due to the acquisition of Iasta.

 

We expect recurring cost of revenues to increase in absolute dollars in fiscal 2016.

 

Cost of non-recurring revenues. Cost of non-recurring revenues is comprised mainly of salaries and related expenses of our services organization, fees paid to resellers, costs of purchased third party licenses sold to customers as part of a bundled arrangement, and certain allocated corporate expenses. During fiscal 2015, these costs increased by approximately $1.5 million primarily due to the acquisition of Iasta and increase in headcount, as well as some additional costs incurred in certain projects that were not billable to customers.

 

We expect cost of non-recurring revenues to increase in absolute dollars in fiscal 2016.

 

Gross Profit and Margin

 

Gross profit was $8.6 million, or 41% of revenues, in fiscal 2015 compared with $7.2 million, or 46% of revenues, in fiscal 2014. The decrease in gross profit percentage during fiscal year 2015 resulted from lower gross margins from our non-recurring revenues due to decrease in revenue in professional services during fiscal 2014.

 

Gross Margin—Gross margins represent gross profit as a percentage of revenue. Gross margins in fiscal 2015 and 2014 were affected by the factors discussed above under “Revenues” and “Cost of Revenues.”

 

We expect that our overall gross margins will continue to fluctuate primarily due to the timing of service revenue recognized and will continue to be adversely affected by lower margins associated with service revenues. The impact on our gross margin will depend on the mix of services we provide, whether the services are performed by our professional services employees or third party consultants, and the overall utilization rates of our professional services organization.

 

 
24

 

 

Operating Expenses

 

   

2015

   

2014

 

Total research and development

  $ 3,713     $ 2,843  

Percentage of total revenues

    18 %     18 %

 

Research and Development. Research and development expenses consist mainly of salaries and related costs of our engineering, quality assurance, technical publications efforts, and certain allocated expenses. The increase in research and development expenses of $0.9 million in fiscal 2015 compared to fiscal year 2014 was primarily due to the acquisition of Iasta and $0.3 million of impairment of software development costs, offset by the capitalization of $2.0 million of software development costs.

 

We expect research and development expenditures to remain relatively flat in fiscal 2016.

 

   

2015

   

2014

 

Sales and marketing

  $ 12,697     $ 8,313  

Percentage of total revenues

    61 %     53 %

 

 

Sales and Marketing. Sales and marketing expenses consist primarily of salaries and related costs for our sales and marketing organization, sales commissions, expenses for travel and entertainment, trade shows, public relations, collateral sales materials, advertising and certain allocated expenses. In fiscal 2015, sales and marketing expenses increased $4.4 million primarily due to the acquisition of Iasta. and $0.3 million in advertising, online marketing and marketing seminars. We expect increases in sales and marketing expenses in fiscal 2016 compared to fiscal 2015 both in absolute dollars and as a percentage of total revenues.

 

   

2015

   

2014

 

General and administrative

  $ 8,788     $ 4,984  

Percentage of total revenues

    42 %     32 %

 

 

General and Administrative. General and administrative expenses consist mainly of personnel and related costs for general corporate functions, including finance, accounting, legal, human resources, acquisition related costs, bad debt expense and certain allocated expenses. General and administrative expenses increased $3.8 million in fiscal 2015 compared with fiscal 2014 primarily due to the acquisition of Iasta and increase in headcount. Acquisition related costs consist mainly of legal fees, accounting and bank fees. We expect modest increases in general and administrative expenses in fiscal 2016 compared to fiscal 2015 in absolute dollars, primarily due to exploration of additional strategic acquisitions, stock-based compensation expense due to restricted stock grants made in fiscal 2015 and hiring of additional employees.

 

Capitalized Software

 

The Company capitalizes software development costs upon achieving technological feasibility of the related products. Software development costs incurred prior to achieving technological feasibility are charged to engineering and product development expense as incurred.

   

Capitalized software will be amortized once the product is available for general release, using the straight-line method over the estimated useful lives of the assets, which is three years. The recoverability of capitalized software is evaluated for recoverability based on estimated future gross revenues reduced by the associated costs. If gross revenues were to be significantly less than estimated, the net realizable value of the capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software.

 

Provision for Income Taxes

 

Due to our net loss, we did not record income tax expense for fiscal 2015, 2014.  As of March 31, 2015 the Company had federal and state operating loss carryforwards of approximately $40.1 million and $38.2 million, respectively. As of March 31, 2015, the Company also had federal and state research and development tax credit carryforwards of approximately $51,000 and $5.0 million respectively.

 

The fiscal 2015 and 2014 tax provisions vary from the expected provision or benefit at the U.S. federal statutory rate due to the recording of valuation allowances against our U.S. operating loss carryforwards and the effects of different tax rates in our foreign jurisdictions. Given our history of operating losses and our inability to achieve profitable operations, it is difficult to accurately forecast how results will be affected by the realization of net operating loss carryforwards.

 

 
25

 

 

Based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets. We will continue to evaluate the realizability of the deferred tax assets on a quarterly basis.

 

 

Liquidity and Capital Resources

 

   

2015

   

2014

 
   

(in thousands)

 

Cash, cash equivalents and short-term investments

  $ 13,178     $ 16,907  

Working capital

  $ (117 )   $ 6,158  

Net cash used for operating activities

  $ (11,635 )   $ (9,362 )

Net cash used for investing activities

  $ (6,464 )   $ (1,031 )

Net cash provided by financing activities

  $ 14,370     $ 15,202  

 

Our primary sources of liquidity consisted of approximately $13.2 million in cash and cash equivalents as of March 31, 2015, $7.4 million of which was received from our short-term credit facility. This compares to approximately $16.9 million in cash, cash equivalents and short-term investments as of March 31, 2014, $6.9 million of which was received from our short-term credit facility.

 

Net cash used for operating activities was $11.6 million for the twelve months ended March 31, 2015, resulting primarily from our net loss of $13.7 million, adjusted for non-cash expenses totaling $4.5 million, which included amortization and depreciation, impairment charge, beneficial conversion feature and stock-based compensation expense. 

 

Net cash used for operating activities was $9.4 million for the twelve months ended March 31, 2014, resulting primarily from our net loss of $8.1 million, adjusted for non-cash expenses totaling $1.3 million, which included depreciation and stock-based compensation expense. 

 

Net cash used for investing activities was $6.5 million for the fiscal year ended March 31, 2015, resulting primarily from the acquisition of Iasta.

 

Net cash used for investing activities was $1.0 million for the fiscal year ended March 31, 2014, resulting primarily from the purchase of capital assets and short-term investments. 

 

Net cash provided by financing activities was $14.4 million for the fiscal year ended March 31, 2015, resulting primarily from $3.0 million received from the issuance of debt and $12.4 million received from sale of preferred stock and warrants offset by $0.9 million of payment of credit facility and note inherited from the acquisition of Iasta.

 

Net cash provided by financing activities was $15.2 million for the fiscal year ended March 31, 2014, resulting primarily from $14.2 million received from the sale of common stock, preferred stock and warrants, $0.9 million borrowed from our credit facility and $0.3 million received from issuing common stock under our employee stock plan, offset by $0.2 million resulting primarily from repurchase of common stock from employees. 

 

We expect to incur significant operating costs for the foreseeable future. We expect to fund our operating costs, as well as our future capital expenditures and liquidity needs, from a combination of available cash balances, internally generated funds, and our short-term credit facility. As a result, our net cash flows will depend heavily on the level of future sales, changes in deferred revenues, and our ability to manage costs.

 

 
26

 

 

Contractual Obligations

 

The following table summarizes our outstanding contractual obligations as of March 31, 2015 and the effect those obligations are expected to have on our liquidity and cash flows in future periods:

 

   

Payments Due by Period (in thousands)

 
           

Less than

                   

More than

 
Contractual Obligations   Total    

1 Year

    1-3 Years     3-5 years    

5 Years

 

Operating lease—real estate

  $ 905     $ 577     $ 328     $ -     $ -  

Seal Software Royalty

    300       300       -       -       -  

Loan from Lloyd I. Miller, III

    3,000       -       -       3,000       -  

Credit facility

    7,447       7,447       -       -       -  

Total

  $ 11,652     $ 8,324     $ 328     $ 3,000     $ -  

 

Our contractual obligations and commercial commitments at March 31, 2015 were approximately $11.7 million.

 

Off-balance sheet arrangements

 

We have no off-balance sheet arrangements or transactions with unconsolidated limited purpose entities, nor do we have any undisclosed material transactions or commitments involving related persons or entities.

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide the information contained in this item pursuant to Regulation S-K. 

 

 

Item 8. Financial Statements and Supplementary Data.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

  28

Consolidated Balance Sheets as of March 31, 2015 and 2014

  29

Consolidated Statements of Operations—Years ended March 31, 2015 and 2014

  30

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity—Years ended March 31, 2015 and 2014

  31

Consolidated Statements of Cash Flows—Years ended March 31, 2015 and 2014

  32

Notes to Consolidated Financial Statements

  33

 

 
27

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

The Board of Directors and Shareholders

 Selectica, Inc.

 

We have audited the accompanying consolidated balance sheets of Selectica, Inc. (the “Company”) as of March 31, 2015 and 2014, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders’ equity, and cash flows for each of the fiscal years in the two-year period ended March 31, 2015. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in Item 15b. These consolidated financial statements and related financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal controls over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements and financial statement schedule referred to above present fairly, in all material respects, the financial position of Selectica, Inc. at March 31, 2015 and March 31, 2014, and the consolidated results of their operations and their cash flows for each of the fiscal years in the two-year period ended March 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material aspects, the information set forth therein.

 

 

/s/ARMANINO LLP

San Jose, California

 June 29, 2015

 

 
28

 

 

SELECTICA, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

   

March 31,

   

March 31,

 
   

2015

   

2014

 
                 

ASSETS

               

Current assets

               

Cash and cash equivalents

  $ 13,178     $ 16,907  

Accounts receivable, net of allowance for doubtful accounts of $205 and $247 as of March 31, 2015 and March 31, 2014, respectively

    5,203       3,006  

Restricted cash

    34       -  

Prepaid expenses and other current assets

    1,647       689  

Total current assets

    20,062       20,602  
                 

Property and equipment, net

    290       312  

Capitalized software development costs, net

    2,258       856  

Goodwill

    7,702       -  

Other intangibles, net

    6,453       -  

Other assets

    521       30  

Total assets

  $ 37,286     $ 21,800  
                 
                 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

               

Current liabilities

               

Credit facility

  $ 7,447     $ 6,949  

Accounts payable

    1,535       1,371  

Accrued payroll and related liabilities

    910       648  

Other accrued liabilities

    1,877       345  

Deferred revenue

    8,410       5,131  

Total current liabilities

    20,179       14,444  
                 

Long-term deferred revenue

    22       618  

Convertible note, net of debt discount

    2,900       -  

Other long-term liabilities

    167       -  

Total liabilities

    23,268       15,062  
                 

Commitments and contingencies (Notes 9 and 10):

               

Redeemable Convertible Preferred Stock:

               

Series F and Series D redeemable convertible preferred stock, $0.0001 par value, designated, issued and outstanding shares: 118,829 shares at March 31, 2015 and 680,047 at March 31, 2014, respectively

    4,895       3,653  
                 

Stockholders' Equity:

               

Common stock, $0.0001 par value: Authorized: 15,000 shares at March 31, 2015 and 2014; Issued: 8,019 and 4,790 shares at March 31, 2015 and 2014, respectively; Outstanding: 7,923 and 4,694 shares at March 31, 2015 and 2014, respectively

    5       4  

Additional paid-in capital

    297,866       278,083  

Treasury stock at cost - 96 shares at March 31, 2015 and 2014

    (472 )     (472 )

Accumulated deficit

    (288,276 )     (274,530 )

Total stockholders' equity

    9,123       3,085  

Total liabilities, redeemable convertible preferred stock and stockholders' equity

