UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
_______________________________
Form 10-Q
x
|
|
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
|
For the quarterly period
ended January 31, 2012
OR
o
|
|
Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
|
Commission File Number:
001-11807
_______________________________
DAEGIS
INC.
(Exact name of registrant as specified in its
charter)
Delaware
|
94-2710559
|
(State or other jurisdiction of
|
(I.R.S. Employer Identification
|
incorporation or organization)
|
Number)
|
Address of principal
executive offices:
1420 Rocky
Ridge Drive, Suite 380, Roseville, California 95661
Registrants telephone
number, including area code:
(916)
218-4700
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES
x
NO
o
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
|
|
(Do not check if a smaller
reporting company)
|
|
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act),
YES
o
NO
x
Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date: 14,717,777 shares of common stock, $0.001 par value, as of
February 29, 2012.
DAEGIS INC.
FORM
10-Q
INDEX
PART I.
|
|
FINANCIAL INFORMATION
|
3
|
|
|
|
|
Item 1.
|
|
Financial Statements
|
3
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Balance Sheets as of January 31,
2012 and April 30, 2011
|
3
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Operations for the
three and nine months ended January 31, 2012 and 2011
|
4
|
|
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine months ended January 31, 2012 and 2011
|
5
|
|
|
|
|
|
|
Notes to Unaudited Condensed Consolidated Financial
Statements
|
6
|
|
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and
Results of Operations
|
19
|
|
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures about Market
Risk
|
27
|
|
|
|
|
Item 4.
|
|
Controls and Procedures
|
28
|
|
|
|
|
PART II.
|
|
OTHER INFORMATION
|
29
|
|
|
|
|
Item 1.
|
|
Legal Proceedings
|
29
|
|
|
|
|
Item 1A.
|
|
Risk Factors
|
29
|
|
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and use of
Proceeds
|
29
|
|
|
|
|
Item 3.
|
|
Defaults Upon Senior Securities
|
29
|
|
|
|
|
Item 4.
|
|
Mine Safety Disclosure
|
29
|
|
|
|
|
Item 5.
|
|
Other Information
|
29
|
|
|
|
|
Item 6.
|
|
Exhibits
|
30
|
|
SIGNATURE
|
31
|
|
|
|
|
CERTIFICATIONS
|
32
|
2
PART I. FINANCIAL
INFORMATION
Item 1. Financial
Statements
DAEGIS INC.
UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
January 31,
|
|
April 30,
|
|
2012
|
|
2011
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
6,466
|
|
|
$
|
4,577
|
|
Accounts receivable, net of
allowance of $349 at January 31, 2012 and
|
|
|
|
|
|
|
|
$503 at April 30,
2011
|
|
10,915
|
|
|
|
15,670
|
|
Prepaid
expenses and other current assets
|
|
1,288
|
|
|
|
1,166
|
|
Total current assets
|
|
18,669
|
|
|
|
21,413
|
|
|
Property and equipment, net of accumulated
depreciation of $4,668 at
|
|
|
|
|
|
|
|
January 31, 2012 and $3,887 at April 30,
2011
|
|
2,861
|
|
|
|
2,240
|
|
Goodwill
|
|
25,161
|
|
|
|
25,161
|
|
Intangibles, net
|
|
10,765
|
|
|
|
12,396
|
|
Other assets, net of allowances of $81 at
January 31, 2012 and $91 at
|
|
|
|
|
|
|
|
April 30, 2011
|
|
1,150
|
|
|
|
1,524
|
|
Total
assets
|
$
|
58,606
|
|
|
$
|
62,734
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
450
|
|
|
$
|
1,433
|
|
Current portion of long term
debt
|
|
1,594
|
|
|
|
1,869
|
|
Accrued
compensation and related expenses
|
|
2,182
|
|
|
|
2,894
|
|
Common stock warrant
liability
|
|
987
|
|
|
|
1,623
|
|
Other
accrued liabilities
|
|
1,468
|
|
|
|
2,131
|
|
Deferred revenue
|
|
8,244
|
|
|
|
7,951
|
|
Total
current liabilities
|
|
14,925
|
|
|
|
17,901
|
|
|
Long term debt, net of current
portion
|
|
20,353
|
|
|
|
24,731
|
|
Deferred tax liabilities, net
|
|
653
|
|
|
|
555
|
|
Other long term liabilities
|
|
1,045
|
|
|
|
1,513
|
|
Total liabilities
|
|
36,976
|
|
|
|
44,700
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
Preferred stock
|
|
2
|
|
|
|
|
|
Common
stock
|
|
15
|
|
|
|
15
|
|
Additional paid-in
capital
|
|
99,735
|
|
|
|
95,111
|
|
Accumulated other comprehensive income
|
|
345
|
|
|
|
443
|
|
Accumulated deficit
|
|
(78,467
|
)
|
|
|
(77,535
|
)
|
Total
stockholders equity
|
|
21,630
|
|
|
|
18,034
|
|
Total liabilities and
stockholders equity
|
$
|
58,606
|
|
|
$
|
62,734
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
3
DAEGIS INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share
data)
|
Three Months Ended
|
|
Nine Months Ended
|
|
January
31,
|
|
January
31,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eDiscovery
|
$
|
4,159
|
|
|
$
|
6,508
|
|
|
$
|
15,714
|
|
|
$
|
16,617
|
|
Database, archive, and migrations
|
|
6,910
|
|
|
|
5,923
|
|
|
|
17,944
|
|
|
|
18,567
|
|
Total revenues
|
|
11,069
|
|
|
|
12,431
|
|
|
|
33,658
|
|
|
|
35,184
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of eDiscovery
revenue
|
|
2,491
|
|
|
|
2,200
|
|
|
|
7,123
|
|
|
|
4,725
|
|
Direct
costs of database, archive, and migration revenue
|
|
1,255
|
|
|
|
1,254
|
|
|
|
3,955
|
|
|
|
4,308
|
|
Product development
|
|
1,830
|
|
|
|
1,973
|
|
|
|
5,669
|
|
|
|
5,738
|
|
Selling, general and administrative
|
|
4,889
|
|
|
|
5,866
|
|
|
|
14,264
|
|
|
|
18,966
|
|
Change in fair value of
contingent consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164
|
)
|
Total operating expenses
|
|
10,465
|
|
|
|
11,293
|
|
|
|
31,011
|
|
|
|
33,573
|
|
Income from operations
|
|
604
|
|
|
|
1,138
|
|
|
|
2,647
|
|
|
|
1,611
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of
debt
|
|
|
|
|
|
|
|
|
|
(2,166
|
)
|
|
|
|
|
Gain
(loss) from change in fair value of common stock warrant
liability
|
|
34
|
|
|
|
(240
|
)
|
|
|
636
|
|
|
|
427
|
|
Interest expense
|
|
(462
|
)
|
|
|
(1,009
|
)
|
|
|
(1,832
|
)
|
|
|
(2,450
|
)
|
Other,
net
|
|
(93
|
)
|
|
|
2
|
|
|
|
(66
|
)
|
|
|
(162
|
)
|
Total other income (expense)
|
|
(521
|
)
|
|
|
(1,247
|
)
|
|
|
(3,428
|
)
|
|
|
(2,185
|
)
|
Earnings (loss) before income taxes
|
|
83
|
|
|
|
(109
|
)
|
|
|
(781
|
)
|
|
|
(574
|
)
|
Provision for income taxes
|
|
30
|
|
|
|
97
|
|
|
|
150
|
|
|
|
219
|
|
Net
income (loss)
|
$
|
53
|
|
|
$
|
(206
|
)
|
|
$
|
(931
|
)
|
|
$
|
(793
|
)
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
Dilutive
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
|
Weighted average shares used in computing
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
14,713
|
|
|
|
14,577
|
|
|
|
14,657
|
|
|
|
13,220
|
|
Dilutive
|
|
14,713
|
|
|
|
14,577
|
|
|
|
14,657
|
|
|
|
13,220
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
4
DAEGIS INC.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
Nine Months Ended
|
|
January
31,
|
|
2012
|
|
2011
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(931
|
)
|
|
$
|
(793
|
)
|
Reconciliation of net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
796
|
|
|
|
627
|
|
Amortization of intangible assets
|
|
1,632
|
|
|
|
2,679
|
|
Loss on extinguishment of debt
|
|
2,166
|
|
|
|
|
|
Amortization of discount on notes payable
|
|
43
|
|
|
|
153
|
|
Interest added to long term debt principal
|
|
80
|
|
|
|
290
|
|
Stock based compensation expense
|
|
704
|
|
|
|
726
|
|
Change in fair value of contingent consideration
|
|
|
|
|
|
(164
|
)
|
Gain from change in fair value of common stock warrant liability
|
|
(636
|
)
|
|
|
(427
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
4,698
|
|
|
|
(3,534
|
)
|
Prepaid expenses and other current assets
|
|
(213
|
)
|
|
|
179
|
|
Other long term assets
|
|
46
|
|
|
|
158
|
|
Accounts payable
|
|
(983
|
)
|
|
|
42
|
|
Accrued compensation and related expenses
|
|
(748
|
)
|
|
|
55
|
|
Other accrued liabilities
|
|
(785
|
)
|
|
|
239
|
|
Deferred revenue
|
|
41
|
|
|
|
(1,428
|
)
|
Other long term liabilities
|
|
(59
|
)
|
|
|
(4
|
)
|
Net cash provided by (used in) operating
activities
|
|
5,851
|
|
|
|
(1,202
|
)
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
Acquisition, net of cash
acquired
|
|
|
|
|
|
(21,804
|
)
|
Purchases of property and equipment
|
|
(925
|
)
|
|
|
(227
|
)
|
Net
cash used in investing activities
|
|
(925
|
)
|
|
|
(22,031
|
)
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
Prepayment penalty on
extinguishment of debt
|
|
(368
|
)
|
|
|
|
|
Proceeds from issuance of common stock
|
|
192
|
|
|
|
|
|
Proceeds from issuance of
preferred stock
|
|
3,966
|
|
|
|
|
|
Payments of loan costs
|
|
(565
|
)
|
|
|
(983
|
)
|
Payments on revolving line of
credit
|
|
(3,950
|
)
|
|
|
(1,900
|
)
|
Borrowings on revolving line of credit
|
|
6,500
|
|
|
|
4,500
|
|
Borrowings on term
