|
|
|
|
|
As of May 31, 2014
|
|
|
|
Weighted Average Amortization Period (In months)
|
|
|
Gross Carrying Amount, net of impairment write downs
|
|
|
Accumulated Amortization
|
|
|
Net Carrying Value
|
|
Indefinite Lived Intangible:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
Indefinite
|
|
|
$
|
8,700,000
|
|
|
$
|
-
|
|
|
$
|
8,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite Lived Intangible:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent litigation
|
|
|
84
|
|
|
|
4,367,399
|
|
|
|
2,208,105
|
|
|
|
2,159,294
|
|
Patents
|
|
|
120
|
|
|
|
717,846
|
|
|
|
142,836
|
|
|
|
575,010
|
|
Acquired technology
|
|
|
60
|
|
|
|
7,270,000
|
|
|
|
4,283,250
|
|
|
|
2,986,750
|
|
Customer relationships
|
|
|
60-72
|
|
|
|
12,850,000
|
|
|
|
7,316,875
|
|
|
|
5,533,125
|
|
Software
|
|
|
36
|
|
|
|
2,095,705
|
|
|
|
2,095,705
|
|
|
|
-
|
|
Non-compete agreements
|
|
|
36
|
|
|
|
212,000
|
|
|
|
212,000
|
|
|
|
-
|
|
Trade names
|
|
|
24
|
|
|
|
44,000
|
|
|
|
44,000
|
|
|
|
-
|
|
Total intangibles
|
|
|
|
|
|
$
|
36,256,950
|
|
|
$
|
16,302,771
|
|
|
$
|
19,954,179
|
|
|
|
|
|
|
As of February 28, 2014
|
|
|
|
Weighted Average Amortization Period (In months)
|
|
|
Gross Carrying Amount, net of impairment write downs
|
|
|
Accumulated Amortization
|
|
|
Transferred from Held for Sale
|
|
|
Impairment Loss
|
|
|
Net Carrying Value
|
|
Indefinite Lived Intangible:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
Indefinite
|
|
|
$
|
8,700,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite Lived Intangible:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent litigation
|
|
|
84
|
|
|
|
4,451,946
|
|
|
|
1,971,568
|
|
|
|
-
|
|
|
|
87,975
|
|
|
|
2,392,403
|
|
Patents
|
|
|
120
|
|
|
|
623,600
|
|
|
|
125,125
|
|
|
|
3,123,016
|
|
|
|
3,028,771
|
|
|
|
592,720
|
|
Acquired technology
|
|
|
60
|
|
|
|
7,270,000
|
|
|
|
3,919,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,350,250
|
|
Customer relationships
|
|
|
60-72
|
|
|
|
12,850,000
|
|
|
|
6,682,292
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,167,708
|
|
Software
|
|
|
36
|
|
|
|
2,095,705
|
|
|
|
2,095,705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-compete agreements
|
|
|
36
|
|
|
|
212,000
|
|
|
|
212,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trade names
|
|
|
24
|
|
|
|
44,000
|
|
|
|
44,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total intangibles
|
|
|
|
|
|
$
|
36,247,251
|
|
|
$
|
15,050,440
|
|
|
$
|
3,123,016
|
|
|
$
|
3,116,746
|
|
|
$
|
21,203,081
|
|
Amortization of intangible assets was $1.3 million and $1.2 million for the three months ended May 31, 2014 and 2013, respectively.
Amortization in future fiscal periods is expected to be as follows:
Remainder of Fiscal Year 2015
|
|
$
|
3,673,469
|
|
2016
|
|
|
4,637,948
|
|
2017
|
|
|
2,562,571
|
|
2018
|
|
|
70,843
|
|
2019
|
|
|
70,843
|
|
Thereafter
|
|
|
238,505
|
|
Total
|
|
$
|
11,254,179
|
|
NOTE 6 — CONTINGENCIES
Payments Pursuant to Employment Agreement
On May 30, 2014, our former President and Chief Executive Officer, Ivan Braiker, ceased employment. We estimated the amount due to Mr. Braiker under his existing employment agreement in effect at the time of his departure and recorded an accrual of approximately $487,000 in the quarter ended May 31, 2014. We expect to pay this amount according to our normal payroll periods through August 2015.
Litigation
In the normal course of business, we may become involved in various legal proceedings. Except as stated below, we know of no pending or threatened legal proceeding to which we are or will be a party that, if successful, might result in a material adverse change in our business, properties or financial condition.