  $ 37,286     $ 21,800  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
29

 

 

SELECTICA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data )

 

   

Fiscal Years Ended March 31,

 
   

2015

   

2014

 
   

(in thousands, except per share amounts)

 
                 

Revenues:

               

Recurring revenues

  $ 16,207     $ 12,210  

Non-recurring revenues

    4,670       3,579  

Total revenues

    20,877       15,789  
                 

Cost of revenues:

               

Cost of recurring revenues

    5,026       2,823  

Cost of non-recurring revenues

    7,277       5,738  

Total cost of revenues

    12,303       8,561  
                 

Gross profit:

               

Recurring gross profit

    11,181       9,387  

Non-recurring gross (loss)

    (2,607 )     (2,159 )

Total gross profit

    8,574       7,228  
                 

Operating expenses:

               

Research and development

    3,713       2,843  

Sales and marketing

    12,697       8,313  

General and administrative

    8,788       4,984  

Restructuring costs

    -       227  

Total operating expenses

    25,198       16,367  
                 

Loss from operations

    (16,624 )     (9,139 )
                 

Decrease in fair value of warrant liability

    -       982  

Other income (expense), net

    (72 )     (22 )
                 

Net loss before income taxes

    (16,696 )     (8,179 )

Benefit for income taxes

    2,950       -  

Net Loss

  $ (13,746 )   $ (8,179 )
                 

Redeemable preferred stock accretion

    3,691       3,513  

Net loss attributable to common stockholders

  $ (17,437 )   $ (11,692 )
                 

Basic and diluted net loss per share (Note 15)

  $ (1.89 )   $ (2.13 )
                 

Weighted-average shares of common stock used in computing basic and diluted net loss per share attributable to common stockholders

    7,276,585       3,843,811  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
30

 

 

SELECTICA, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

 (In thousands, except share and per share data)

 

   

Convertible Redeemable

                   

Additional

                           

Total

 
   

Preferred Shares

   

Common Stock

    Paid-In    

Treasury Stock

    Accumulated     

Stockholders'

 
   

Shares

   

Amount

   

Shares

   

Amount

    Capital    

Shares

   

Amount

    Deficit     

Equity

 

Balance at March 31, 2013

                2,982,907     $ 4     $ 267,339       (95,653 )   $ (472 )   $ (266,351 )   $ 520  

Issuance of common stock, redeemable convertible Series C preferred stock, and warrants through a private placement, net of issuance costs of $437,000

    231,518       846       668,249             1,875                         1,875  

Value of benefical conversion feature in Series C preferred stock

          (846 )                 846                         846  

Accretion of preferred Series C stock to redemption value

          228                   (775 )                       (775 )

Conversion of Series C redeemable preferred stock to common stock

    (231,518 )     (1,621 )     231,518             1,621                         1,621  

Reclassification of warrants from liability to equity upon modification

                            1,286                         1,286  

Issuance of common stock, redeemable convertible Series D preferred stock, and warrants through a private placement, net of issuance costs of $286,000

    680,470       4,499       777,216             3,495                         3,495  

Value of benefical conversion feature in Series D preferred stock

          (1,345 )                   1,345                               1,345  

Accretion of preferred Series D stock to redemption value

          1,892                   (1,892 )                       (1,892 )

Warrants to purchase common stock issued in connection with Series D private placement

                            1,789                         1,789  

ESPP purchase

                37,553             257                         257  

Issuance of restricted stock, net of repurchase

                89,053             (233 )                       (233 )

Exercise of stock options

                3,967             (19 )                       (19 )

Stock-based compensation expense

                            1,149                         1,149  

Net Loss

                                              (8,179 )     (8,179 )

Balance at March 31, 2014

    680,470     $ 3,653       4,790,463     $ 4     $ 278,083       (95,653 )   $ (472 )   $ (274,530 )   $ 3,085  
                                                                         

Conversion of Series D redeemable preferred stock to common stock, net of issuance costs of $53,000

    (680,470 )     (3,653 )     690,274             3,653                         3,653  

Issuance of common stock, redeemable convertible Series E preferred stock, and warrants through a private placement, net of issuance costs of $100,000

    124,891       6,419                                            

Value of benefical conversion feature in Series E preferred stock

          (1,571 )                 1,571                         1,571  

Accretion of preferred Series E stock to redemption value

          2,645                   (2,645 )                       (2,645 )

Warrants to purchase common stock issued in connection with Series E private placement

                            809                         809  

Conversion of Series E redeemable preferred stock to common stock, net of issuance costs

    (124,891 )     (7,493 )     1,248,905       1       7,492                         7,493  

Issuance of stock in consideration of Merger

                1,000,000             6,610                         6,610  

Issuance of redeemable convertible Series F preferred stock, and warrants through a private placement, net of issuance costs of $350,000

    118,829       4,413                                            

Value of benefical conversion feature in Series F preferred stock

          (564 )                 564                         564  

Accretion of preferred Series F stock to redemption value

          1,046                   (1,046 )                       (1,046 )

Warrants to purchase common stock issued in connection with Series F private placement

                            678                         678  

Beneficial conversion feature for convertible note

                                100                         100  

ESPP purchase

                48,833             215                         215  

Exercise of stock options

                1,718                                      

Issuance of restricted stock, net of witholding employee taxes

                238,375             (756 )                       (756 )

Stock-based compensation expense

                            2,538                         2,538  

Net Loss

                                              (13,746 )     (13,746 )

Balance at March 31, 2015

    118,829     $ 4,895       8,018,568     $ 5     $ 297,866       (95,653 )   $ (472 )   $ (288,276 )   $ 9,123  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
31

 

 

SELECTICA, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

 

   

Fiscal Years Ended March 31,

 
   

2015

   

2014

 
   

(in thousands)

 

Operating activities

               

Net loss

  $ (13,746 )   $ (8,179 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    1,530       246  

Loss on disposition of property and equipment

    -       23  

Impairment of capitalized software

    340       -  

Stock-based compensation expense

    2,538       1,149  

Change in fair value of warrant liability

    -       (982 )

Changes in assets and liabilities, net of business combination:

               

Accounts receivable (net)

    421       449  

Restricted cash

    (34 )     -  

Prepaid expenses and other current assets

    (505 )     164  

Other assets

    (2 )     9  

Accounts payable

    (195 )     359  

Accrued restructuring costs

    -       (232 )

Accrued payroll and related liabilities

    (421 )     (334 )

Other accrued liabilities and long term liabilities

    158       162  

Deferred revenue

    (2,989 )     (2,177 )

Deferred tax Liability

    1,270       -  

Net cash used in operating activities

    (11,635 )     (9,343 )
                 

Investing activities

               

Purchase of property and equipment

    (51 )     (121 )

Capitalized software

    (1,962 )     (910 )

Purchase of business, net of cash

    (4,451 )     -  

Net cash used in investing activities

    (6,464 )     (1,031 )
                 

Financing activities

               

Proceeds from sale of common stock, preferred stock and warrants, net of issuance costs

    12,319       -  

Employee taxes paid in exchange for restricted stock awards forefeited

    (578 )     949  

Issuance of common stock under employee stock plan

    213       -  

Credit facility borrowing, net

    498       -  

Credit facility payment

    (655 )     (232 )

Repayment of note Payable

    (277 )     239  

Issuance of Convertible Note, net

    3,000       -  

Issuance of cost associated with promissory note

    (150 )     14,227  

Net cash provided by financing activities

    14,370       15,183  

Net increase (decrease) in cash and cash equivalents

    (3,729 )     4,809  

Cash and cash equivalents at beginning of the period

    16,907       12,098  

Cash and cash equivalents at end of the period

  $ 13,178     $ 16,907  
                 

Supplemental disclosure of cash flow information:

               

Cash paid for interest

  $ 35     $ 35  

Beneficial conversion feature for convertible redeemable preferred stock

  $ 2,135       -  

Accretion of preferred series stock to redemption value

  $ 3,691       -  

Conversion of Series D and E redeemable preferred stock to common stock

  $ 11,145       1,621  

Issuance of shares in business combination

  $ 6,610       -  

Assumption of debt in connection with business combination

  $ 932       -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
32

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

Summary of Business

 

Selectica, Inc. (the “Company” or “Selectica”) is a leading provider of enterprise contract management, supply management, and configuration solutions. Since 1996, Selectica has helped global companies actively manage their contracts throughout the sales, procurement, and legal life cycle. Selectica's contract lifecycle management, strategic sourcing, and purchasing solutions drive business value by assisting organizations in managing contracts profitably, effectively accelerating revenue opportunities, and minimizing risk through compliance. Our patented technology assists customers across a myriad of industries—including high-tech, telecommunications, manufacturing, healthcare, and financial services—to accelerate and streamline contract management, sales processes, spend analysis, procurement intelligence, sourcing, and supplier lifecycle management. Selectica also provides a powerful configuration engine, which Fortune 500 companies use to increase revenue by facilitating the right combination of products, services, and price.

 

2.

Summary of Significant Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of the Company and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 

Change in Presentation of Financial Statements

 

In the prior year ended March 31, 2014, the Company changed the presentation of its financial statements to include third party consulting costs related to our Selectica Configuration Solutions in its cost of sales. Previously, these costs were included in research and development expenses.  Reclassifications of $0.2 million from research and development expense to recurring cost of sales were made in fiscal 2014, to conform to the current year’s presentation.  This reclassification of the prior year amounts does not change the previously reported operating loss or net loss.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and accounts receivable. The Company places its short-term investments in high-credit quality financial institutions. The Company is exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the balance sheet. The Company’s cash balances periodically exceed the FDIC insured amounts.  Accounts receivable are derived from revenue earned from customers primarily located in the United States. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses, and historically, such losses have not been significant.

 

Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash equivalents consist of money market funds, certificates of deposits, and commercial paper.  Fair values of cash equivalents approximated original cost due to the short period of time to maturity. The cost of securities sold is based on the specific identification method. The Company’s investment policy limits the amount of credit exposure to any one issuer of debt securities.

 

 
33

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

Restricted Cash

 

The Company’s restricted cash consist of certificates of deposits for our credit card for our office in the UK.

 

Accounts Receivable, Net of Allowance for Doubtful Accounts

 

The Company evaluates the collectability of its accounts receivable based on a combination of factors. When the Company believes a collectability issue exists with respect to a specific receivable, the Company records an allowance to reduce that receivable to the amount that it believes to be collectible. In making the evaluations, the Company will consider the collection history with the customer, the customer’s credit rating, communications with the customer as to reasons for the delay in payment, disputes or claims filed by the customer, warranty claims, non-responsiveness of customers to collection calls, and feedback from the responsible sales contact. In addition, the Company will also consider general economic conditions, the age of the receivable and the quality of the collection efforts.

 

Property and Equipment, Net

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives. The estimated useful lives for computer software and equipment is three years, furniture and fixtures is five years, and leasehold improvements is the shorter of the lease term or estimated useful life.

 

Business Combinations

 

The Company accounts for acquisitions using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of an acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships and acquired patents and developed technology; and discount rates. Management’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.  

 

Intangible Assets and Impairment of Long-Lived Assets

 

Intangible assets consist of customer relationships, trade names, and acquired technology. Intangible assets are recorded at fair values at the date of the acquisition and, for those assets having finite useful lives, are amortized using the straight-line method over their estimated useful lives, which generally range from two to five years. The Company periodically reviews its intangible and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company then compares the carrying amounts of the assets with the future net undiscounted cash flows expected to be generated by such asset. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value determined using discounted estimates of future cash flows. There was no impairment charge recorded during the year ended March 31, 2015.

 

Goodwill

 

Goodwill represents the excess of the purchase consideration over the net tangible and an identifiable intangible asset acquired in a business combination and is allocated to reporting units expected to benefit from the business combination. The Company tests goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets may be impaired. The Company has elected to first assess certain qualitative factors to determine whether it is more likely than not that the fair value of its single reporting operating unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If the Company determines that it is more likely than not that the fair value is less than its carrying amount, then the two-step goodwill impairment test will be performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step will be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. There was no impairment charge recorded during the year ended March 31, 2015.