loan
|
|
16,000
|
|
|
|
24,000
|
|
Principal payments under debt obligations
|
|
(24,389
|
)
|
|
|
(950
|
)
|
Principal payments on capital
leases
|
|
(262
|
)
|
|
|
(279
|
)
|
Net cash provided by (used in) financing
activities
|
|
(2,876
|
)
|
|
|
24,388
|
|
Effect of exchange rate changes on cash
|
|
(161
|
)
|
|
|
(94
|
)
|
Net increase in cash and cash
equivalents
|
|
1,889
|
|
|
|
1,061
|
|
Cash
and cash equivalents, beginning of period
|
|
4,577
|
|
|
|
3,055
|
|
Cash and cash equivalents, end of
period
|
$
|
6,466
|
|
|
$
|
4,116
|
|
|
Supplemental cash flow
information:
|
|
|
|
|
|
|
|
Cash paid during the period
for:
|
|
|
|
|
|
|
|
Interest
|
$
|
1,281
|
|
|
$
|
1,518
|
|
Taxes
|
$
|
94
|
|
|
$
|
428
|
|
|
Supplemental non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
Accrued preferred stock
dividends
|
$
|
236
|
|
|
$
|
|
|
Common
stock issued in conjunction with acquisition
|
$
|
|
|
|
$
|
7,217
|
|
Common stock issued with
conversion of convertible notes
|
$
|
|
|
|
$
|
6,276
|
|
Fixed
assets acquired through capital leases
|
$
|
493
|
|
|
$
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
5
DAEGIS INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2012
1. Basis of
Presentation
The condensed consolidated
financial statements have been prepared by Daegis Inc. (formerly Unify
Corporation) (the Company, we, us, our) pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). The accompanying
condensed consolidated financial statements include our accounts and those of
our subsidiaries that we control due to ownership of a controlling interest.
Intercompany transactions and balances have been eliminated. While the interim
financial information contained in this filing is unaudited, such financial
statements, in the opinion of management, reflect all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation. The results for interim periods are not necessarily
indicative of the results to be expected for the entire fiscal year. These
financial statements should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, together with Managements Discussion
and Analysis of Financial Condition and Results of Operations, which are
included in the Companys Annual Report on Form 10-K for the fiscal year ended
April 30, 2011, as filed with the SEC.
Revenue
Recognition
The Company generates revenue
from software license sales and related services, including maintenance and
support, hosting, and consulting and implementation services. The Company
licenses its products to end-user customers, including corporate legal and IT
departments, law firms, independent software vendors (ISVs), international
distributors and value-added resellers (VARs). The Companys products are
generally sold with a perpetual license. The Companys contracts with ISVs, VARs
and international distributors do not include special considerations such as
rights of return, stock rotation, price protection or special acceptance. The
Company exercises judgment in connection with the determination of the amount of
revenue to be recognized in each accounting period. The nature of each
contractual arrangement determines how revenues and related costs are
recognized.
For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectability is probable and persuasive evidence of an arrangement
exists.
For fixed price arrangements
that require significant modification or customization of software, the Company
uses the percentage-of-completion method for revenue recognition. Under the
percentage-of-completion method, progress towards completion is generally
measured by labor hours.
The Company considers a signed
non-cancelable license agreement, a customer purchase order, a customer purchase
requisition, or a sales quotation signed by an authorized purchaser of the
customer to be persuasive evidence that an arrangement exists such that revenue
can be recognized.
The Companys customer
contracts may include multi-element arrangements that include a delivered
element (a software license) and undelivered elements (such as maintenance and
support and/or consulting). The value allocated to the undelivered elements is
unbundled from the delivered element based on vendor-specific objective evidence
(VSOE) of the fair value of the maintenance and support and/or consulting,
regardless of any separate prices stated within the contract. VSOE of fair value
is defined as: (i) the price charged when the same element is sold separately,
or (ii) if the element has not yet been sold separately, the price for the
element established by management having the relevant authority when it is
probable that the price will not change before the introduction of the element
into the marketplace. The Company then allocates the remaining balance to the
delivered element (a software license) regardless of any separate prices stated
within the contract using the residual method as the VSOE of all undelivered
elements is determinable.
We defer revenue for any
undelivered elements, and recognize revenue for delivered elements only when the
VSOE of undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated refund or return
rights affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.
6
An assessment of the ability
of the Companys customers to pay is another consideration that affects revenue
recognition. In some cases, the Company sells to undercapitalized customers. In
those circumstances, revenue recognition is deferred until cash is received, the
customer has established a history of making timely payments or the customers
financial condition has improved. Furthermore, once revenue has been recognized,
the Company evaluates the related accounts receivable balance at each period end
for amounts that we believe may no longer be collectible. This evaluation is
largely done based on a review of the financial condition via credit agencies
and historical experience with the customer. Any deterioration in credit
worthiness of a customer may impact the Companys evaluation of accounts
receivable in any given period.
Revenue from support and
maintenance activities, which consist of fees for ongoing support and
unspecified product updates, are recognized ratably over the term of the
maintenance contract, typically one year, and the associated costs are expensed
as incurred. Consulting and implementation services are performed on a best
efforts basis and may be billed under time-and-materials or fixed price
arrangements. Revenues and expenses relating to providing consulting services
are generally recognized as the services are performed. Revenue from hosting
activities, which consist of fees for storing customer data, are recognized as
the services are performed, and the associated costs are expensed as incurred.
Recently Issued
Accounting Standards
In December 2011, the
Financial Accounting Standards Board (FASB) issued authoritative guidance on the
disclosure of offsetting assets and liabilities. Under the new guidance,
entities are required to disclose information about offsetting and related
arrangements to enable users of its financial statements to understand the
effect of those arrangements on its financial position. The new guidance will be
effective for Daegis beginning May 1, 2013. This guidance will not a have a
material effect on the Companys financial statements.
In September 2011, the FASB
issued authoritative guidance on when to perform the two-step impairment test
for goodwill. Under the new guidance, an entity has the option to first assess
qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the
fair value of a reporting unit is less than its carrying amount. If, after
assessing the totality of events or circumstances, an entity determines it is
not more likely than not that the fair value of a reporting unit is less than
its carrying amount, then performing the two-step impairment test is
unnecessary. The new guidance includes examples of events and circumstances that
an entity should consider in evaluating whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. The new
guidance was adopted by Daegis upon issuance. We will implement this guidance in
our next goodwill impairment test.
In June 2011, the FASB issued
authoritative guidance on the presentation of other comprehensive income. Under
the new guidance, an entity has the option to present the total of comprehensive
income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. The new guidance will be effective for
Daegis beginning May 1, 2012. This guidance will not a have a material effect on
the Companys financial statements.