Litigation Update
Augme Technologies, Inc. v. Yahoo! Inc.,
Civil Action No. 3:09-cv-05386-JCS, a patent infringement lawsuit pending in the U.S. District Court for the Northern District of California since November 16, 2009. On December 21, 2010, Yahoo! filed a first amended answer to Augme’s complaint, in which Yahoo! asserted its own counterclaim against Augme alleging infringement of, inter alia, U.S. Patent Nos. 7,640,320 (“‘320 patent”) and 7,512,622 (“‘622 patent”). On August 21, 2012, the parties stipulated to dismissal of Yahoo’s claim for infringement of the ‘622 patent with prejudice.
This case is a patent infringement lawsuit brought by Augme against Yahoo, Inc. Yahoo has also counterclaimed for patent infringement. In this case, Augme is seeking monetary relief for patent infringement damage and injunctive relief against future infringement. A summary of the case is set forth below.
With respect to Augme’s claims of patent infringement, on June 11, 2012, Yahoo! renewed its Motion for Summary Judgment of non-infringement. The Court heard argument on the summary judgment issues on July 20, 2012. On August 8, 2012, the Court granted Yahoo!’s Motion for Summary Judgment of non-infringement, dismissing Augme’s patent claims against Yahoo! and declining to address Augme’s previously filed Motion for Partial Summary Judgment of validity. Based on the Court’s summary judgment order, Augme moved for Entry of Judgment under Rule 54(b). Yahoo! opposed Augme’s motion in light of the pending counterclaim for infringement of the ‘320 patent. Nonetheless, Augme’s motion was granted by the Court on October 29, 2012, and final judgment was entered shortly thereafter on November 15, 2012. On December 12, 2012, Augme filed a Notice of Appeal as to the judgment as to the Augme patent. The appeal was docketed by the Federal Circuit on December 19, 2012.
With respect to Yahoo!’s counterclaim regarding infringement of the ‘320 patent, the parties agreed to and filed a stipulation of infringement of this patent on December 13, 2012, under the Court’s claim construction ruling of January 3, 2012. The parties also stipulated to entry of judgment under Rule 54(b) and 28 U.S.C. § 1292(c)(2), which permits the entry of judgment in patent cases “which … [are] final except for an accounting.” The parties also requested that the Court stay the remainder of the case pending Augme’s appeal to the Federal Circuit Court of Appeals. The Court signed such an order on December 13, 2012, and entered it the next day.
On January 11, 2013, Augme filed with the district court a Notice of Appeal to the Federal Circuit Court of Appeals as to Yahoo!’s ‘320 patent judgment. The second appeal was docketed by the Federal Circuit on February 6, 2013 and consolidated with the prior appeal (now Lead Appeal No. 13-1121). Augme tendered its principal brief to the Federal Circuit on May 7, 2013. Augme filed its Reply Brief on September 6, 2013, and the parties subsequently filed a Joint Appendix on September 13, 2013. On June 20, 2014 the Federal Circuit Court of Appeals issued its opinion affirming the district court’s decision in all respects, denying Augme’s appeal. The Company has 30 days to file a petition for rehearing before the case is remanded to district court.
Augme Technologies, Inc. v. AOL, Inc. and Time Warner, Inc.,
Civil Action No. 1:12-cv-05439-CM (transferred from Civil Action No. 1:09-cv-04299-RWS (S.D.N.Y.)), a patent infringement and trademark infringement lawsuit pending in the U.S. District Court for the Southern District of New York (transferred from the U.S. District Court for the Central District of California) since September 10, 2008.
The case is a patent infringement case originally filed by Augme against AOL, Inc. and Time Warner, Inc. in the Central District of California and subsequently transferred to the Southern District of New York. It also originally included a trademark infringement action against AOL, Inc. for use of the BOOMBOX trademark which has subsequently been dismissed. In its patent infringement claim, Augme sought both monetary relief for patent infringement damages and injunctive relief against further infringement by AOL and Time Warner. The AOL defendants and Augme agreed to settle litigation between themselves and, on February 26, 2013, the case was dismissed between those parties. The stayed case remains pending against Time Warner, Inc. Below is a summary of the current status of this case.
On June 13, 2012, the patent infringement claims were transferred from Judge Robert Sweet to Judge Colleen McMahon. The residual claims for trademark infringement, unfair competition and false designation of origin, which remained with Judge Sweet, were dismissed by agreement of the parties on November 19, 2012.