 

 
34

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

Customer Concentrations

 

A limited number of customers have historically accounted for a substantial portion of the Company’s revenues. The following table presents customers that accounted for more than 10% of revenue for the last two fiscal years: 

 

   

Fiscal Year Ended March 31,

 
   

2015

   

2014

 
    (in thousands, except percentages)  

Customer A

    10 %     14 %

 

Customers who accounted for at least 10% of gross accounts receivable were as follows: 

 

   

Fiscal Year Ended March 31,

 
   

2015

   

2014

 
    (in thousands, except percentages)  

Customer B

    15 %     29 %

 

 

Revenue Recognition

 

The Company generates revenues by providing its software as a service solutions through subscription license arrangements and related professional services, as well as through perpetual and term licenses and related software maintenance and professional services. The Company presents revenue net of sales taxes and any similar assessments. 

 

Revenue recognition criteria. The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) fees are fixed or determinable and (4) collectability is probable. If the Company determines that any one of the four criteria is not met, the Company will defer recognition of revenue until all the criteria are met. 

 

Multiple-Deliverable Arrangements. The Company enters into arrangements with multiple-deliverables that generally include subscription, support and professional services. If a deliverable has standalone value, and delivery is probable and within the Company’s control, the Company accounts for the deliverable as a separate unit of accounting. Subscriptions to use our software solutions have standalone value as such services are often sold separately, primarily through renewals. Professional services have standalone value as such services are often sold separately, and are available from other vendors.

 

Upon separating the multiple-deliverables into separate units of accounting, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on its vendor-specific objective evidence of selling price (“VSOE”), if available, or its best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third-party pricing information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.

 

For professional services and subscription services, the Company has not established VSOE due to lack of pricing consistency, and other factors. Accordingly, the Company uses its BESP to determine the relative selling price.

 

The Company determined BESP by considering its price list, as well as overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, contract prices per user, the size and volume of the Company’s transactions, the customer demographic, and its market strategy.

 

Recurring revenues. Recurring revenues consist of subscription license sales, maintenance revenues from previously sold perpetual licenses, and hosting revenues. Recurring revenues are recognized ratably over the stated contractual period.

 

 
35

 

  

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

Non-recurring revenues.  Non-recurring revenues are comprised of revenues from professional services for system implementations, enhancements, and training, and perpetual license sales prior to fiscal 2015. For professional services arrangements billed on a time-and-materials basis, services are recognized as revenue as the services are rendered. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting and estimates the proportional performance utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. The Company recognizes a loss for a fixed-fee professional service if the total estimated project costs exceed project revenues. Perpetual license sales are recognized upon delivery of the product, assuming all the other conditions for revenue recognition have been met.

 

In certain arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria are satisfied. Reimbursements, including those related to travel and out-of-pocket expenses are included in non-recurring revenues, and an equivalent amount of reimbursable expenses is included in non-recurring cost of revenues.

 

Advertising Expense

 

The cost of advertising is expensed as incurred. Advertising expense for the years ended March 31, 2015 and 2014 was approximately $614,000 and $209,000 respectively.

 

Foreign Currency

 

The Company’s UK subsidiary’s functional currency is the U.S. dollar. Non-monetary assets and liabilities are translated into U.S. dollar equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period. The net gains and losses resulting from foreign exchange transactions are recorded in other income (expense), net in the condensed consolidated statement of operations.

 

Capitalized Software Development Costs

 

Software development costs incurred prior to the establishment of technological feasibility are included in research and development expenses. The Company defines achievement of technological feasibility as the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability of the products are capitalized, if material, after consideration of various factors, including net realizable value.

 

Capitalized software costs are amortized once the product is available for general release, using the straight-line method over the estimated useful lives of the asset. Capitalized software developments costs are evaluated for recoverability based on estimated future gross revenues reduced by the associated costs. If gross revenues were to be significantly less than estimated, the net realizable value of the capitalized software would be considered impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software. During the years ended March 31, 2015 and 2014, the Company recorded impairment charges of $0.3 million and $0, respectively, related to our capitalized software development costs. These impairment charges are included in R&D expenses in the accompanying consolidated statements of operations (see Note 7).

 

 

Stock-Based Compensation

 

The Company recognizes stock-based compensation expense for only those awards ultimately expected to vest on a straight-line basis over the requisite service period of the award, net of an estimated forfeiture rate. The Company estimates the fair value of stock options using a Black-Scholes valuation model, which requires the input of highly subjective assumptions, including the option’s expected term and stock price volatility. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future. 

 

Geographic Information:

 

International revenues are attributable to countries based on the location of the customers. For the fiscal years ended March 31, 2015 and 2014, sales to international locations were derived primarily from Canada, India, New Zealand, Switzerland, Germany, Hong Kong, Ireland, Norway and the United Kingdom.

 

 
36

 

  

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

   

Fiscal Years Ended March 31,

 
   

2015

   

2014

 
   

(in thousands, except percentages)

 

International Revenues

    13 %     10 %

Domestic Revenues

    87 %     90 %

Total Revenues

    100 %     100 %

 

For the years ended March 31, 2015 and 2014, the Company held long-lived assets outside of the United States with a net book value of approximately $47,000 and $67,000, respectively. These assets were located in Odessa, Ukraine.

 

Treasury Stock

  

There were no stock repurchases during the fiscal year ended 2015 and 2014.  

 

The Company had 96,000 shares of treasury stock as of March 31, 2015 and March 31, 2014.  

  

Recent Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU 2015-05, IntangiblesGoodwill and OtherInternal-use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, providing guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. The standard update is effective for fiscal years beginning after December 15, 2015 and interim. We are currently evaluating the impact of adopting this update on our consolidated financial statements.

 

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is applicable to the Company beginning April 1, 2015. Early adoption of ASU 2015-03 is permitted. The Company will reclassify the debt issuance cost to Convertible Debt in our consolidated Balance Sheet.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Subtopic 810): Amendments to the Consolidation Analysis, to improve consolidation guidance for legal entities and affect the consolidation evaluation for reporting organizations. The standard update is effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The standard allows for adoption retrospectively or with a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are currently evaluating the impact of adopting this update on our consolidated financial statements.

 

In May 2014, the FASB issued ASC 2014-09, Revenue from Contracts with Customers (Subtopic 606), which completes the joint effort by the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. The core principle of this update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. . We intend to adopt this update, as currently issued, in the first quarter of fiscal year 2018 at which point it will begin to affect us. The standard allows for full retrospective adoption applied to all periods presented or retrospective adoption with the cumulative effect of initially applying this update recognized at the date of initial application.

 
37

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

3.

Acquisition

 

Iasta.com, Inc. and Iasta Resources, Inc.

 

                   On July 2, 2014, the Company completed its acquisition of Iasta.com, Inc., an Indiana corporation, and Iasta Resources, Inc., an Indiana corporation (together, “Iasta”). Pursuant to the Agreement and Plan of Merger dated June 2, 2014, among the Company, Selectica Sourcing, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Selectica Sourcing”), Iasta and Iasta’s shareholders, Iasta merged with and into Selectica Sourcing, with Selectica Sourcing continuing as a wholly owned subsidiary of the Company. The acquisition of Iasta positions the Company to provide easier access to contract management, strategic sourcing, spend management and Configuration solutions, and increases the Company’s market coverage in more locations worldwide to its customers.

 

 The total purchase price for Iasta included 1,000,000 shares of the Company’s common stock valued at $6.6 million, and cash of $6.5 million, adjusted for amounts related to the repayment of $0.7 million for outstanding borrowings under a line of credit, $0.3 million related to a note payable and payment of transaction costs and certain other adjustments. The total purchase price is subject to a $1.4 million cash escrow (the “Escrow”) to cover any post-closing adjustments and indemnification obligations of the former Iasta shareholders. A portion of the Escrow will be released on the 12-month anniversary of the closing of the acquisition, and the remainder of the Escrow will be released on the 18-month anniversary of the closing. Concurrent with the closing of the acquisition, the Company entered into employment agreements with certain key employees of Iasta. In addition, the Company granted options to certain employees of Iasta to purchase up to 700,000 shares of the Company’s common stock.

 

The assets acquired and liabilities assumed in connection with the acquisition of Iasta were recorded at their fair values as of the acquisition date. The total purchase price was comprised of the following:

 

(in thousands)

       

Cash Paid

  $ 6,494  

Total Stock value

    6,610  

Working Capital Adjustment

  $ (734 )

Total Purchase Price

  $ 12,370  

 

Summary

       

(in thousands)

       

Cash

  $ 1,491  

Restricted cash

    139  

Accounts receivable

    2,618  

Prepaid and other Assets

    314  

Fixed assets, net

    188  

Customer relationships

    4,210  

Developed technology

    3,170  

Trade name

    120  

Goodwill

    7,702  

Other long term assets

    340  

Accounts payable and accrued expenses

    (562 )

Accrued and payroll benefits

    (688 )

Credit facility

    (655 )

Notes payable

    (277 )

Other current liabilities

    (718 )

Deferred revenue

    (2,033 )

Deferred tax asset - current

    280  

Deferred tax liability - non current

    (3,269 )

Total value of assets acquired and liabilities assumed

  $ 12,370  

 

 
38

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

The purchase price allocation includes goodwill of $7.7 million, which is primarily attributable to the synergies expected to arise after the acquisition and fair value of assembled workforce. The Company incurred $0.4 million of transactional costs which is recorded as part of General and Administrative expenses during the year ended March 31, 2015. The acquired working capital has been finalized and impacted goodwill balance post acquisition date. The goodwill is not deductible for income tax purposes.

 

Unaudited Pro Forma Financial Information

 

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Iasta, which was considered a “significant” acquisition (as defined in Regulation S-X) for the purposes of unaudited pro forma financial information disclosure, as though the companies were combined as of April 1, 2013. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the Iasta acquisition including amortization charges from acquired intangible assets and stock-based compensation charges for unvested stock option awards, as though the Company and Iasta were combined as of April 1, 2013. The related tax effect was insignificant.

 

The pro forma financial information, as presented below, is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition of Iasta had taken place as of the beginning of each period presented. The pro forma financial information does not reflect the impact of any reorganization or operating efficiencies resulting from combining the two companies.

 

The historical financial information has been adjusted to give effect to the pro forma events that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated financial information reflects assuming the acquisition had occurred on April 1, 2013. Acquisition related expenses are primarily included in general and administrative expenses.

 

   

2015

   

2014

 
   

(thousands, except per share data)

 

Revenue

  $ 23,796     $ 26,271  

Loss from operations

  $ (16,769 )   $ (9,139 )

Net Loss

  $ (13,952 )   $ (8,179 )

Basic and diluted net loss per share

  $ (1.92 )   $ (2.13 )

 

 

Finalization of preliminary purchase price allocation

 

Under U.S. GAAP, the period that is allowed for finalizing the identification and measurement of the fair value of the assets acquired and the liabilities assumed in a business combination ends when the acquiring entity is no longer waiting for information that it has arranged to obtain and that is known to be available or obtainable. At March 31, 2015, the Company determined that its measurement and recognition of assets acquired and liabilities assumed in the Iasta acquisition was recorded on a final basis.

 

4.