Reclassifications
During the third quarter of
fiscal year 2012, the Company revised the statements of cash flows for the nine
months ended January 31, 2011. The revisions were related to certain debt
issuance costs and capital lease transactions of which both reclassifications
were deemed to be immaterial. The Company reclassified cash outflows of
$1,231,000 from the operating activities section of the cash flow statement to
the financing section of the cash flow statement. These reclassifications had no
effect on net income.
Additionally, certain
reclassifications have been made to the prior period consolidated statement of
operations to conform to the current period presentation. These
reclassifications had no effect on net income.
7
2. Acquisitions
AXS-One Inc.
On June 30, 2009, the Company
acquired all of the issued and outstanding shares of common stock and warrants
of AXS-One. The common stock and warrants were converted into, in the aggregate,
1,000,000 shares of Company common stock. The outstanding convertible notes of
AXS-One with an aggregate outstanding principal and interest balance of
approximately $13 million were exchanged for 1,642,600 shares of Company common
stock. The note holders were also issued additional shares of Company common
stock based on revenue generated from AXS-Ones products over 13 months after
the effective date of the merger.
AXS-One provides integrated
content archiving software solutions which enables organizations to implement
secure, scalable and enforceable policies that address records management for
corporate governance, legal discovery and industry regulations. The acquisition
of AXS-One advanced the Companys growth strategy to acquire superior technology
companies that could leverage its technology strengths, extensive customer base
and worldwide distribution channel while enabling the combined company to meet a
broader set of customers needs, accelerate direct and channel sales, and
achieve cost synergies.
The goodwill of $11.2 million
arising from the acquisition consists of increased market presence and
opportunities, enhanced product mix and operating efficiencies expected from
combining the operations of the Company and AXS-One. All of the goodwill was
assigned to the Database, Archive, and Migrations segment. None of the goodwill
recognized is deductible for income tax purposes.
The following table summarizes
the consideration paid for AXS-One and the amounts of the assets acquired and
liabilities assumed recognized at the acquisition date, June 30, 2009 (in
thousands):
Consideration
|
|
|
|
Equity instruments (2,642,600 common shares of the
Company)
|
$
|
8,853
|
|
Contingent consideration
arrangement
|
|
3,592
|
|
|
Fair value of total
consideration
|
$
|
12,445
|
|
|
Recognized amounts of identifiable assets
acquired and liabilities assumed
|
|
|
|
Financial assets
|
$
|
117
|
|
Accounts receivable
|
|
561
|
|
Other assets
|
|
640
|
|
Property, plant and equipment
|
|
132
|
|
Identifiable intangible assets
|
|
8,065
|
|
Financial liabilities
|
|
(5,772
|
)
|
Deferred revenue
|
|
(2,493
|
)
|
Total identifiable net assets
|
|
1,250
|
|
|
Goodwill
|
|
11,195
|
|
|
$
|
12,445
|
|
|
Acquisition related costs
(included in selling, general and
administrative expense in the
|
|
|
|
Company's statement of operations for the
year ended April 30, 2010.
|
$
|
611
|
|
The fair value of the
2,642,600 common shares issued as part of the consideration paid for AXS-One
($8,853,000) was determined on the basis of the closing market price of the
Companys common shares on the acquisition date.
The contingent consideration
arrangement required the Company to issue to the former holders of AXS-One
convertible notes 0.35 shares of Company common stock for every $1 of AXS-One
net license revenue over the first $2,000,000 for the 13 month period following
the acquisition date. The number of shares that the Company issued under the
contingent consideration arrangement was 415,422. The fair value of the
contingent consideration was $1.3 million, which resulted in a reduction in the
acquisition liability in the nine months ended January 31, 2012 and 2011 of $0
and $164,000, respectively, and a corresponding reduction in operating expenses.
8
Strategic Office
Solutions, Inc., dba Daegis
On June 29, 2010, the Company
acquired all of the issued and outstanding shares of common stock of Strategic
Office Solutions, Inc., dba Daegis, for approximately $37.4 million. Payment was
made in the form of $24.0 million in cash, $7.2 million in equity, and $6.2
million in convertible notes. The Company issued 2,085,714 shares of common
stock to the former owners of Daegis at $3.46 per share (closing market price on
the acquisition date) for a total of $7.2 million. The notes consisted of a $5.0
million Subordinated Purchase Note and a $1.2 million Subordinated Indemnity
(Escrow) Note. Under the terms of the Subordinated Purchase Note the Company
incurred interest at 8% per annum. On September 1, 2010 the Company converted
the Subordinated Purchase Note and all related accrued interest into 1,448,614
shares of common stock at a conversion price of $3.50 per share. Under the terms
of the Subordinated Indemnity (Escrow) Note the Company incurred interest at 3%
per annum for the first eighteen months and 8% per annum thereafter. On
September 1, 2010 the Company converted the Subordinated Indemnity (Escrow) Note
and all related accrued interest into 344,667 shares of common stock at a
conversion price of $3.50 per share. Both notes were cancelled upon conversion.
Daegis is a provider of
eDiscovery solutions for corporate legal departments and law firms. The Company
believes that its eDiscovery solutions compliment its integrated content
archiving product and that this acquisition advances the Companys growth
strategy to acquire superior software and services companies that can leverage
its technology strengths and extensive customer base while enabling the combined
company to meet a broader set of customer and market needs.
The goodwill of $19.5 million
arising from the acquisition consists of increased market presence and
opportunities, enhanced product mix and operating efficiencies expected from
combining the operations of the two entities. All of the goodwill was assigned
to the eDiscovery segment. All of the goodwill recognized is deductible for
income tax purposes.
The following table summarizes
the consideration paid for Daegis and the amounts of the assets acquired and
liabilities assumed recognized at the acquisition date, June 29, 2010 (in
thousands):
Consideration
|
|
|
|
Cash
|
$
|
24,000
|
|
Equity instruments (2,085,714 common shares
of the Company)
|
|
7,217
|
|
Convertible notes
|
|
6,200
|
|
|
Fair value of total
consideration
|
$
|
37,417
|
|
|
Recognized amounts of identifiable assets
acquired and liabilities assumed
|
|
|
|
Financial assets
|
$
|
2,270
|
|
Accounts receivable
|
|
5,422
|
|
Other assets
|
|
705
|
|
Property, plant and equipment
|
|
1,867
|
|
Identifiable intangible assets
|
|
11,000
|
|
Financial liabilities
|
|
(3,366
|
)
|
Total identifiable net assets
|
|
17,898
|
|
|
Goodwill
|
|
19,519
|
|
|
$
|
37,417
|
|
Acquisition related costs
(included in selling, general and
administrative expense in the
|
|
|
|
Company's statement of operations for the
nine months ended January 31, 2011)
|
$
|
1,423
|
|
The fair value of the
2,085,714 common shares issued as part of the consideration paid for Daegis
($7,216,570) was determined on the basis of the closing market price of the
Companys common shares on the acquisition date.
9
3. Stock Compensation
Information
Share-based compensation
expense includes the estimated fair value for share-based awards. Share-based
compensation expenses are recognized over the vesting period of the awards, net
of estimated forfeitures. For the three and nine months ended January 31, 2012
and 2011, equity-based compensation expense from operations was comprised of the
following (in thousands):
|
Three Months Ended
|
|
Nine Months Ended
|
|
January
31,
|
|
January
31,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Direct Costs of Revenue
|
$
|
17
|
|
$
|
19
|
|
$
|
55
|
|
$
|
45
|
Product Development
|
|
37
|
|
|
39
|
|
|
116
|
|
|
115
|
Selling, General and
Administrative
|
|
176
|
|
|
181
|
|
|
533
|
|
|
566
|
Total Equity-Based Compensation
|
$
|
230
|
|
$
|
239
|
|
$
|
704
|
|
$
|
726
|
The following table shows
remaining unrecognized compensation expense on a pre-tax basis related to all
types of non-vested equity awards outstanding as of January 31, 2012. This table
does not include an estimate for future grants that may be issued (in
thousands).
Fiscal Year Ending April 30,
|
Amount
|
Remainder of 2012
|
$
|
221
|
2013
|
|
619
|
2014
|
|
426
|
2015
|
|
211
|
2016
|
|
16
|
Total
|
$
|
1,493
|
The cost above is expected to
be recognized over a weighted-average period of 1.30 years.