With regard to the patent infringement claims, Time Warner filed a Motion for Judgment on the Pleadings on September 27, 2012, and, shortly thereafter, a Motion for Rule 11 Sanctions on October 23, 2012. On October 26, 2012, the Court
sua sponte
stayed the case regarding any claims related to U.S. Patent No. 7,269,636 (“‘636 patent”), pending the outcome of the ongoing reexamination of that patent by the U.S. Patent and Trademark Office. Because the remaining patent-in-suit, U.S. Patent Nos. 6,594,691 (“‘691 patent”), is closely related to the ‘636 patent, Augme moved to stay the case in its entirety on November 5, 2012. On December 20, 2012, Judge McMahon denied Augme’s motion to stay as to the ‘691 patent and did not disturb the preexisting stay as to the ‘636 patent.
Because of Judge McMahon’s requirement that all discovery in the case be completed by the end of February 2013 and given that discovery as to the ‘691 patent would be totally duplicative of discovery which would have to be conducted later as to the ‘636 patent, on January 7, 2013, Augme filed a covenant not to sue defendants on the ‘691 patent and a motion to dismiss the ‘691 patent from the case. Based on the pendency of the motion to dismiss, on January 11, 2013, Magistrate Judge Gabriel Gorenstein adjourned all further discovery as to the ‘691 patent.
On January 16, 2013, Judge McMahon entered an order dismissing the ‘691 patent from the case and maintaining the stay as to the ‘636 patent. She placed the case on suspension and denied Time Warner’s pending motions without prejudice.
The AOL defendants and Augme agreed to settle the litigation as between Augme, on the one hand, and AOL, Inc. and AOL Advertising, Inc., on the other. Accordingly, on February 26, 2013, Judge McMahon entered an Order of Dismissal as to the parties, AOL, Inc. and AOL Advertising, Inc. The stayed case remains pending against Time Warner, Inc.
On July 16, 2013, the court denied Time Warner’s motion for sanctions against Augme without prejudice to renewal, pending the outcome of the USPTO reexamination.
Brandofino Communications vs. Augme Technologies, Inc.
Civil Action No. 652639/2011. On September 27, 2011, Brandofino Communications, Inc. (“Brandofino”) filed suit against Augme and New Aug LLC in the Supreme Court of the State of New York, New York County. The complaint alleges,
inter alia
, breach of contract and unjust enrichment claims arising from work Brandofino allegedly performed for Augme pursuant to a marketing agreement entered into by Brandofino and Augme. The complaint seeks damages in excess of $1.0 million. Augme has served its Answer and set forth counterclaims for breach of contract, unfair competition, tortious interference with business relations, and violations of New York General Business Law Section 349 (relating to violations of Augme’s intellectual property rights). The Company intends to vigorously defend against Brandofino’s claim and pursue its counterclaims.
Shaub & Williams, L.L.P., vs. Augme Technologies, Inc.
Civil Action No. 1:13-cv-01101-GBD. Augme's prior counsel, Shaub & Williams, LLP (“S&W”), filed a Complaint in the United States District Court for the Southern District of New York seeking recovery on a quantum meruit
(value of services) basis attorney's fees in the amount of $2,249,686.25 for its prior representation of Augme in litigation. Augme has denied the allegations in the Complaint and have alleged that it has paid all fees due to S&W. The Company also asserted a breach of contract counterclaim, alleging that S&W overbilled Augme and should be refunded some of the attorney’s fees already paid to S&W. The parties are currently conducting discovery, and the court recently issued new discovery deadlines—fact discovery shall be completed by May 30, 2014, and expert discovery by July 15, 2014. The court has declined to set a trial date at this time.
Leibsohn, et al. v. Hipcricket, Inc. (FKA Augme Technologies), et al.,
No. 13-2-40007-3 (King Cty. Sup. Ct.): On November 25, 2013, stockholders of the former Hipcricket, Inc. who were stockholders when Augme purchased the assets of Hipcricket, Inc. in August 2011 filed a lawsuit in King County Superior Court alleging that Augme and its board of directors at the time made false statements which induced the plaintiff stockholders to approve the asset purchase transaction. The lawsuit asserts claims under the Washington State Securities Act as well as common-law claims for intentional misrepresentation and negligent misrepresentation. Plaintiffs seek to rescind the asset purchase transaction or obtain a “rescissionary measure of damages,” as well as compensatory damages, interest and attorneys’ fees. On March 3, 2014, defendants filed a motion to dismiss the action in its entirety, and that motion was to be fully briefed by April 23, 2014. An oral argument on the motion to dismiss took place on May 9, 2014. On June 17, 2014 the court issued a decision denying the motion to dismiss. Defendants intend to continue to vigorously defend the action. The Company cannot at this time estimate any potential loss that may result from this litigation.