Goodwill and Purchased Intangible Assets

 

The following is a summary of goodwill (in thousands):

 

(in thousands)

       

Balance at beginning of fiscal year

  $ -  

Goodwill acquired

    8,436  

Working Capital Adjustment

  $ (734 )

Balance at end of fiscal year

  $ 7,702  

  

 
39

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

The following is a summary of purchased intangible assets (in thousands):

 

   

March 31, 2015

 
   

Gross

   

Accumulated

   

Net

 
   

Carrying

   

Amortization

   

Carrying

 
   

Amount

           

Value

 

Acquired developed technology

  $ 3,170     $ 476     $ 2,694  

Customer relationships

    4,210       526       3,684  

Trade name

    120       45       75  
                         
    $ 7,500     $ 1,047     $ 6,453  

 

Acquired developed technology, customer relationships, and trade name are being amortized on a straight-line basis and have weighted-average remaining useful lives of 4.25 years, 5.25 years, and 1.25 years, respectively, as of March 31, 2015. Amortization expense was $1.0 million and $0 for the years ended March 31, 2015 and 2014, respectively.

 

As of March 31, 2015, amortization expense for intangible assets for each of the next five years is as follows:

 

Year ended March 31:

 

(in thousands)

 

2016

  $ 1,396  

2017

    1,351  

2018

    1,336  

2019

    1,336  
2020     919  

Thereafter

    115  

Total

  $ 6,453  

 

5.

Private Placement Funding with Redeemable Convertible Preferred Stock and Warrants

 

On January 24, 2014, in connection with the closing of a private placement equity financing (the “January 2014 Financing”), the Company sold and issued 765,605 shares of its common stock and 68,047 shares of its newly created Series D Convertible Preferred Stock, par value $0.0001 per share (“Series D Stock”) to certain institutional funds and other accredited investors at a purchase price of $6.00 per share of common stock and $60.00 per whole share of Series D Stock (or $6.00 per one-tenth of a share of Series D Stock). In addition, the Company issued to such investors warrants to purchase common stock, initially exercisable for an aggregate of 723,030 shares (the “January 2014 Warrants”). The exercise price of the January 2014 Warrants is $7.00 per share. The January 2014 Warrants have a five-year term and became exercisable on July 24, 2014, six months following the date of issuance.

 

In connection with the January 2014 Financing, the Company issued to Lake Street Capital Markets, LLC (“Lake Street”), who served as the placement agent in such financing, 11,029 shares of common stock, 980.4 shares of Series D Stock, and a warrant to purchase 10,416 shares of common stock.

 

In addition, on July 2, 2014, the Company completed a private placement equity financing (the “2014 Second Financing”) with certain institutional and other accredited investors, pursuant to a Purchase Agreement, dated June 5, 2014, in which such investors purchased 124,890.5 shares of Series E Convertible Preferred Stock, par value $0.0001 per share (the “Series E Stock”), at a purchase price of $60.00 per whole share (or $6.00 per one-tenth of a share of Series E Stock). In addition, the Company issued to such investors warrants to purchase common stock, initially exercisable for an aggregate of 312,223 shares of common stock (the “July 2014 Warrants”). The exercise price of the July 2014 Warrants is $7.00 per share. The July 2014 Warrants have a five-year term and became exercisable upon stockholder approval on August 27, 2014. The total proceeds raised in the 2014 Second Financing equal approximately $7.5 million.

 

 
40

 

  

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

In connection with the July 2014 Financing, the Company issued to Lake Street, who served as the placement agent in such financing, a warrant to purchase 37,467 shares of common stock. The estimated relative fair value of the warrants using the Black-Scholes valuation model at the issuance date is $0.8 million.

 

In addition, on February 6, 2015, pursuant to the terms of a Purchase Agreement, dated February 6, 2015 among the Company and certain institutional funds and other accredited investors, the Company sold and issued 118,829.1 shares of Series F Convertible Preferred Stock, par value $0.0001 per share (the “Series F Stock”) to such investors at a purchase price of $47.00 per whole share of Series F Stock (or $4.70 per one-tenth of a share of Series F Stock), for an aggregate gross purchase price of approximately $5.6 million (the “2015 Financing”). In addition to the issuance of the Series F Stock, the Company issued to each investor a warrant to purchase common stock, initially exercisable for an aggregate of 32,975 shares of common stock (the “2015 Warrants”). The exercise price of the 2015 Warrants is $6.00 per share. The 2015 Warrants have a five-year term and became exercisable upon stockholder approval on May 5, 2015. The estimated fair value of the warrants using the Black-Scholes valuation model at the issuance date is $777,500. The total proceeds raised in the 2015 Financing equal approximately $5.6 million.

 

The holders of Series F Stock had the right to vote together with the holders of the Company’s Common Stock as a single class on any matter on which the holders of Common Stock were entitled to vote, except that the holders of Series F Stock were not eligible to vote their shares of Series F Stock on the proposal submitted to the Company’s stockholders for approval of the issuance and sale of the securities in the 2015 Financing and the conversion of the Series F Stock. Holders of Series F Stock were entitled to cast a fraction of one vote for each share of Common Stock issuable to such holder on the record date for the determination of stockholders entitled to vote at a conversion rate the numerator of which was $47.00 and the denominator of which was the closing bid price per share of the Common Stock on February 5, 2015.

  

 

(a)

Presentation of  January 2014, July 2014 and 2015 Warrants

 

The Company has evaluated the January 2014 Warrants, the July 2014 Warrants and the 2015 Warrants and has concluded that equity classification is appropriate as all such January 2014 Warrants, July 2014 Warrants and 2015 Warrants are considered to be indexed to the Company’s equity and there are no settlement provisions that would result in classification as a debt instrument. Such warrants are included in stockholders’ equity and are not subject to remeasurement.

 

 

(b)

Presentation of Redeemable Convertible Preferred Stock

 

On April 10, 2014, following approval by the Company’s stockholders, each whole share of Series D Stock converted automatically into ten shares of common stock at an initial conversion price of $6.00 per share of common stock, for a total of 690,274 shares of common stock issued upon such conversion (including the conversion of the shares of Series D Stock issued to Lake Street as described above).

 

Because the Series E Stock was redeemable at the option of the holder (had the stockholders not approved conversion), the Company recorded the Series E Stock in temporary equity until conversion on August 27, 2014 when the redemption value of $7.5 million was reclassified to stockholders’ equity.

 

On August 27, 2014, following approval by the Company’s stockholders, each whole share of Series E Stock converted automatically into ten shares of common stock at an initial conversion price of $6.00 per share of common stock, for a total of 1,248,905 shares of common stock issued upon such conversion.

 

On May 5, 2015, following approval by the Company’s stockholders, each whole share of Series F Stock converted automatically into ten shares of common stock at an initial conversion price of $4.70 per share of common stock, for a total of 1,188,291 shares of Common Stock issued upon such conversion. Because the Series F Stock was redeemable at the option of the holder (prior to the stockholders approving conversion on May 5, 2015 as discussed above), we have recorded it in temporary equity as of March 31, 2015.

 

  

(c)

Beneficial Conversion Feature (“BCF”)

 

The Series E and Series F Stock were assessed under Accounting Standards Codification (“ASC”) 470, Debt, and the Company determined that the conversion to common stock qualifies as a BCF since it had a nondetachable conversion feature that was in-the-money at the commitment date. The BCF computation compares the carrying value of the preferred stock after the value of any derivatives has been allocated from the proceeds (in this case, the warrant value) to the transaction date value of the number of shares that the holder can convert into. The calculation resulted in a BCF of $1.6 million for Series E Stock and $0.6 million for Series F Stock being recorded in additional paid-in capital.

 

 
41

 

  

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

 

(d)

Carrying Values

  

The proceeds of the July 2014 Financing and the 2015 Financing for were allocated to the common stock, the January 2014 Warrants, July 2014 Warrants and Series E Stock and Series F Stock based on their estimated relative fair values. The proceeds of the Series E Stock were allocated to the 2015 Warrants and Series F stock based on their estimated relative fair values. 

 

Carrying value of Series D Stock as of March 31, 2014

  $ 3,653  
         

Conversion of Series D stock into common stock

    (3,653 )

Carrying value of Series D Stock as of June 30, 2014

  $ -  
         

Gross proceeds on July 2, 2014

  $ 7,493  

Fair value of warrants on July 2,2014

    (809 )
         

Gross proceeds allocated to Series E Stock sold on July 2, 2014

    6,684  

Related transaction costs allocated

    (265 )

Net value allocated to Series E Stock sold prior to BCF

    6,419  

Calculated BCF value

    (1,571 )

Accretion of Series E Stock through August 27, 2014

    2,645  

Carrying value of Series D Stock as of August 27, 2014

    7,493  
         

Conversion of Series D stock into common stock

    (7,493 )

Carrying value of Series D Stock as of September 30, 2014

  $ -  
         
         

Gross proceeds on February 5, 2015

  $ 5,585  

Fair value of warrants on January 5, 2015

    (682 )
         

Gross proceeds allocated to Series F Stock sold on February 5, 2015

    4,903  

Related transaction costs allocated

    (490 )

Net value allocated to Series F Stock sold prior to BCF

    4,413  

Calculated BCF value

    (564 )

Accretion of Series E Stock through March 31, 2015

    1,046  

Carrying value of Series F Stock as of March 31, 2015

  $ 4,895  

 

 
42

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

6.

Property and Equipment, net

 

Property and equipment consist of the following:

 

   

March 31,

 
   

2015

   

2014

 
    (in thousands)  

Computers and software

  $ 562     $ 2,381  

Furniture and equipment

    260       774  

Leasehold improvements

    70       117  
      892       3,272  

Less: accumulated depreciation

    (602 )     (2,960

)

                 

Total property and equipment, net

  $ 290     $ 312  

 

 

Depreciation expense related to property and equipment was approximately $262,000 and $158,000 for the years ended March 31, 2015 and 2014, respectively. 

 

 

7.

Capitalized Software

 

The Company capitalizes software development costs upon achieving technological feasibility of the related products. Software development costs incurred prior to achieving technological feasibility are charged to engineering and product development expense as incurred.

   

Capitalized software will be amortized once the product is available for general release, using the straight-line method over the estimated useful lives of the assets, which is three years. The recoverability of capitalized software is evaluated for recoverability based on estimated future gross revenues reduced by the associated costs. If gross revenues were to be significantly less than estimated, the net realizable value of the capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software. The Company recognized $0.3 million of impairment charges for capitalized software in the year ended March 31, 2015.

 

Amortization expense was $0.6 million and $0.01 million for the years ended March 31, 2015 and 2014, respectively, and is included in the product cost of revenue.  The unamortized balance of capitalized software was $2.3 million and $0.9 million as of March 31, 2015 and 2014, respectively.

 

 
43

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

8.

Balance Sheet Components

 

As of March 31, 2015 and 2014, accrued payroll and related liabilities, other accrued liabilities and deferred revenue consisted of the following:

 

   

2015

   

2014

 
   

(in thousands)

 

Accrued payroll and related liabilities:

               

Accrued vacation

  $ 561     $ 371  

Accrued bonus

    83       164  

Accrued wages

           

Accrued benefits

    97       92  

Accrued commissions

    169       21  

Total

  $ 910     $ 648  

 

   

2015

   

2014

 
   

(in thousands)

 

Other accrued liabilities:

               

Accrued accounts payable

  $ 783     $ 150  

VAT on sales

    125        

Employee withhold tax for stock

    227       19  

Sales tax payable

    662       76  

Other accrued liabilities

    80       100  

Total

  $ 1,877     $ 345  

 

   

2015

   

2014

 
   

(in thousands)

 

Deferred revenue:

  $       $    

Hosting

    90       85  

Consulting

    656       138  

Training

    8        

Subscription

    5,457       2,650  

Maintenance

    2,215       2,876  

Other

    6        

Total

  $ 8,432     $ 5,749  

 

9.

Operating Lease Commitments

 

On May 15, 2014, the Company entered into a First Amendment to Lease (the “Lease Amendment”) with SKBGS I, L.L.C. amending the Office Lease dated July 8, 2011, whereby the Company is leasing approximately 10,516 square feet of office space at a premises located at 2121 South El Camino Real, Suite 1000, San Mateo, California, where the Company maintains its headquarters. The Lease Amendment extends the lease term to cover a 25-month period expiring January 31, 2017 and carries a base rent of $2.85 per rentable square foot, escalating 3% each year.