We estimate the fair value of
our share-based awards using the Black-Scholes option pricing model. The
Black-Scholes option pricing model incorporates various assumptions including
expected term, interest rates and expected volatility. Changes in the
assumptions can materially affect the fair value estimates and ultimately how
much we recognize as stock-based compensation expense. The fair values of our
stock options are estimated at the date of grant. The weighted average input
assumptions used and resulting fair values for the nine months ended January 31,
2012 and 2011, were as follows:
|
Nine Months Ended
|
|
January
31,
|
|
2012
|
|
2011
|
Expected term (in years)
|
|
5.0
|
|
|
5.0
|
Risk-free interest rate
|
|
1.1%
|
|
|
1.3%
|
Volatility
|
|
89%
|
|
|
84%
|
Dividend yield
|
|
|
|
|
|
Weighted-average fair value of stock options
granted during the year
|
$
|
2.38
|
|
$
|
3.38
|
Forfeiture rate
|
|
20%
|
|
|
20%
|
The Company bases its expected
term assumption on its historical experience and on the terms and conditions of
the stock awards it grants to employees. The risk-free interest rate is based
upon United States Treasury interest rates appropriate for the expected term of
the awards. The expected volatility is based on the historical volatility of the
Companys common stock over the most recent period commensurate with the
estimated expected term of the Companys stock options. The Company did not pay
cash dividends in fiscal 2011 or year to date in fiscal 2012, and does not
anticipate paying any cash dividends in the foreseeable future. Consequently, an
expected dividend yield of zero is used in the Black-Scholes option pricing
model.
We recognize expense only for
the stock-based awards that are ultimately expected to vest. Therefore, the
Company has developed an estimate of the number of awards expected to be
forfeited prior to vesting (forfeiture rate). The Companys uses a forfeiture
rate that is estimated based on historical forfeiture experience, and is applied
to all stock-based awards. The Company recognizes stock-based compensation cost
as an expense ratably on a straight-line basis over the requisite service
period.
10
In the second quarter of
fiscal 2011, the Companys shareholders approved the 2010 Stock Plan (the 2010
Stock Plan). Under the 2010 Stock Plan the Company may make awards to issue up
to 1,500,000 shares of common stock to eligible employees, consultants and
directors. Stock options granted under the 2010 Stock Plan generally vest over
four years, are exercisable to the extent vested and expire 10 years from the
date of grant. Under the 2010 Stock Plan the Company may grant options at prices
not less than the fair market value at the date of grant. Under the 2001 Stock
Option Plan (the 2001 Option Plan) which expired as of September 2010, the
Company was able to grant options to eligible employees, directors, and
consultants at prices not less than the fair market value at the date of grant
for incentive stock options and not less than 85% of the fair market value at
the date of grant for non-statutory stock options. Options granted under the
2001 Option Plan generally vest over four years, are exercisable to the extent
vested, and expire 10 years from the date of grant.
A summary of the Companys
stock option activity for the nine months ended January 31, 2012 is as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
average remaining
|
|
Aggregate
|
|
|
|
|
average
|
|
contractual
|
|
intrinsic
|
|
Shares
|
|
exercise
price
|
|
term (in
years)
|
|
value
(1)
|
Outstanding at April 30, 2011
|
2,152,183
|
|
|
$
|
3.38
|
|
6.91
|
|
$
|
550,903
|
Granted
|
829,700
|
|
|
$
|
2.38
|
|
|
|
|
|
Exercised
|
(124,500
|
)
|
|
$
|
1.40
|
|
|
|
|
|
Canceled or expired
|
(131,837
|
)
|
|
$
|
3.09
|
|
|
|
|
|
Outstanding at January 31, 2012
|
2,725,546
|
|
|
$
|
3.18
|
|
7.35
|
|
$
|
43,493
|
|
Exercisable at January 31, 2012
|
1,493,990
|
|
|
$
|
3.52
|
|
6.52
|
|
$
|
23,304
|
(1)
|
|
Aggregate intrinsic
value is defined as the difference between the current market value and
the exercise price and is estimated using the closing price of the
Companys common stock on the last trading day of the periods ended as of
the dates indicated.
|
Total intrinsic value of
awards exercised during the quarters ended January 31, 2012 and January 31, 2011
was $20,084 and $0, respectively. The total fair value of awards vested during
the quarters ended January 31, 2012 and January 31, 2011 was $261,865 and
$247,215, respectively.
A summary of the Companys
nonvested stock option activity for the period ended January 31, 2012 is as
follows:
|
|
|
|
Weighted
|
|
|
|
|
average fair
|
|
Shares
|
|
value
|
Nonvested at April 30, 2011
|
884,854
|
|
|
$
|
2.03
|
Granted
|
829,700
|
|
|
$
|
1.27
|
Vested
|
(459,375
|
)
|
|
$
|
1.97
|
Canceled or expired
|
(23,623
|
)
|
|
$
|
1.78
|
Nonvested at January 31, 2012
|
1,231,556
|
|
|
$
|
1.55
|
11
4.
Goodwill and Intangible Assets
The following tables present
details of the Companys goodwill and intangible assets as of January 31, 2012
and April 30, 2011 (in thousands).
|
|
Gross
|
|
|
|
|
|
Net
|
|
Weighted
|
|
|
carrying
|
|
Accumulated
|
|
carrying
|
|
average
|
January 31,
2012
|
|
amount
|
|
amortization
|
|
amount
|
|
useful
life
|
Indefinite Lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
25,161
|
|
$
|
|
|
|
$
|
25,161
|
|
|
Finite
Lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
|
6,236
|
|
|
(2,873
|
)
|
|
|
3,363
|
|
7
years
|
Technology-based
|
|
|
4,838
|
|
|
(2,236
|
)
|
|
|
2,602
|
|
5 years
|
Trademarks
|
|
|
5,900
|
|
|
(1,194
|
)
|
|
|
4,706
|
|
10
years
|
Trade name
|
|
|
100
|
|
|
(100
|
)
|
|
|
|
|
2 years
|
Non-compete
|
|
|
200
|
|
|
(106
|
)
|
|
|
94
|
|
3
years
|
Total
|
|
$
|
42,435
|
|
$
|
(6,509
|
)
|
|
$
|
35,926
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
Weighted
|
|
|
carrying
|
|
Accumulated
|
|
carrying
|
|
average
|
April 30,
2011
|
|
amount
|
|
amortization
|
|
amount
|
|
useful
life
|
Indefinite Lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
25,161
|
|
$
|
|
|
|
$
|
25,161
|
|
|
Finite
Lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-related
|
|
|
6,236
|
|
|
(2,187
|
)
|
|
|
4,049
|
|
7
years
|
Technology-based
|
|
|
4,838
|
|
|
(1,777
|
)
|
|
|
3,061
|
|
5 years
|
Trademarks
|
|
|
5,900
|
|
|
(758
|
)
|
|
|
5,142
|
|
10
years
|
Trade name
|
|
|
100
|
|
|
(100
|
)
|
|
|
|
|
2 years
|
Non-compete
|
|
|
200
|
|
|
(56
|
)
|
|
|
144
|
|
3
years
|
Total
|
|
$
|
42,435
|
|
$
|
(4,878
|
)
|
|
$
|
37,557
|
|
|
Acquired finite-lived
intangibles are generally amortized on a straight line basis over their
estimated useful life. The useful life of finite-lived intangibles is the period
over which the asset is expected to contribute directly or indirectly to future
cash flows of the Company. Intangible assets amortization expense for the nine
months ended January 31, 2012 was $1,632,000. Amortization expense for the nine
months ended January 31, 2011 was $2,679,000. The estimated future amortization
expense related to intangible assets as of January 31, 2012 is as follows (in
thousands):
|
Fiscal Year Ending
April 30,
|
|
Amount
|
|
Remainder of 2012
|
|
|
483
|
|
2013
|
|
|
1,934
|
|
2014
|
|
|
1,878
|
|
2015
|
|
|
1,841
|
|
2016
|
|
|
1,425
|
|
Thereafter
|
|
|
3,204
|
|
Total
|
|
$
|
10,765
|
The following table summarizes
the activity in the Company's goodwill account during the nine months ended
January 31, 2012 and 2011:
|
|
Nine Months Ended
|
|
|
January 31,
|
|
|
2012
|
|
2011
|
Balance, beginning of the period
|
|
25,161
|
|
17,928
|
Goodwill added through
acquisition
|
|
|
|
19,461
|
Ciphersoft royalty payments
|
|
|
|
29
|
Balance, end of period
|
|
25,161
|
|
37,418
|
12
Goodwill at January 31, 2012,
represents the excess of purchase prices over the sum of the amounts assigned to
assets acquired less liabilities assumed. The Company believes these
acquisitions will produce the following results:
-
Increased Market Presence and
Opportunities:
The addition of
the acquired companies should increase the combined Companys market presence
and opportunities for growth in sales and earnings.