NOTE 7 — CREDIT FACILITIES
Silicon Valley Bank
In May 2013, we secured an asset-based revolving loan facility from SVB to help fund our working capital needs, which was amended and restated on November 25, 2013 (the “SVB Loan Agreement”). The revolving loan facility allowed us to borrow up to $5.0 million with availability subject to a borrowing base of 80% of eligible accounts receivable plus the least of (i) 80% of Eligible 120 Day Accounts as defined in the SVB Loan Agreement, (ii) $1,000,000 and (iii) 30% of the sum of all eligible accounts plus Eligible 120 Day Accounts, and the satisfaction of conditions specified in the agreement.
The SVB Loan Agreement included customary covenants, including a requirement to maintain a minimum tangible net worth of at least negative $1.25 million. On January 31, 2014, we breached the minimum tangible net worth covenant and on March 31, 2014 entered into a forbearance and amendment to the SVB Loan Agreement. The forbearance agreement increased the interest rate under the SVB Loan Agreement to prime rate plus 4.25%. Subsequent to the end of the first quarter of fiscal 2015, on June 18, 2014, we used funds received from our accounts receivable facility with Fast Pay to repay all outstanding amounts due and owing under the SVB Loan Agreement, and all commitments under the SVB Loan Agreement were terminated (see below). No penalties were due in connection with the repayment.
Fast Pay Partners LLC
Subsequent to the end of the first quarter of fiscal 2015, on June 2, 2014, we entered into a Financing and Security Agreement, amended on June 4, 2014, with Fast Pay Partners LLC (“Fast Pay”) creating an accounts receivable-based credit facility (the “Agreement”). Under the terms of the Agreement, Fast Pay may, at its sole discretion, purchase our eligible accounts receivables. Upon any acquisition of accounts receivable, Fast Pay will advance to us up to 70% of the gross value of the purchased accounts, up to a maximum of $5.0 million in advances. Purchased accounts will be subject to a factoring fee of (i) 1.25%, flat fee, of the gross value of the account for the initial 30-day period; (ii) 1.25%, prorated daily, of the gross value of the account outstanding, commencing on day 30 and ending on day 89, and (iii) 1.75%, pro rated daily, of the gross value of the account outstanding, commencing on day 90 and continuing thereafter. The minimum monthly fee beginning on July 1, 2014 will be $12,500. Fast Pay will generally have full recourse against us in the event of nonpayment of any purchased accounts. Our obligations under the credit facility are secured by substantially all of our assets.
The Agreement contains covenants, primarily related to accounts receivable and audit rights, and events of default that are customary for agreements of this type. Failure to satisfy these covenants or the occurrence of events that constitute an event of default could result in the termination of the Agreement and/or the acceleration of our outstanding obligations.
The Agreement has an initial term of one year and automatically renews for successive terms subject to earlier termination by written notice by us, provided that all obligations are paid. Fast Pay may terminate the Agreement at any time and require immediate payment of all outstanding obligations.
NOTE 8 — CONCENTRATION OF RISK
During the quarter ended May 31, 2014, four customers accounted for approximately 19%, 5%, 5% and 5% of our revenue, respectively, and no other customer accounted for over 5% of revenues. During the quarter ended May 31, 2013, four customers accounted for approximately 7.9%, 7.5%, 5.2%, and 5% of our revenue, respectively, and no other customer accounted for over 5% of revenue.
At May 31, 2014, two customers accounted for approximately 35% of accounts receivable, the largest of which accounted for 29%. At May 31, 2013, three customers accounted for 19% of accounts receivable, the largest of which accounted for approximately 9%.
NOTE 9 — SUBSEQUENT EVENTS
On June 2, 2014, we implemented changes to our operating plan designed to reduce operating expenses while continuing to maintain our focus on profitable revenue growth. The plan is designed to conserve our resources and further align our ongoing expenses with our business by focusing our sales efforts on higher value customers, concentrating our development effort on maintaining and enhancing our product offering, using technology to reduce product delivery costs, and consolidating certain non-core personnel positions.
On June 2, 2014, we entered into a Financing and Security Agreement, amended on June 4, 2014, with Fast Pay Partners LLC (“Fast Pay”) creating an accounts receivable-based credit facility. See Note 7 for a description of the credit facility. Copies of the Financing Agreement dated June 2, 2014 and the amendment dated June 4, 2014 are attached as an exhibit to this Form 10-Q.
On June 18, 2014 we repaid our revolving loan facility with Silicon Valley Bank (“SVB”) using funds received under our credit facility with Fast Pay, and the loan facility with SVB was terminated.
ITE
M 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the significant factors affecting our results of operations, financial condition and liquidity position for the three months ended May 31, 2014 and 2013, and should be read in conjunction with our financial statements and related notes included elsewhere in this filing.