 

In connection with the acquisition of Iasta, we assumed lease for offices in Carmel, Indiana and in London, United Kingdom. The lease in Indiana, dated January 7, 2008 and as amended June 5, 2009, is for approximately 9,948 square feet of office space, expires April 13, 2016 and carries a base rent of $1.80 per rentable square foot, escalating 9% in the last two years of the lease.

 

 
44

 

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

Rental expenses for the office space and equipment were approximately $0.7 million and $0.2 million for years ended March 31, 2015 and 2014 respectively. Minimum payments under our operating leases agreements are $0.6 million in fiscal 2016 and $0.3 million in fiscal 2017.

 

10.

Contingencies

 

Warranties and Indemnifications

 

The Company’s products are generally warranted to perform substantially in accordance with the functional specifications set forth in the associated product documentation for a period of 90 days. In the event there is a failure of such warranties, the Company generally is obligated to correct the product to conform to the product documentation or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or service. The Company has not provided for a warranty accrual as of March 31, 2015 and 2014. To date, the Company has not refunded any amounts in relation to the warranty.

 

The Company generally agrees to indemnify its customers against legal claims that the Company’s software infringes certain third-party intellectual property rights. In the event of such a claim, the Company is obligated to defend its customer against the claim and to either settle the claim at the Company’s expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of the infringement, the Company agrees to modify or replace the infringing product, or, if those options are not reasonably possible, to refund the purchase price of the software. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers. As such, the Company has not provided for an indemnification accrual as of March 31, 2015 and 2014.

 

11.

Convertible Notes

 

On March 11, 2015, the Company entered into a Junior Secured Convertible Note Purchase Agreement with Lloyd I. Miller, III (“Mr. Miller”), the Company’s largest stockholder, and two of his affiliates: MILFAM II L.P. (“MILFAM”) and Lloyd I. Miller Trust A-4 (collectively, the “Miller Group”), pursuant to which the Company issued and sold junior secured convertible promissory notes (the “Convertible Notes”) to the Miller Group in the aggregate principal amount of $3 million.  The Convertible Notes are due on March 11, 2020, and accrue interest at an annual rate of 8% on the aggregate unconverted and outstanding principal amount, payable quarterly. The Company also has the option to pay any amounts of interest due under the Notes by converting such interest into shares of common stock of the Company at a conversion price of $5.70 per share (as may be adjusted for stock splits, recapitalizations or other similar events), based upon an interest rate amount calculated at 10% per year, provided that the Company provides prior written notice thereof to the Miller Group at least 10 days in advance of the applicable interest payment date.  The Convertible Notes may be converted into shares of Common Stock at the sole option of the Miller Group at any time and from time to time after May 5, 2015 and prior to the Maturity Date, at a conversion price of $5.70 (as may be adjusted for stock splits, recapitalizations or other similar events). Following the issuance of the Convertible Notes, the Company filed a registration statement with the Securities and Exchange Commission with respect to the common stock issuable pursuant to conversion of the Convertible Notes.  The Convertible Notes may not be prepaid or called by the Company prior to the Maturity Date. The Convertible Notes are secured by a junior security interest on the Company’s assets, subordinate only to the senior security interest of the Company’s institutional lender, Bridge Bank, N.A.

 

The Company evaluated the agreement per the guidance at ASC 470-50-40-10, and determined that the present value of the cash flows under the terms of the Convertible Notes agreement did not differ by more than 10% from the present value of the remaining cash flows of the original notes. Therefore, debt extinguishment accounting rules do not apply.

 

Upon any default under the Convertible Notes, the Convertible Notes will bear interest at the rate of 13% per year, or, if less, the maximum rate allowable under the laws of the State of New York.

 

The Company calculated $0.1 million for the intrinsic value of the beneficial conversion feature (“BCF”) of the Convertible Notes of $0.19, based on the last sales price per share, and recorded the $0.1 million BCF as a debt discount and as additional paid-in-capital. The note discount is being amortized to interest expense over the term of the Convertible Notes. For the year ended March 31, 2015, $3,000 of BCF debt discount was amortized to interest expense.

 

 
45

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

The Company recorded $0.2 million of debt issuance costs associated with the agreement described above as part of Other long-term liabilities at March 31, 2015.

12.

Credit Facility

 

On March 11, 2015, the Company entered into Amendment Number Two to Amended and Restated Business Financing Agreement, which amended the Business Financing Agreement entered into with Bridge Bank, National Association (“Bridge Bank”) on July 25, 2014, as amended on December 31, 2014 (as amended, the “Credit Facility”).  The Credit Facility provides a revolving receivables financing facility in an amount up to $5.0 million (the “Receivables Financing Facility”) and a revolving cash secured financing facility in an amount up to $4.0 million (the “Working Capital Facility”), for an aggregate revolving credit facility of up to $9.0 million.

 

The Receivables Financing Facility may be drawn in amounts up to $5.0 million in the aggregate, subject to a minimum borrowing base requirement equal to 80% of the Company’s eligible accounts receivable as determined under the Credit Facility. The Working Capital Facility may be drawn in such amounts as requested by the Company, not to exceed $4.0 million in the aggregate. The Credit Facility terminates on March 20, 2016, provided, however, that in the event of an early termination by the Company, a penalty of 1.0% of the total credit facility would be triggered.

 

All amounts borrowed under the Credit Facility are secured by a general security interest on the assets of the Company and are subject to a 2.00 Current Ratio of (i) cash and cash equivalents plus all eligible receivables in relation to (ii) the Company’s current liabilities excluding current deferred revenue.

 

Except as otherwise set forth in the Credit Facility, borrowings made under the Receivables Financing Facility will bear interest at a rate equal to the prime rate or 3.25%, whichever is greater, plus 0.25%, and borrowings made under the Working Capital Facility will bear interest at a rate equal to the financial institution’s certificate of deposit 30-day rate plus 200 basis points, with the total minimum monthly interest to be charged being $2,000.

 

As of March 31, 2015 and March 31, 2014, the Company owed $7.4 million and $6.9 million, respectively, under the Credit Facility, and no amounts were available for future borrowings.

 

In order to satisfy certain conditions for Bridge Bank to lend additional funds under the Credit Facility, on March 11, 2014, Mr. Miller and MILFAM each entered into a Limited Guaranty (the “Guaranties”) with Bridge Bank to provide a limited, non-revocable guaranty of the Company’s Credit Facility in the amount of $1 million each, for a total guaranteed amount of $2 million. The term of the Guaranties is two years. Bridge Bank, in its sole discretion, may reduce, but not increase, the guaranteed amount under the Guaranties during the term. In connection with the Guaranties, on March 11, 2015, the Company entered into a Guaranty Fee Agreement with Mr. Miller and MILFAM, pursuant to which the Company agreed to pay Mr. Miller and MILFAM an aggregate commitment fee of $100,000 and a monthly fee equal to (i) 1% of the loan amount then guaranteed under the Guaranties for the first 12 months of the term and (ii) 1.5% of the loan amount then guaranteed under the Guaranties for the second 12 months of the term. The commitment fee and the aggregate amount of the monthly fees are payable in cash by the Company within five business days following the termination or expiration of the Guaranties.

 

The Company recorded $0.2 million of fees associated with the Guaranty Fee Agreement as part of Other long-term liabilities at March 31, 2015.

 

 
46

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

13.

Stockholders’ Equity

 

 Common Stock Reserved for Future Issuance

 

At March 31, 2015, shares of common stock reserved for future issuance of stock-based grants were as follows:

 

Equity incentive plans:

       

Awards outstanding

    348,386  

Options outstanding

    1,099,323  

Reserved for future grants

    563,000  

Total common stock reserved for future issuance

    2,010,709  

 

The effect of recording stock-based compensation expense (including expense related to the Employee Stock Purchase Plan (“ESPP”) discussed below) for each of the periods presented was as follows (in thousands):

 

   

Fiscal years Ended

 
   

March 31,

 
   

(in thousands)

 
   

2015

   

2014

 

Cost of revenues

  $ 459     $ 250  

Research and development

    213       167  

Sales and marketing

    836       345  

General and administrative

    1,030       385  
                 

Impact on net loss

  $ 2,538     $ 1,149  

 

Upon the departures of our CEO and COO in August 2013, previously recognized stock-based compensation expense in the amount of $0.5 million was reversed due to the non-achievement of certain performance-based restricted stock grants in 2014. As of March 31, 2015, the unrecorded share-based compensation balance related to stock options and restricted stock units outstanding excluding estimated forfeitures was $4.5 million and will be recognized over an estimated weighted average amortization period of 2.74 years. The amortization period is based on the expected remaining vesting term of the options and restricted stock units.

 

1999 ESPP

 

The price paid for the Company’s common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for the fiscal years ended March 31, 2015 and 2014 was $80,000 and $114,000, respectively. During the fiscal years ended March 31, 2015 and 2014, there were 48,833 and 37,533 shares issued under the ESPP.

 

Stock Option Plans—Approved by Stockholders

 

1996 Plan

 

The Company adopted the 1996 Stock Plan as amended and restated March 28, 2001 (the “1996 Plan”). A total of approximately 815,000 shares of common stock have been reserved under the 1996 Plan. With limited restrictions, if shares awarded under the 1996 Plan are forfeited, those shares will again become available for new awards under the 1996 Plan. The 1996 Plan permits the grant of options, stock appreciation rights, shares of restricted stock, and stock units. The types of options include incentive stock options that qualify for favorable tax treatment for the optionee under Section 422 of the Internal Revenue Code of 1986, and non-statutory stock options not designed to qualify for favorable tax treatment. Employees, non-employee members of the board and consultants are eligible to participate in the 1996 Plan.

 

 

 

 
47

 

  

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

Incentive stock options are granted at an exercise price of not less than 100% of the fair market value per share of the common stock on the date of grant, and non-statutory stock options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the 1996 Plan have a maximum term of ten years.

 

1999 Equity Incentive Plan

 

The Company adopted the 1999 Equity Incentive Plan (the “1999 Plan”) on November 18, 1999. The 1999 Plan was amended in May 2010, such that the number of shares reserved for issuance is no longer automatically increased, and a total of 1,551,000 shares were reserved for future issuance. With limited restrictions, if shares awarded under the 1999 Plan are forfeited, those shares will again become available for new awards under the 1999 Plan. The 1999 Plan permits the grant of options, stock appreciation rights, shares of restricted stock, and stock units. The types of options include incentive stock options that qualify for favorable tax treatment for the optionee under Section 422 of the Internal Revenue Code of 1986 and non-statutory stock options not designed to qualify for favorable tax treatment. Employees, non-employee members of the Board of Directors and consultants are eligible to participate in the 1999 Plan. Each eligible participant is limited to being granted options or stock appreciation rights covering no more than 33,000 shares per fiscal year, except in the first year of employment where the limit is 66,000 shares. Incentive stock options are granted at an exercise price of not less than 100% of the fair market value per share of the common stock on the date of grant, and non-statutory stock options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the 1999 Plan have a maximum term of ten years. 

 

On December 3, 2012, the Compensation Committee of the Board of Directors of the Company adopted a Long Term Performance Incentive Plan (the “LTPIP”) within the 1999 Equity Incentive Plan (the “1999 Plan”), under which restricted stock units would be granted to the Company’s executives. Under the LTPIP, sixty percent (60%) of the restricted stock units will vest based upon achievement of contracted monthly recurring revenue targets over a period of three years, with fifty percent (50%) of the amount withheld from vesting until the Company achieves profitability, and forty percent (40%) vest based upon operating profit targets over a period of three years. The restricted stock units granted under the LTPIP include 420,000 shares granted to the Company’s executives, under which the Company’s Chief Executive Officer received a grant of 220,000 restricted stock units, and the Company’s Chief Financial Officer, Chief Strategy Officer, Chief Operating Officer and Chief Commercial Officer each received a grant of 50,000 restricted stock units. The Company is amortizing the related compensation expense on a straight-line basis over the expected vesting period. The compensation expense was $0.1 million for the year ended March 31, 2015 and $0.4 million for the year ended March 31, 2014.