-
Enhanced Product
Mix:
The complementary nature
of the Companys products with its acquisitions should benefit current
customers and provide the combined company with the ability to access new
customers.
-
Operating
Efficiencies:
The combination
of the Company with its acquisitions provides the opportunity for potential
economies of scale and cost savings.
The Company believes these
primary factors support the amount of goodwill recognized as a result of the
purchase price for companies it has acquired. Goodwill is tested for impairment
on an annual basis as of April 30, and between annual tests if indicators of
potential impairment exist, using a fair-value-based approach.
Pursuant to the accounting
guidance for goodwill and other intangible assets, the measurement of impairment
of goodwill consists of two steps. If the Company determines it is not more
likely than not that the fair value of a business unit is less than its carrying
amount, then the first step is performed. In the first step, the fair value of
the Company is compared to its carrying value. The Company determined that the
asset group to be tested for recoverability is at the business unit level as it
was the lowest level at which cash flows were identifiable. The seconds step is
to determine the implied fair values of the business units goodwill, and to
compare them to the carrying values of the business units goodwill. This second
step includes valuing all of the tangible and intangible assets and liabilities
of the business units as if they had been acquired in a business combination to
determine the implied fair values of goodwill. The business units that contain
the goodwill and intangible assets are Unify, Daegis, and AXS-One.
5. Credit
Facility
On June 30, 2011, the Company
entered into a revolving credit note agreement with Wells Fargo. Under the terms
of the agreement, the Company is entitled to borrow up to $8.0 million. The
total amount that can be borrowed under the revolver is based on a multiplier
factor of the trailing twelve months of maintenance revenue. As of January 31,
2012, the Company was eligible to borrow the entire $8.0 million. Interest
expense is recorded on funds borrowed at the prevailing LIBOR rate plus 5.00%
per annum with a minimum rate of 6.25% (6.25% as of January 31, 2012) and has a
maturity date of June 30, 2015. As of January 31, 2012, there was $5.5 million
outstanding on the revolver.
6. Fair Value of Financial
Instruments
We adopted the provisions of
ASC Topic 820,
Fair Value
Measurements and Disclosures
,
which defines fair value, establishes a framework for measuring fair value under
GAAP and enhances disclosures about fair value measurements.
Under ASC Topic 820, fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on
the measurement date.
The Company bases its
estimates of fair value for liabilities on the amount it would pay a third-party
market participant to transfer the liability and incorporates inputs such as
equity prices, historical and implied volatilities, dividend rates and prices of
convertible securities issued by comparable companies maximizing the use of
observable inputs when available. The fair value hierarchy is based on three
levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value.
-
Level 1 Quoted prices in active
markets for identical assets and liabilities. Level 1 is generally considered
the most reliable measurement of fair value under ASC 820.
-
Level 2 Inputs other than Level 1
that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active;
or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
-
Level 3 Unobservable inputs that are
supported by little or no market activity and that are significant to the fair
value of the assets or liabilities. The Company values its warrants based on
open form option pricing models which, based on the relevant inputs, render
the fair value estimate Level 3.
13
Fair Value on a
Recurring Basis
The table below categorizes
assets and liabilities measured at fair value on a recurring basis as of January
31, 2012:
|
|
Fair Value
|
|
Fair value measurement
using
|
|
|
January 31,
2012
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
987
|
|
$
|
|
|
$
|
|
|
$
|
987
|
The following table summarizes
the activity of Level 3 inputs measured on a recurring basis for the quarter
ended January 31, 2012:
(in thousands)
|
|
Common Stock
Warrants
|
Balance at April 30, 2011
|
|
$
|
1,623
|
|
Issuance of common stock warrants
|
|
|
|
|
Change in fair value of common stock warrant
liability
|
|
|
(636
|
)
|
Balance at January 31, 2012
|
|
$
|
987
|
|
7. Long-Term
Debt
The Companys debt consists of
the following at January 31, 2012 and April 30, 2011 (in thousands):
|
|
January 31,
|
|
April 30,
|
|
|
2012
|
|
2011
|
Term Note Payable to Hercules Technology II, L.P., the proceeds of
which were used to fund the cash portion of the consideration to acquire
Daegis - see Note 2, the Hercules notes were repaid on June 30,
2011.
|
|
$
|
|
|
|
$
|
24,009
|
|
|
Hercules Technology II, L.P., credit facility, the Hercules notes
were repaid on June 30, 2011.
|
|
|
|
|
|
|
2,950
|
|
|
|
|
|
|
|
|
|
|
Term Note A payable to Wells Fargo Capital Finance, LLC, the
proceeds of which were used to repay the term note with Hercules
Technology II, L.P. which was entered in conjunction with the acquisition
of Daegis - see Note 2. Interest is incurred at the prevailing LIBOR rate
plus 5.0% per annum with a minimum rate of 6.25% (6.25% at January 31,
2012), payable monthly. Principal is payable over four years with
principal payments of $300,000 quarterly (beginning November 2011) plus an
additional annual payment based on the Companys free cash flow for the
year with any remaining amount due at maturity, June 30, 2015. This note
is secured by an interest in substantially all of the Company's assets.
This note includes certain financial covenants and the Company is in
compliance with such covenants at January 31, 2012.
|
|
|
11,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Note B payable to Wells Fargo Capital Finance, LLC, the
proceeds of which were used to repay the term note with Hercules
Technology II, L.P. which was entered in conjunction with the acquisition
of Daegis - see Note 2. Interest is incurred at the prevailing LIBOR rate
plus 10.0% per annum with a minimum rate of 12.0% (12.0% at January 31,
2012) payable monthly. Principal is due in full at maturity, June 30,
2015.
|
|
|
4,000
|
|
|
|
|
|
|
Wells Fargo Capital Finance, LLC, revolving line of credit,
interest rate at prevailing LIBOR rate plus 5.0% per annum with a minimum
rate of 6.25% (6.25% at January 31, 2012), payable June 30,
2015.
|
|
|
5,500
|
|
|
|
|
|
|
Capital leases payable, payable in monthly installments through
July 2015.
|
|
|
747
|
|
|
|
517
|
|
|
|
|
21,947
|
|
|
|
27,476
|
|
Less discount on notes payable
|
|
|
|
|
|
|
(876
|
)
|
Less
current portion
|
|
|
(1,594
|
)
|
|
|
(1,869
|
)
|
Total long term debt, net
|
|
$
|
20,353
|
|
|
$
|
24,731
|
|
14
The discount on notes payable
is related to warrants granted to the Hercules Technology II, L.P. in
association with the issuance of the term note. The Company provided Hercules
with 718,860 warrants to purchase shares of Company common stock at $2.45 per
share. The warrants have an expiration date of June 29, 2020. The Company values
its warrants based on open form option pricing models. Amortization of the
discount on notes payable for the three months January 31, 2012 and 2011 was $0
and $66,000 respectively. Amortization of the discount on notes payable for the
nine months ended January 31, 2012 and 2011 was $43,000 and $153,000,
respectively.
In June 2011 the Company
incurred a loss on extinguishment of debt of $2.2 million as a result of the
refinancing of the Hercules Term Loan and Credit Facility. The loss included
$1.0 million of unamortized loan costs and $0.8 million of warrant discounts on
notes payable that were associated with the borrowings under the Hercules Term
Loan and Credit Facility. Additionally, the Company was assessed prepayment fees
of $0.4 million.
In June 2011 the Company
entered into the Wells Fargo Credit Agreement. The Wells Fargo Credit Agreement
consists of a $12.0 million Term Note A, a $4.0 million Term Note B, and a
revolving credit note agreement whereby Wells Fargo would provide up to $8.0
million. The Term Note A, Term Note B, and revolving line of credit have
interest rate of LIBOR plus 5.00%, 10.00% and 5.00%, respectively. The minimum
LIBOR used in the interest rate is 1.25% for Term Note A and the revolving line
of credit and 2.00% for Term Note B. The company capitalized $0.6 million of
loan costs related to Wells Fargo Credit Agreement.