 

1999 ESPP

 

On November 18, 1999, the Company’s Board of Directors approved the adoption of the 1999 Employee Stock Purchase Plan (the “Purchase Plan”) and the Company’s stockholders have approved of the Purchase Plan. The Purchase Plan was amended and restated on February 1, 2008 and amended and restated on November 7, 2012. A total of 100,000 shares of common stock were initially reserved for issuance under the Purchase Plan. The November 7, 2012 amendment and restatement of the Purchase Plan provided a reserve of 553,000 shares of common stock available for issuance under the Purchase Plan.

 

The Compensation Committee of the Board of Directors administers this plan. The Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee’s cash compensation, at a purchase price equal to the lower of 85% of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each purchase period. Employees who work more than five months per year and more than twenty hours per week are eligible to participate in the Purchase Plan. Stockholders who own more than 5% of the Company’s outstanding common stock are excluded from participating in the Purchase Plan. Each eligible employee cannot purchase more than 5,000 shares per purchase date (10,000 shares per year) and, generally, cannot purchase more than $25,000 of stock per calendar year. Eligible employees may begin participating in the Purchase Plan at the start of an offering period. Each offering period lasts six months beginning on January 31 and July 31 of each calendar year with an additional one-time offering period beginning on or about November 1, 2012 and terminating on or about January 1, 2013. Employees may end their participation in the Purchase Plan at any time. Participation ends automatically upon termination of employment. The Board of Directors may amend or terminate the Purchase Plan at any time. If not terminated earlier, the Purchase Plan has a term of twenty years. If the Board of Directors increases the number of shares of common stock reserved for issuance under the Purchase Plan, other than any share increase resulting from the formula described in the previous paragraph, it must seek the approval of the Company’s stockholders.

 

 

 
48

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

2001 Supplemental Plan

 

We adopted the 2001 Supplemental Plan (the “Supplemental Plan”) on May 30, 2001; the Supplemental Plan did not require stockholder approval. A total of approximately 250,000 shares of common stock have been reserved for issuance under the Supplemental Plan. With limited restrictions, if shares awarded under the Supplemental Plan are forfeited, those shares will again become available for new awards under the Supplemental Plan. The Supplemental Plan permits the grant of non-statutory options and shares of restricted stock. Employees and consultants, who are not officers or members of the Board of Directors, are eligible to participate in the Supplemental Plan. Options are granted at an exercise price of not less than 85% of the fair market value per share on the date of grant. Options generally vest with respect to 25% of the shares one year after the options’ vesting commencement date and the remainder vest in equal monthly installments over the following 36 months. Options granted under the Supplemental Plan have a maximum term of ten years.

 

The following tables summarize activity under the equity incentive plans: 

 

   

Options Outstanding

   

Restricted Stock Units Outstanding

 
   

Number of shares

(in thousands)

   

Weighted average exercise price

   

Number of shares

(in thousands)

   

Weighted average fair value

 
                                 

Outstanding at March 31, 2013

    161     $ 7.76       724     $ 5.53  

Granted

    316     $ 6.28       530     $ 6.91  

Granted outside of plan

                          $ 6.85  

Exercised

    (43 )   $ 5.32       (122 )   $ 5.72  

Cancelled

    (48 )   $ 11.14       (493 )        

Outstanding at March 31, 2014

    386     $ 6.40       639     $ 6.88  
                                 

Granted

    61     $ 5.86       234     $ 5.93  

Granted outside of plan

    700     $ 6.61       -       -  

Exercised

    (2 )   $ 3.70       (362 )   $ 6.32  

Cancelled

    (46 )   $ 7.50       (163 )   $ 6.43  

Outstanding at March 31, 2015

    1,099     $ 6.46       348     $ 6.18  
                                 

Vested and expected to vest

    987     $ 6.45                  

 

 

   

Shares Available for Grant

 

Balance at March 31, 2013

    673  

Options:

       
Shares added     187  

Granted – approved plan

    (316 )

Cancelled

    48  
         

Restricted Stock Units:

       

Granted

     (530

Cancelled

    493  
Balance at March 31, 2014     556  
         

Options:

       

Granted – approved plan

    (61 )

Cancelled

    10  

Restricted Stock Units:

       

Granted

    (234 )

Cancelled

    163  

Released shares repurchased

    129  

Balance at March 31, 2015

    563  

 

 
49

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

        The options outstanding and exercisable at March 31, 2015 were in the following exercise price ranges:

 

       

Options Outstanding

   

Options Vested and Exercisable

 

Range of Exercise

 

Number

   

Weighted-

   

Number

   

Weighted-

 

Prices Per Share

 

of Shares

   

Average

   

of Shares

   

Average

 
       

(in thousands)

   

Remaining

   

(in thousands)

   

Exercise Price

 
               

Contractual

           

Per Share

 
               

Life (Years)

                 

$3.70

- $5.72     103       6.49       90     $ 6.2  

$5.83

- $6.28     61       9.46       13     $ 9.43  

$6.28

- $6.83     187       8.68       58     $ 8.68  

$6.30

- $34.00     748       9.12       69     $ 7.89  

$3.70

- $34.00     1,099     $ 6.46       230     $ 6.18  

 

The weighted average remaining contractual term for exercisable options is 7.52 years. The intrinsic value is calculated as the difference between the market value as of March 31, 2015 and the exercise price of the shares. The market value of the Company’s common stock as of March 31, 2015 was $6.50. The aggregate intrinsic value of stock options outstanding at March 31, 2015 and 2014 was $198,000 and $219,000, respectively. The aggregate intrinsic value of restricted stock units outstanding at March 31, 2015 and 2014 was $2.3 million and $4.3 million, respectively.  

 

The following table summarizes values for options granted during the respective years:

 

    Fiscal Years Ended  
    March 31,  
    2015     2014  
    (in thousands)  

Weighted average grant date fair value

  $ 2,841     $ 672  

Intrinsic value of options exercised

  $ 2     $ 48  

Fair value of shares vesting during the year

  $ 287     $ 346  

 

The following table summarizes activity for awards for the respective years:

 

   

Shares

   

Grant Date Fair Value Per Share

   

Aggregate Intrinsic Value

 
                         

Balance at March 31, 2013

    725     $ 5.53     $ 6,553  

Awards granted

    530     $ 6.91     $  

Awards vested/released

    (122

)

  $ 6.74     $  

Awards cancelled/forfeited

    (494

)

  $ 5.72     $  

Balance at March 31, 2014

    639     $ 6.66     $ 4,255  

Awards granted

    234     $ 5.93     $  

Awards vested/released

    (362

)

  $ 6.32     $  

Awards cancelled/forfeited

    (163

)

  $ 6.43     $  

Balance at March 31, 2015

    348     $ 6.18     $ 2,265  

 

 
50

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

During fiscal 2015 and 2014, the fair value of rights granted under the employee stock purchase plan were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

    Fiscal Year Ended     Fiscal Year Ended  
    March 31, 2015     March 31, 2014  

Risk-free interest rate

    0.06

%

    0.09

%

Dividend yield

    0.00

%

    0.00

%

Expected volatility

    28.4

%

    58.3

%

Expected term in years

    0.50       0.50  

Weighted average fair value at grant date

  $ 1.49     $ 2.81  

 

For the fiscal years ended March 31, 2015 and 2014 the Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:

 

    Fiscal Year Ended     Fiscal Year Ended  
    March 31, 2015     March 31, 2014  

Risk-free interest rate

    1.96

%

    0.88

%

Dividend yield

    0

%

    0

%

Expected volatility

    60.45

%

    58.4

%

Expected term in years

    6.05       3.21  

Weighted average fair value at grant date

  $ 3.73     $ 2.52  

  

Equity Compensation Plan Information

 

The table below demonstrates the number of options and awards issued and the number of options and awards available for issuance, respectively, under the Company’s current equity compensation plans as of March 31, 2015:

 

   

Number of

   

Weighted-

   

Number of

 
   

Securities

   

Average

   

Securities

 
   

to be

   

Exercise

   

Remaining

 
   

Issued upon

   

Price Per

   

Available

 
   

Exercise

   

Share of

   

for Future

 
   

of Outstanding

   

Outstanding

   

Issuance

 
   

Options,

   

Options

   

Under Equity

 
   

and Rights

   

and Rights

   

Compensation

 
                   

Plans

 
   

(in thousands, except for per share amount)

 

Equity compensation plans approved by stockholders

                       

1996 Plan

    1     $ 31.30       147  

1999 Equity Incentive Plan

    595     $ 6.14       232  

Equity compensation plans not approved by stockholders

                       

2001 Supplemental Plan

    --     $ --       185  

CEO Grant - Mathieu

    187     $ 6.28       --  

IASTA

    664     $ 6.61       --  

Total

    1,447     $ 6.45       564  

 

All vested shares granted under all Plans are exercisable; however, shares exercised but not vested under the 1996 Stock Plan are subject to repurchase.

(1) Represents an option to purchase 187 thousand shares of our Common Stock granted to Mr. Mathieu outside of the 1996 and 1999 Stock Plan. The grant of this option did not require approval by our stockholders due to its qualification under the "inducement grant exception" provided by Nasdaq Listing Rule 5635(c)(4).

 

 
51

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

14.

Basic and Diluted Net Loss Per Share

 

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period.  

 

The Company excludes potentially dilutive securities from its diluted net loss per share computation when their effect would be antidilutive to net loss per share amounts. The following common stock equivalents were excluded from the net loss per share computation:

 

   

At March 31,

 
   

2015

   

2014

 
   

(in thousands)

 
                 

Options

    12       94  

Unvested restricted stock units

    31       572  

Warrants

    1,468       454  

Total common stock equivalents excluded from diluted net loss per common share

    1,511       1,120  

 

 
52

 

 

SELECTICA, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

15.

Income Taxes

 

The provision for income taxes is based upon income (loss) before income taxes as follows (in thousands):                               

 

   

March 31,

 
   

2015

   

2014

 

Domestic Pre-Tax Loss

  $ (13,683 )   $ (8,148 )

Foreign Pre-Tax Income/(loss)

    (63     (31 )

Total pre-tax loss

  $ (13,746 )   $ (8,179 )

 

 

   

March 31,

 
   

2015

   

2014

 

Federal tax at statutory rate

  $ (5,843 )   $ (2,735 )

Computed state tax

    (354 )     (148 )

Foreign rate differential

    23       (11 )

Losses not benefited

    (3,729 )     3,089  

Change in tax reserve

    2,808       152  

Nondeductible expenses

    815       (275 )

Research and development tax credits

    3,330       (72 )

Income tax expense/(benefit)

  $ (2,950 )   $ -  

 

 

The components of the benefit for income taxes are as follows (in thousands):          

 

   

March 31,

 
   

2015

   

2014

 

Deferred

               

Federal

  $ (2,901 )   $ -  

State

    (49 )     -  
      (2,950 )     -  
                 

Total provision for income taxes

  $ (2,950 )   $ -  

 

ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based on the weight of available evidence, which includes the Company's historical operation performance and the reported cumulative net losses in all prior years, the Company has provided a full valuation allowance against its net deferred tax assets.                                                  

 

 
53

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):                                                                           

 

   

March 31,

 
   

2015

   

2014

 

Deferred Tax Assets:

               

Net operating loss carryforward

  $ 16,206     $ 72,646  

Intangible assets

    8,486       11,535  

Tax credit carryforwards

    2,491       5,060  

Reserves and accruals

    531       155  

Fixed assets

    -       14  

Stock compensation

    444       398  

Deferred revenue

    -       523  
                 
      28,158       90,331  
                 

Deferred Tax Liability

               

Fixed assets

    (3 )     -  

Deferred revenue

    (27 )     -  
      (30 )     -  
                 

Gross Deferred Tax Asset

    28,128       90,331  
                 

Valuation Allowance

    (28,128 )     (90,331 )
                 

Net Deferred Tax Assets

  $ -     $ -  

 

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance that decreased by $62.2 million and increased by $3.2 million during 2015 and 2014 respectively.