The Wells Fargo Credit
Agreement requires ongoing compliance with certain affirmative and negative
covenants. The affirmative covenants include, but are not limited to: (i)
maintenance of existence and conduct of business; (ii) compliance with laws;
(iii) use of proceeds; and (iv) books and records and inspection. The negative
covenants set forth in the Wells Fargo Credit Agreement include, but are not
limited to, restrictions on the ability of the Company (and the Companys
subsidiaries): (i) with certain limited exceptions, to create, incur, assume or
allow to exist indebtedness; (ii) with certain limited exceptions, to create,
incur, assume or allow to exist liens on properties; (iii) with certain limited
exceptions, to make certain payments, transfers of property, or investments; or
(iv) with certain limited exceptions, to make acquisitions.
The Company is obligated to
maintain certain minimum consolidated adjusted EBITDA levels as calculated in
accordance with the terms and definitions determining such amounts as contained
in the Wells Fargo Credit Agreement. The Wells Fargo Credit Agreement also
contains various information and financial reporting requirements. The Company
is in compliance with all such covenants and requirements at January 31, 2012.
The Wells Fargo Credit
Agreement also contains customary events of default, including without
limitation events of default based on payment obligations, repudiation of
guaranty obligations, material inaccuracies of representations and warranties,
covenant defaults, insolvency proceedings, monetary judgments in excess of
certain amounts, change in control, certain ERISA events, and defaults under
certain other obligations.
In March 2012, the Company
amended the Wells Fargo Credit Agreement. As part of the amendment, the minimum
LIBOR used in the interest rate for Term Note A and the revolving line of credit
was increased to 1.50%. Additionally, modifications were made to certain
financial covenants.
A summary of future payments
on long-term debt obligations as of January 31, 2012 is as follows (in
thousands):
Fiscal Year Ending April 30,
|
|
Amount
|
Remainder of 2012
|
|
$
|
396
|
|
2013
|
|
|
1,545
|
|
2014
|
|
|
1,348
|
|
2015
|
|
|
1,326
|
|
2016
|
|
|
17,332
|
|
|
|
|
21,947
|
|
Current portion of long term debt
|
|
|
(1,594
|
)
|
Long
term debt, net
|
|
$
|
20,353
|
|
The summary of future payments
on long-term debt obligations does not account for the annual payments based on
the Companys free cash flow under Term Note A as noted above. The amount of
these payments is not known; however, when they are determined it will
accelerate the payment schedule outlined above.
15
8. Other Long-Term
Liabilities
Included in other long term
liabilities as of January 31, 2012 is deferred rent resulting from escalation
clauses related to the Roseville and New York offices of $102,000 and $126,000,
respectively. Included in other long term liabilities as of April 30, 2011 is
deferred rent resulting from escalation clauses related to the Roseville, New
York, and Chicago offices of $156,000, $112,000, and $11,000, respectively. Also
included in other long term liabilities as of January 31, 2012 are $314,000 and
$209,000 related to the unfavorable lease terms associated with the Rutherford,
New Jersey office lease assumed in the acquisition of AXS-One, Inc. and the New
York office lease assumed in the acquisition of Daegis, respectively. Included
in other long term liabilities as of April 30, 2011 are $374,000 and $256,000
related to the unfavorable lease terms associated with the Rutherford, New
Jersey office lease assumed in the acquisition of AXS-One, Inc. and the New York
office lease assumed in the acquisition of Daegis, respectively. Additionally,
as of January 31, 2012 and April 30, 2011 there is long-term deferred
maintenance revenue of $214,000 and $513,000, respectively, included in other
long-term liabilities. Additionally, as of January 31, 2012 and April 30, 2011,
there is $80,000 and $91,000, respectively, related to mandatory employee
severance costs associated with a French statutory government regulated plan
covering all France employees.
9. Maintenance
Contracts
The Company offers maintenance
contracts to its customers at the time they enter into a product license
agreement and renew those contracts at the customers option, generally annually
thereafter. These maintenance contracts are priced as a percentage of the value
of the related license agreement. The specific terms and conditions of these
initial maintenance contracts and subsequent renewals vary depending upon the
product licensed and the country in which the Company does business. Generally,
maintenance contracts provide the customer with unspecified product maintenance
updates and customer support services. Revenue from maintenance contracts is
initially deferred and then recognized ratably over the term of the agreements.
Changes in the Companys
deferred maintenance revenue were as follows (in thousands):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
January
31,
|
|
January
31,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Deferred maintenance revenue beginning
balance
|
|
$
|
6,802
|
|
|
$
|
7,151
|
|
|
$
|
8,420
|
|
|
$
|
9,642
|
|
Deferred maintenance revenue recognized during period
|
|
|
(4,548
|
)
|
|
|
(3,938
|
)
|
|
|
(12,317
|
)
|
|
|
(12,725
|
)
|
Deferred maintenance revenue of new
maintenance contracts
|
|
|
6,075
|
|
|
|
5,061
|
|
|
|
12,226
|
|
|
|
11,357
|
|
Deferred maintenance revenue ending balance
|
|
$
|
8,329
|
|
|
$
|
8,274
|
|
|
$
|
8,329
|
|
|
$
|
8,274
|
|
Of the deferred maintenance
revenue at January 31, 2012 and April 30, 2011, $0.2 million and $0.5 million,
respectively, is long-term and is included in other long-term liabilities.
10. Income
Taxes
The Company recognizes the
financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following
an audit. For tax positions meeting the more-likely-than-not threshold, the
amount recognized in the financial statements is the largest benefit that has a
greater than 50 percent likelihood of being realized upon ultimate settlement
with the relevant tax authority.
The Company is subject to
income taxes in the U.S. federal jurisdiction, and various states and foreign
jurisdictions. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant
judgment to apply. In general, the Company is no longer subject to U.S. federal,
state and local, or non-U.S. income tax examinations by tax authorities for the
fiscal years before 2006. The Company does not believe there will be any
material changes in its unrecognized tax positions over the next 12 months.
Therefore, no reserves for uncertain income tax positions have been recorded.
The Companys policy is to
recognize interest and penalties accrued on any unrecognized tax benefits as a
component of income tax expense. As of January 31, 2012 and April 30, 2011, the
Company did not have any accrued interest or penalties associated with any
unrecognized tax benefits, nor did the Company record any interest expense
associated with any unrecognized tax benefits in the nine months ended January
31, 2012 and 2011.
16
11. Preferred Stock
In June 2011, the Company
issued through a private placement 1,666,667 shares of preferred stock to a
group of related party institutional investors at a price of $2.40 per share for
a total of $4.0 million. The preferred stock will automatically convert on a
1-for-1 basis into shares of common stock of the Company upon the earlier of the
second anniversary of the financing, June 30, 2013, or the date on which the
Companys common stock has an average closing price above $4.00 per share during
the preceding 30 trading days. The preferred stock includes an annual dividend
of 10% payable in cash or stock at the Companys option. The preferred stock has
no other provisions or preferences. As of January 31, 2012, the Company had
accrued $236,000 of dividends payable on preferred stock included in other
accrued liabilities.
12. Comprehensive
Income
Comprehensive income includes
net income (loss) and net foreign currency translation adjustments. A
comprehensive gain (loss) on foreign currency translations for the three months
ended January 31, 2012 and 2011 was ($81,000) and $2,000, respectively. A
comprehensive gain (loss) on foreign currency translations for the nine months
ended January 31, 2012 and 2011 was ($98,000) and $13,000, respectively.
13. Earnings (Loss) Per
Share
Basic earnings (loss) per
share is computed by dividing net earnings (loss) less dividends payable on
preferred stock by the weighted average number of common shares outstanding
during the reporting period. Diluted earnings (loss) per share is computed
similar to basic earnings (loss) per share except that it reflects the potential
dilution that could occur if dilutive securities or other obligations to issue
common stock were exercised or converted into common stock. For the three and
nine months ended January 31, 2012 and the three and nine months ended January
31, 2011, because of our net loss available to shareholders, potentially
dilutive securities were excluded from the per share computations due to their
anti-dilutive effect.
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in thousands, except per share amounts)
|
|
January
31,
|
|
January
31,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Net income (loss)
|
|
$
|
53
|
|
|
$
|
(206
|
)
|
|
$
|
(931
|
)
|
|
$
|
(793
|
)
|
Dividends payable on preferred stock
|
|
$
|
(101
|
)
|
|
$
|
|
|
|
$
|
(236
|
)
|
|
$
|
|
|
Net income (loss) available to common
stockholders
|
|
|
(48
|
)
|
|
|
(206
|
)
|
|
|
(1,167
|
)
|
|
|
(793
|
)
|
|
Weighted average shares of common stock
outstanding, basic
|
|
|
14,713
|
|
|
|
14,577
|
|
|
|
14,657
|
|
|
|
13,220
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock
outstanding, diluted
|
|
|
14,713
|
|
|
|
14,577
|
|
|
|
14,657
|
|
|
|
13,220
|
|
|
Earnings (loss) per share of common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
The dilutive securities above
represent only those stock options, warrants, convertible debt, and preferred
stock whose exercise prices were less than the average market price of the stock
during the respective periods and therefore were dilutive. Potentially dilutive
securities that are not included in the diluted net loss calculation because
they would be antidilutive are employee stock options of 2,725,546 and common
stock warrants of 1,344,986 for the three and nine months ended January 31,
2012. Potentially dilutive securities that are not included in the diluted net
loss calculation because they would be antidilutive are employee stock options
of 2,286,459 and common stock warrants of 1,344,986 for the three and nine
months ended January 31, 2011. Potentially dilutive securities that are not
included in the diluted net loss calculation because they would be antidilutive
are preferred stock shares of 1,666,667 for the three and nine months ended
January 31, 2012 and zero for the three and nine months ended January 31,
2011.
17
14. Segment Information
Operating segments are defined
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in deciding how to allocate resources and in assessing
performance. Our chief operating decision maker is our Chief Executive Officer.
We have evaluated our approach for making operating decisions and assessing the
performance of our business and, beginning in the first quarter of fiscal year
2012, we have determined that we have two reportable segments: (i) eDiscovery
and (ii) Database, Archive, and Migration. Prior to the first quarter of fiscal
year 2012, the Company maintained two reportable segments, Database and
Development Products (DDP) and Modernization and Migration Solutions, and
eDiscovery and Integrated Content Archiving Solutions. The accounting policies
of the segments are the same as those described in Note 1. We evaluate
performance based on income from operations (total revenues less operating
costs). We do not allocate certain corporate costs to each segment and therefore
disclose these amounts separately in our segment table.
For the third quarter of
fiscal 2012 and 2011, total revenue from the United States was $6.5 million and
$9.2 million, respectively. Total revenue from all other countries was $4.6
million in the third quarter of fiscal 2012 and $3.2 million for the third
quarter of fiscal 2011. Total long-lived assets as of January 31, 2012 and April
30, 2011, for the United States, was $39.9 million and $41.3 million,
respectively. Total long-lived assets in all other countries were $36,000 as of
January 31, 2012 and $48,000 as of April 30, 2011.
Financial information for the
Companys reportable segments is summarized below (in thousands). Fiscal 2011
segment information has been reclassified to conform to the fiscal 2012
presentation.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
January
31,
|
|
January
31,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eDiscovery
|
|
$
|
4,159
|
|
|
$
|
6,508
|
|
|
$
|
15,714
|
|
|
$
|
16,617
|
|
Database, archive, and migrations
|
|
|
6,910
|
|
|
|
5,923
|
|
|
|
17,944
|
|
|
|
18,567
|
|
Total revenues
|
|
$
|
11,069
|
|
|
$
|
12,431
|
|
|
$
|
33,658
|
|
|
$
|
35,184
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eDiscovery
|
|
$
|
5,166
|
|
|
$
|
4,653
|
|
|
$
|
15,081
|
|
|
$
|
11,349
|
|
Database, archive, and migrations
|
|
|
3,605
|
|
|
|
4,405
|
|
|
|
10,837
|
|
|
|
14,318
|
|
Unallocated corporate
expenses
|
|
|
1,694
|
|
|
|
2,235
|
|
|
|
5,093
|
|
|
|
7,906
|
|
Total operating expenses
|
|
$
|
10,465
|
|
|
$
|
11,293
|
|
|
$
|
31,011
|
|
|
$
|
33,573
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eDiscovery
|
|
$
|
(1,007
|
)
|
|
$
|
1,855
|
|
|
$
|
633
|
|
|
$
|
5,268
|
|
Database, archive, and migrations
|
|
|
3,305
|
|
|
|
1,518
|
|
|
|
7,107
|
|
|
|
4,249
|
|
Unallocated corporate
expenses
|
|
|
(1,694
|
)
|
|
|
(2,235
|
)
|
|
|
(5,093
|
)
|
|
|
(7,906
|
)
|
Total income from operations
|
|
$
|
604
|
|
|
$
|
1,138
|
|
|
$
|
2,647
|
|
|
$
|
1,611
|
|
|
|
|
January 31,
|
|
April 30,
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eDiscovery
|
|
$
|
45,655
|
|
|
$
|
47,585
|
|
|
|
|
|
|
|
|
|
Database, archive, and migrations
|
|
|
12,951
|
|
|
|
15,149
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,606
|
|
|
$
|
62,734
|
|
|
|
|
|
|
|
|
|
18
DAEGIS
INC.
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
The discussion in this
Quarterly Report on Form 10-Q contains forward-looking statements that have been
made pursuant to the provisions of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are based on current expectations,
estimates and projections about the software industry and certain assumptions
made by the Companys management. Words such as anticipates, expects,
intends, plans, believes, seeks, estimates, variations of such words
and similar expressions are intended to identify such forward-looking
statements. In addition, statements that refer to the anticipated impacts of
acquisitions, statements made on goodwill, intangible assets, and impairment,
statements about the ability to utilize deferred tax assets, and statements
about other characterizations of future events or circumstances are
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict; therefore, actual results may differ materially from
those expressed or forecasted in any such forward-looking statements. Such risks
and uncertainties include, but are not limited to, those set forth herein under
Volatility of Stock Price and General Risk Factors Affecting Quarterly Results
and in the Companys Annual Report on Form 10-K under Business Risk Factors.
Unless required by law, the Company undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review the risk factors
set forth in other reports or documents the Company files from time to time with
the SEC, particularly the Companys Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K.
The following discussion
should be read in conjunction with the unaudited Condensed Consolidated
Financial Statements and Notes thereto in Part I, Item 1 of this Quarterly
Report on Form 10-Q and with the audited Consolidated Financial Statements and
Notes thereto, together with Managements Discussion and Analysis of Financial
Condition and Results of Operations, which are included in the Companys Annual
Report on Form 10-K for the fiscal year ended April 30, 2011, as filed with the
SEC.
Overview
Daegis Inc. (formerly Unify
Corporation) (the Company, we, us or our) is a global provider of
eDiscovery, application development, data management, migration, and archiving
software solutions. The Company sells its solutions through two segments. The
segments are the eDiscovery segment and the Database, Archive, and Migrations
segment.
The Companys customers
include corporate legal departments, law firms, information technology (IT)
departments, software value-added resellers (VARs), solutions integrators
(SIs) and independent software vendors (ISVs) from a variety of industries.
We are headquartered in Roseville, California, with offices in San Francisco,
New York, Chicago, New Jersey, Canada, Australia, France, Germany, and the
United Kingdom (UK). We market and sell our solutions directly in the United
States, Europe, Canada, Japan, Singapore and Australia and indirectly through
global distributors and resellers on a worldwide basis.
Our eDiscovery solutions
include technology and services that address the full spectrum of eDiscovery
needs for corporate counsel and law firms. Our eDiscovery platform delivers a
comprehensive solution that helps clients increase defensibility and lower costs
in all phases of the eDiscovery lifecycle from information management through
search and analysis to review and production. Our services include document
review, project management, search analytics and consulting.
Our database, archive, and
migrations business includes application development, data management and
application modernization. Our tools and database software helps companies to
maximize value and reduce cost in the development, deployment, management and
retention of business applications and data. Our application development and
data management software products include Team Developer, SQLBase, Unify NXJ,
DataServer, VISION and ACCELL. Our application modernization solutions include
Composer Notes, Composer Sabertooth, Composer CipherSoft and Composer Mainframe.
The Companys enterprise archiving software enables corporations to preserve,
manage, and dispose of their electronically stored information (ESI) for
regulatory compliance, eDiscovery and information governance.
19
Critical Accounting
Policies
The following discussion and
analysis of the Companys 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.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. On an ongoing basis,
management evaluates its estimates and judgments. Actual results may differ from
these estimates under different assumptions or conditions. The areas that
require significant judgment are as follows.