  

As of March 31, 2015 the Company had federal and state operating loss carryforwards of approximately $40.1 million and $38.2 million respectively. As of March 31, 2015, the Company Also had federal and state research and development tax credit carryforwards of approximately $51,000 and $5.0 million respectively.

 

The federal net operating loss and credit carryforwards expire in various amounts between fiscal years ending March 31, 2019 through 2034, if not utilized. The state net operating loss carryforwards expire in various amounts between fiscal year ending March 31, 2016 through various dates, if not utilized. The state tax credit carryforwards have no expiration date.                                                   

 

The Internal Revenue Code Section 382 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event the Company has had a change in ownership, utilization of the carryforwards could be restricted.                                                   

 

Based on its most recently performed study, the Company has concluded it had an ownership change on September 30, 2014 as defined by Section 382 of the Internal Revenue Code (IRC), which will limit the future realization of its net operating loss carryforwards since June 1999. Based on this recent study, the Company believes that the application of Section 382 will result in the forfeiture of $163 million net operating loss carryforward for federal income tax purposes and $48 million of net operating loss carryforward for California income tax purposes.

 

In addition, based on this recent study, the Company has concluded that $3.5 million of the federal and none of California research tax credit carryforwards, respectively, would be subject to forfeiture due to Section 382 ownership changes under IRC Section 383 and/or possible credit amount reduction upon audit, but as noted above this is subject to review by the applicable taxing authority. Please note the research and development tax credit carryforwards above take into account this reduction.

 

 
54

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

The Company is required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company policy is to record interest and penalties related to unrecognized tax benefits in income tax expense. At March 31, 2015, there was no liability for unrecognized tax benefits.                                                            

 

A reconciliation of the beginning and ending unrecognized tax benefit amounts for fiscal year 2015 are as follows (in thousands):               

 

Balance at April 1, 2014

  $ 2,102  
         

Increases related to current year tax positions

    13  

Decreases related to Expiration of tax credits and derecognition

    (835 )
         

Balance at March 31, 2015

  $ 1,280  

 

The Company’s federal, state, and foreign tax returns are subject to examination by the tax authorities from inception due to net operating losses and tax carryforwards unutilized from such years.                                             

 

 

16.

401(k) Benefit Plan

 

The Company offers a tax-deferred savings plan, the Selectica 401(k) Plan (the 401(k) Plan), for the benefit of qualified employees. The 401(k) Plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) Plan on a monthly basis. Starting in fiscal 2012, the 401(k) Plan requires the Company to match the first 1% of all employee contributions. For the fiscal years ended March 31, 2015 and 2014, the Company contributed $0.3 million and $0.1 million, respectively, to the 401(k) Plan. Administrative expenses relating to the 401(k) Plan are insignificant.

 

17.

Segment Information

 

The Company operates as one business segment and therefore segment information is not presented. 

 

18.

Subsequent Events

 

Private Placement Funding with Common Stock and Warrants

 

On May 5, 2015, pursuant to a Subscription Agreement, dated as of February 6, 2015 (the “Subscription Agreement”), by and among the Company and certain members of the Company’s management and Board of Directors, the Company sold and issued to such investors (i) 65,955 shares of common stock of the Company, par value $0.0001 per share, at a purchase price of $4.70 per share, for a total purchase amount of approximately $310,000 and (ii) warrants to purchase common stock of the Company, initially exercisable for an aggregate of 32,975 shares of common stock.

 

Conversion of Series F Stock

 

At a special meeting of the stockholders of the Company on May 5, 2015, the stockholders approved the issuance of the shares of Series F Stock and 2015 Warrants issued in the 2015 Financing and the shares of common stock issued and sold to the management and director investors under the Subscription Agreement described above. Pursuant to the Company’s Certificate of Designation, Preferences and Rights of Series F Convertible Preferred Stock filed by the Company with the Delaware Secretary of State on February 4, 2015, upon such stockholder approval, each whole share of Series F Stock converted automatically into ten (10) shares of common stock at a conversion price of $4.70 per share of common stock, for a total of 1,188,291 conversion shares.

 

 
55

 

 

SELECTICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

 

 

2015 Equity Incentive Plan

 

The Company’s Board of Directors previously adopted the Selectica, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The Company’s stockholders approved the 2015 Plan at the special meeting of the stockholders held on May 5, 2015.

 

Pursuant to the terms of the 2015 Plan, employees, directors and consultants of the Company, and any present or future parent or subsidiary corporation or other affiliated entity, may receive grants of stock options, restricted stock awards and/or restricted stock units of the Company and certain cash-based awards. Subject to permitted adjustments for certain corporate transactions, the 2015 Plan authorizes the issuance of up to 1,500,000 shares of Company common stock.

 

The 2015 Plan will be administered by the Compensation Committee of the Company’s Board of Directors, which is comprised of independent members of the Board of Directors. The Compensation Committee has full and exclusive power to make all decisions and determinations regarding (i) the selection of participants and the granting of awards; (ii) the terms and conditions relating to each award; (iii) adopting rules, regulations and guidelines for carrying out the 2015 Plan’s purposes; and (iv) interpreting the provisions of the 2015 Plan.

 

Amendments to Articles of Incorporation or Bylaws

 

On May 5, 2015, the Company filed with the Delaware Secretary of State a Certificate of Amendment to Second Amended and Restated Certificate of Incorporation, as amended that increased the number of authorized shares of the Company’s common stock from 15,000,000 shares to 35,000,000 shares.

 

Resignation of CEO

 

On June 3, 2015, the Board of Directors of the Company appointed Mr. Patrick Stakenas as President and Chief Executive Officer of the Company, replacing Mr. Blaine Mathieu, who resigned as President, Chief Executive Officer and as a member of the Board of Directors of the Company on June 3, 2015. As a result of Mr. Mathieu’s departure, the Company expects to record severance of $0.2 million during the first quarter of fiscal 2016.

 

Entry into an Agreement to Acquire b-pack

 

On March 30, 2015, the Company announced it has entered into a definitive agreement to acquire b-pack SAS, a French société par actions simplifiée, a global leader in purchase-to-pay software and services, for approximately $12.5 million in cash and stock. Complementing Selectica’s offerings and go-to-market strategy, b-pack delivers solutions in eProcurement, Purchase to Pay, Asset Management, Budget Management, Invoice Management, and Expense Management.  B-pack was founded in 2000, with its corporate headquarters in Atlanta, Georgia and operations in Aix-en-Provence near Marseille, France.  B-pack’s executive team and staff members include approximately 50 people. The purchase price for b-pack is comprised of approximately 90% in Selectica common stock stock (calculated at a fixed price of $6.11 per share, resulting in 1,841,244 shares of common stock to be issued) and 10% in cash. In connection with the acquisition, Selectica will also grant options to purchase 700,000 shares of its common stock to the employees of b-pack. The transaction is currently expected to close during the second quarter of Selectica’s fiscal year 2016.

 

 
56

 

 

Item 9.  

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Management is responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the rule and forms of the SEC.  Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive and Principal Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures for each fiscal quarter during the year ended March 31, 2015.  Based on its evaluation, our management concluded that our disclosure controls and procedures were effective as of March 31, 2015.

 

Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Internal control over financial reporting means a process designed by, or under the supervision of, our principal executive and principal financial officers (or persons performing similar functions), and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; (ii) provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

Our management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2015 based on the guidelines established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

Based upon our evaluation of internal control over financial reporting as of March 31, 2015, our management concluded that our internal control over financial reporting was effective as of March 31, 2015.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting in the year ended March 31, 2015 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 Principal Executive Officer and Principal Financial Officer (or persons performing those functions), do not expect that our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within 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 a simple error or mistake. Additionally, controls can 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 also is based in part upon 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; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 
57

 

 

Item 9B. Other Information.

 

None.

 

 
58

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

The information required by this item is included under the captions “Directors, Executive Officers and Corporate Governance” in the fiscal year 2015 Proxy Statement and incorporated herein by reference.

 

Item 11. Executive Compensation.

 

The information required by this item is included under the captions “Executive Compensation and Related Information” in the fiscal year 2015 Proxy Statement and incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The information required by this item is included under the captions “Common Stock Ownership of Certain Beneficial Owners and Management” and “Executive Compensation—Equity Compensation Plan Information” in the fiscal year 2015 Proxy Statement and is incorporated herein by reference.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The information required by this item is included under the captions “Certain Relationships and Related Transactions” and “Corporate Governance—Independence of Directors” in the fiscal year 2015 Proxy Statement and is incorporated herein by reference.

 

Item 14. Principal Accounting Fees and Services.

 

The information required by this item is included under the caption “Independent Public Accountants” in the fiscal year 2015 Proxy Statement and is incorporated herein by reference.

 

  

 

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

 

The following documents are filed as part of this report:

 

(a) Financial Statements: See Index to Consolidated Financial Statements in Part II, Item 8.

 

(b) Financial Statement Schedule:

 

Schedule II—Valuation and Qualifying Accounts and Reserves

 

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

 

 
59

 

 

Schedule II: Valuation and Qualifying Accounts

 

Accounts Receivable Allowance for Doubtful Accounts

 

The following describes activity in the accounts receivable allowance for doubtful accounts for the years ended March 31, 2015 and 2014, respectively:

 

  

 

Balance at

Beginning

of Period

 

 

Increase (decrease) to

Costs and

Expenses

 

 

Write

Offs

 

 

Reversal

Benefit to

Revenue

 

 

Balance

at End of

Period

 

Allowance for doubtful accounts (in $000’s):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                               

Fiscal year ended March 31, 2014

 

$

111

 

 

$

773

 

 

$

(637

 

$

 

 

$

247

 

Fiscal year ended March 31, 2015

 

$

247

 

 

$

(42)

 

 

$

 

 

$

 

 

$

205

 

 

(c) Exhibits: See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.

 

 
60

 

 

SIGNATURES

 

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, in the City of San Mateo, State of California, on the day of June 29, 2015.

 

  

  

  

SELECTICA, INC.

Registrant

 

  

  

  

/s/ PATRICK STAKENAS

  

  

  

Patrick Stakenas

President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

/s/  TODD SPARTZ

 

 

 

Todd Spartz

Chief Financial Officer

 

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Patrick Stakenas and Todd Spartz and each of them, his or her true and lawful attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

  

Signature

  

Title

  

Date

  

  

  

  

  

  

  

  

  

/s/ PATRICK STAKENAS

  

President, Chief Executive Officer

  

June 29, 2015

  

  

Patrick Stakenas

  

(Principal Executive Officer) and Director

  

  

  

  

  

  

  

  

  

  

  

/s/ TODD SPARTZ

  

Chief Financial Officer (Principal Financial Officer

  

June 29, 2015

  

  

Todd Spartz

  

and Principal Accounting Officer) and Secretary

  

  

  

  

 

  

  

  

  

  

  

 

  

  

  

  

  

  

/s/ ALAN HOWE

  

Director

  

June 29, 2015

  

  

Alan Howe

  

  

  

  

  

  

  

  

  

  

  

  

  

/s/ LLOYD SEMS

  

Director

  

June 29, 2015

  

  

Lloyd Sems

  

  

  

  

  

  

  

  

  

  

  

  

  

/s/ MICHAEL CASEY

  

Director

  

June 29, 2015

  

  

Michael Casey

  

  

  

  

  

  

  

  

  

  

  

  

  

/s/ J. MICHAEL GULLARD

  

Director

  

June 29, 2015

  

  

J. Michael Gullard

  

  

  

  

  

  

  

  

  

  

  

  

  

/s/ MICHAEL BRODSKY

  

Director

  

June 29, 2015

  

  

  Michael Brodsky

  

  

  

  

  

  

  

 

 
61

 

 

EXHIBIT INDEX

 

Exhibit No.

  

Description

2.1(19)

 

Agreement and Plan of Merger, dated as of March 30, 2015.

     

3.1(11)

  

The Second Amended and Restated Certificate of Incorporation, as amended.

     

3.2***

 

Certificate of Amendment to Second Amended and Restated Certificate of Incorporation, as amended.

  

  

  

3.3(2)

  

Certificate of Designation of Series A Junior or Participating Preferred Stock.

  

  

  

3.4(11)

  

Amended and Restated Bylaws, as amended.

  

  

  

3.5(4)

  

Certificate of Designation of Series B Junior or Participating Preferred Stock.

     

3.6(24)

 

Certificate of Designations, Preferences and Rights of Series E Convertible Preferred Stock.

     

3.7(27)

 

Certificate of Designations, Preferences and Rights of Series F Convertible Preferred Stock.

  

  

  

4.1

  

Reference is made to Exhibits 3.1 through 3.7.

  

  

  

4.2(1)

  

Form of Registrant’s Common Stock certificate.

  

  

  

4.3(4)

  

Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A., as Rights Agent, dated January 2, 2009.

  

  

  

4.4(5)

  

Amendment dated as of January 26, 2009, to the Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A. as Rights Agent, dated January 2, 2009.

  

  

  

4.5(7)

  

Amendment 2, dated as of April 27, 2009, between Registrant and Wells Fargo Bank, N.A., as Rights Agent, to the Amended and Restated Rights Agreement between Registrant and Computershare Trust Company, N.A., dated January 2, 2009, as amended.

  

  

  

4.6(12)

 

Amendment 3, dated as of December 28, 2011, between Registrant and Wells Fargo Bank, N.A., as Rights Agent, to the Amended and Restated Rights Agreement between Registrant and the Rights Agent, dated January 2, 2009, as amended.

     

4.7(26)

 

Amendment No. 4, dated as of December 28, 2014, between Registrant and Wells Fargo Bank, N.A., as Rights Agent, to the Amended and Restated Rights Agreement between Registrant and the Rights Agent, dated January 2, 2009, as amended.

     

10.1(1)

  

Form of Indemnification Agreement.

  

  

  

10.2(1)†

  

1996 Stock Plan.

  

  

  

10.3(3)†

  

1999 Equity Incentive Plan Stock Option Agreement.

  

  

  

10.4(3)†

  

1999 Equity Incentive Plan Stock Option Agreement (Initial Grant to Directors).

  

  

  

10.5(3)†

  

1999 Equity Incentive Plan Stock Option Agreement (Annual Grant to Directors).

  

  

  

10.6(8)

  

1999 Employee Stock Purchase Plan, as amended and restated February 1, 2008.

  

  

  

10.7(8)

  

Form of Stock Unit Agreement for issuance of restricted stock units pursuant to the Registrant’s 1999 Equity Incentive Plan to plan participants, including named executive officers.

  

  

  

10.8(8)

  

Registrant Compensation Program for Non-Employee Directors effective May 20, 2009.

  

  

  

10.9(8)

  

Settlement, Release and License Agreement between Registrant and Versata Software Inc., a corporation f/k/a Trilogy Software, Inc., dated October 5, 2007.

  

  

  

10.10(9)

  

Amended and Restated Severance Agreement by and between the Registrant and Todd Spartz, dated as of October 25, 2011.

 

 
62 

 

 

10.11(9)

  

Employment Letter Agreement by and between the Registrant and Todd Spartz, dated as of October 25, 2011.

  

  

  

10.12(10)†

  

1999 Equity Incentive Plan, as amended May 2010.

  

  

  

10.13(13)

 

Office Lease by and between 2121 El Camino Investors, LLC and the Registrant, executed July 28, 2011, and effective as of July 8, 2011.

     

10.14(14)

 

Comprehensive Settlement Agreement by and between the Registrant and Versata Software, Inc., dated September 20, 2011.

     

10.15(28)

 

Amended and Restated Business Financing Agreement, dated as of July 25, 2014, as amended by Amendment Number One to Amended and Restated Business Financing Agreement, dated as of December 31, 2014, as further amended by Amendment Number Two to Amended and Restated Business Financing Agreement, dated as of March 11, 2015.

     

10.16(15)

 

1999 Employee Stock Purchase Plan, as amended and restated effective November 7, 2012.

     

10.17†***

 

2015 Equity Incentive Plan.

     

10.18†***

 

2015 Equity Incentive Plan Stock Option Agreement.

     

10.19†***

 

2015 Equity Incentive Plan Restricted Stock Units Agreement.

     

10.20†***

 

2015 Equity Incentive Plan Restricted Stock Agreement.

     

10.21(16)

 

Registration Rights Agreement, dated as of May 31, 2013.

     

10.22(16)

 

Form of Series A Warrant to Purchase Common Stock, dated as of May 31, 2013.

     

10.23(17)

 

Form of Series B Warrant to Purchase Common Stock, dated as of September 12, 2013, as modified.

     

10.24(18)

 

Amendment to the Series A Warrants dated as of September 4, 2013.

     

10.25(19)

 

Employment Offer Letter dated August 6, 2013 by and between the Registrant and Michael Brodsky.

     

10.26(20)

 

Amendment to Offer Letter, dated December 4, 2013, by and between the Registrant and Michael Brodsky.

     

10.27(25)

 

Amendment to Offer Letter, dated September 1, 2014, by and between the Registrant and Michael Brodsky.

     

10.28(20)

 

Offer Letter of Employment, dated as of December 4, 2013, by and between the Registrant and Blaine Mathieu.

     

10.29(20)

 

Severance Agreement, dated as of December 4, 2013, by and between the Registrant and Blaine Mathieu.

     

10.30(21)

 

Form of Registration Rights Agreement, dated as of January 24, 2014.

     

10.31(21)

 

Form of Warrant to Purchase Common Stock, dated as of January 24, 2014.

     

10.32(22)

 

First Amendment to Lease, effective as of May 15, 2014, by and between the Registrant and SKBGS I, L.L.C.

     

10.33(23)

 

Agreement and Plan of Merger, dated as of June 2, 2014.

     

10.34(23)

 

Purchase Agreement, dated as of June 5, 2014.

     

10.35(23)

 

Registration Rights Agreement, dated as of June 5, 2014.

     

10.36(23)

 

Form of Warrant to Purchase Common Stock.

     

10.37(23)

 

Forms of Voting Agreement.

     

10.38(24)

 

Registration Rights Agreement, dated as of July 2, 2014.

     

10.39(27)

 

Purchase Agreement, dated as of February 6, 2015.

     

10.40(27)

 

Subscription Agreement, dated as of February 6, 2015.

 

 
63 

 

 

10.41(27)

 

Registration Rights Agreement, dated as of February 6, 2015.

     

10.42(27)

 

Form of Warrant to Purchase Common Stock, dated as of February 6, 2015, issued to Outside Investors.

     

10.43(27)

 

Form of Warrant to Purchase Common Stock, dated as of May 5, 2015, issued to Management and Director Investors.

     

10.44(27)

 

Voting Agreements, dated as of February 6, 2015.

     

10.45(28)

 

Limited Guaranty, dated March 11, 2015 (Lloyd I. Miller, III).

     

10.46(28)

 

Limited Guaranty, dated March 11, 2015 (MILFAM II L.P.).

     

10.47(28)

 

Guaranty Fee Agreement, dated March 11, 2015.

     

10.48(28)

 

Junior Secured Convertible Note Purchase Agreement, dated March 11, 2015.

     

10.49(28)

 

Form of Junior Secured Convertible Promissory Note, dated March 11, 2015.

     

10.50(28)

 

Security Agreement, dated March 11, 2015.

     

10.51(28)

 

Subordination Agreement, dated March 11, 2015.

     

10.52(28)

 

Amendment to Voting Agreements, dated March 11, 2015.

     

10.53(30)

 

Offer Letter of Employment, dated as of June 3, 2015, by and between the Registrant and Patrick Stakenas.

     

10.54(30)

 

Severance Agreement, dated as of June 3, 2015, by and between the Registrant and Patrick Stakenas.

     

21.1***

  

Subsidiaries.

  

  

  

23.1***

  

Consent of Independent Registered Public Accounting Firm.

  

  

  

24.1***

  

Power of Attorney (contained in the signature page to this Annual Report on Form 10-K).

  

  

  

31.1**

  

Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

  

  

31.2**

  

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

  

  

32.1**

  

Certification of President and 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.

  

  

  

99.1(6)

  

Trust Agreement, dated January 27, 2009, between Registrant and Wilmington Trust Company, as trustee.

 

 
64 

 

 

101.INS

 

XBRL Instance

     

101.SCH

 

XBRL Taxonomy Extension Schema

     

101.CAL

 

XBRL Taxonomy Extension Calculation

     

101.DEF

 

XBRL Taxonomy Extension Definition

     

101.LAB

 

XBRL Taxonomy Extension Labels

     

101.PRE

 

XBRL Taxonomy Extension Presentation


(1)

Previously filed in the Company’s Registration Statement (No. 333-92545) declared effective on March 9, 2000.

(2)

Previously filed in the Company’s report on Form 10-K filed on June 30, 2003.

(3)

Previously filed in the Company’s report on Form 10-K filed on June 29, 2005.

(4)

Previously filed in the Company’s report on Form 8-K filed on January 5, 2009.

(5)

Previously filed in the Company’s report on Form 8-K filed on January 28, 2009.

(6)

Previously filed in the Company’s report on Form 8-K filed on April 7, 2009.

(7)

Previously filed in the Company’s report on Form 8-K filed on April 29, 2009.

(8)

Previously filed in the Company’s report on Form 10-K filed on July 9, 2009.

(9)

Previously filed in the Company’s report on Form 8-K filed on October 28, 2011.

(10)

Previously filed in the Company’s report on Form 10-K filed on June 29, 2010.

(11)

Previously filed on the Company’s report on Form 10-Q filed on February 14, 2011.

(12)

Previously filed in the Company’s report on Form 8-K filed on December 29, 2011.

(13)

Previously filed in the Company’s report on Form 8-K filed on August 8, 2011.

(14)

Previously filed in the Company’s report on Form 8-K filed on September 21, 2011.

(15)

Previously filed in the Company’s proxy statement filed on October 9, 2012.

(16)

Previously filed in the Company’s report on Form 8-K/A filed on June 4, 2013.

(17)

Previously filed in the Company’s report on Form 8-K filed on September 12, 2013.

(18)

Previously filed in the Company’s report on Form 8-K filed on September 4, 2013.

(19)

Previously filed in the Company’s report on Form 10-Q filed on August 14, 2013.

(20)

Previously filed in the Company’s report on Form 8-K filed on December 10, 2013.

(21)

Previously filed in the Company’s report on Form 8-K filed on January 27, 2014.

(22)

Previously filed in the Company’s report on Form 8-K filed on May 20, 2014.

(23)

Previously filed in the Company’s report on Form 8-K /A filed on June 11, 2014.

(24)

Previously filed in the Company’s report on Form 8-K filed on July 3, 2014.

(25)

Previously filed in the Company’s report on Form 8-K filed on September 3, 2014.

(26)

Previously filed in the Company’s report on Form 8-K filed on December 29, 2014.

(27)

Previously filed in the Company’s report on Form 8-K filed on February 9, 2015.

(28)

Previously filed in the Company’s report on Form 8-K filed on March 16, 2015.

(29)

Previously filed in the Company’s report on Form 8-K filed on March 30, 2015.

(30)

Previously filed in the Company’s report on Form 8-K filed on June [8], 2015.

 

Represents a management agreement or compensatory plan.

  

  

**

This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Selectica, Inc. specifically incorporates it by reference.

   

***

Filed herewith.

 

 

65