Revenue
Recognition
The Company generates revenue
from software license sales and related services, including maintenance and
support, hosting, and consulting and implementation services. The Company
licenses its products to end-user customers, including corporate legal and IT
departments, law firms, independent software vendors (ISVs), international
distributors and value-added resellers (VARs). The Companys products are
generally sold with a perpetual license. The Companys contracts with ISVs, VARs
and international distributors do not include special considerations such as
rights of return, stock rotation, price protection or special acceptance. The
Company exercises judgment in connection with the determination of the amount of
revenue to be recognized in each accounting period. The nature of each
contractual arrangement determines how revenues and related costs are
recognized.
For software license
arrangements that do not require significant modification or customization of
the underlying software, revenue is recognized when the software product or
service has been shipped or electronically delivered, the license fees are fixed
and determinable, uncertainties regarding customer acceptance are resolved,
collectability is probable and persuasive evidence of an arrangement
exists.
For fixed price arrangements
that require significant modification or customization of software, the Company
uses the percentage-of-completion method for revenue recognition. Under the
percentage-of-completion method, progress towards completion is generally
measured by labor hours.
The Company considers a signed
non-cancelable license agreement, a customer purchase order, a customer purchase
requisition, or a sales quotation signed by an authorized purchaser of the
customer to be persuasive evidence that an arrangement exists such that revenue
can be recognized.
The Companys customer
contracts may include multi-element arrangements that include a delivered
element (a software license) and undelivered elements (such as maintenance and
support and/or consulting). The value allocated to the undelivered elements is
unbundled from the delivered element based on vendor-specific objective evidence
(VSOE) of the fair value of the maintenance and support and/or consulting,
regardless of any separate prices stated within the contract. VSOE of fair value
is defined as: (i) the price charged when the same element is sold separately,
or (ii) if the element has not yet been sold separately, the price for the
element established by management having the relevant authority when it is
probable that the price will not change before the introduction of the element
into the marketplace. The Company then allocates the remaining balance to the
delivered element (a software license) regardless of any separate prices stated
within the contract using the residual method as the VSOE of all undelivered
elements is determinable.
We defer revenue for any
undelivered elements, and recognize revenue for delivered elements only when the
VSOE of undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated refund or return
rights affecting the revenue recognized for delivered elements. If we cannot
objectively determine the fair value of any undelivered element included in
bundled software and service arrangements, we defer revenue until all elements
are delivered and services have been performed, or until fair value can
objectively be determined for any remaining undelivered elements.
An assessment of the ability
of the Companys customers to pay is another consideration that affects revenue
recognition. In some cases, the Company sells to undercapitalized customers. In
those circumstances, revenue recognition is deferred until cash is received, the
customer has established a history of making timely payments or the customers
financial condition has improved. Furthermore, once revenue has been recognized,
the Company evaluates the related accounts receivable balance at each period end
for amounts that we believe may no longer be collectible. This evaluation is
largely done based on a review of the financial condition via credit agencies
and historical experience with the customer. Any deterioration in credit
worthiness of a customer may impact the Companys evaluation of accounts
receivable in any given period.
20
Revenue from support and
maintenance activities, which consist of fees for ongoing support and
unspecified product updates, are recognized ratably over the term of the
maintenance contract, typically one year, and the associated costs are expensed
as incurred. Consulting and implementation services are performed on a best
efforts basis and may be billed under time-and-materials or fixed price
arrangements. Revenues and expenses relating to providing consulting services
are generally recognized as the services are performed. Revenue from hosting
activities, which consist of fees for storing customer data, are recognized as
the services are performed, and the associated costs are expensed as
incurred.
Goodwill and Intangible
Assets
Goodwill is the excess of cost
of an acquired entity over the amounts assigned to assets acquired and
liabilities assumed in a business combination. Goodwill is not amortized.
Goodwill is tested for impairment on an annual basis as of April 30, and between
annual tests if indicators of potential impairment exist, using a
fair-value-based approach. Intangible assets are amortized using the
straight-line method over their estimated period of benefit. We evaluate the
recoverability of intangible assets periodically and take into account events or
circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists. All of our intangible assets are subject to
amortization. As a result of the impairment test, the Company recorded $1.5
million and $14.5 million in the fourth quarter of fiscal 2011 for the
impairments of goodwill and intangible assets of CipherSoft and AXS-One,
respectively. The Unify and Daegis business units were not at risk of failing
step one of the impairment test.
Deferred Tax Asset
Valuation Allowance
Deferred taxes are recorded
for the difference between the financial statement and tax basis of the
Companys assets and liabilities and net operating loss carryforwards. A
valuation allowance is recorded to reduce deferred tax assets to an amount whose
realization is more likely than not. U.S. income taxes are not provided on the
undistributed earnings of foreign subsidiaries as they are considered to be
permanently reinvested.
As of April 30, 2011, the
Company had $21.2 million of deferred tax assets related principally to net
operating loss and capital loss carryforwards, reserves and other accruals, and
various tax credits. The Companys ability to utilize net operating loss
carryforwards may not be fully realized because of certain limitations imposed
by the tax law related to changes in ownership. In addition, the Companys
ability to ultimately realize its deferred tax assets is contingent upon the
Company achieving taxable income in the future. There is no assurance that this
will occur in amounts sufficient to utilize the deferred tax assets.
Accordingly, management concluded that a valuation allowance be recorded to
offset these deferred tax assets. Should we determine that Daegis would be able
to realize the deferred tax assets in the future in excess of the recorded
amount, an adjustment to the valuation allowance would be recognized in the
period such determination was made.
Account Receivable and
Allowance for Doubtful Accounts
We record trade accounts
receivable at the invoiced amount and they do not bear interest. We maintain an
allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. We make these estimates
based on an analysis of accounts receivable using available information on our
customers financial status and payment histories as well as the age of the
account receivable. Historically, bad debt losses have not differed materially
from our estimates.
Accounting for Stock-based
Compensation
For our share-based payment
awards, we make estimates and assumptions to determine the underlying value of
stock options, including volatility, expected life and forfeiture rates.
Additionally, for awards which are performance-based, we make estimates as to
the probability of the underlying performance being achieved. Changes to these
estimates and assumptions may have a significant impact on the value and timing
of stock-based compensation expense recognized, which could have a material
impact on our financial statements.
Fair Value of Common Stock
Warrant Liability
The Company accounts for
common stock warrants in accordance with applicable accounting guidance provided
in ASC 815 - Derivatives and Hedging Contracts in Entitys Own Equity. The
Company values its warrants based on open form option pricing models which,
based on the relevant inputs, render the fair value estimate Level 3. The
Company bases its estimates of fair value for liabilities on the amount it would
pay a third-party market participant to transfer the liability and incorporates
inputs such as equity prices, historical and implied volatilities, dividend
rates and prices of convertible securities issued by comparable companies
maximizing the use of observable inputs when available. Changes in the fair
value of the warrants are reflected in the consolidated statement of operations
as Gain (loss) from change in fair value of common stock warrant
liability.
21
Results of
Operations
The following table sets
forth, for the periods indicated, certain financial data as a percentage of
total revenue:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
January
31,
|
|
January
31,
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eDiscovery
|
|
37.6
|
|
%
|
|
52.4
|
|
%
|
|
46.7
|
|
%
|
|
47.2
|
|
%
|
Database, archive, and migrations
|
|
62.4
|
|
%
|
|
47.6
|
|
%
|
|
53.3
|
|
%
|
|
52.8
|
|
%
|
Total revenues
|
|
100.0
|
|
%
|
|
100.0
|
|
%
|
|
100.0
|
|
%
|
|
100.0
|
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs of eDiscovery
revenue
|
|
22.5
|
|
%
|
|
17.6
|
|
%
|
|
21.2
|
|
%
|
|
13.5
|
|
%
|
Direct
costs of database, archive, and migration revenue
|
|
11.3
|
|
%
|
|
10.1
|
|
%
|
|
11.8
|
|
%
|
|
12.2
|
|
%
|
Product development
|
|
16.5
|
|
%
|
|
15.9
|
|
%
|
|
16.8
|
|
%
|
|
16.3
|
|
%
|
Selling, general and administrative
|
|
44.2
|
|
%
|
|
47.2
|
|
%
|
|
42.4
|
|
%
|
|
53.9
|
|
%
|
Change in fair value of
contingent consideration
|
|
0.0
|
|
%
|
|
0.0
|
|
%
|
|
0.0
|
|
%
|
|
(0.5
|
)
|
%
|
Total operating expenses
|
|
94.5
|
|
%
|
|
90.8
|
|
%
|
|
92.2
|
|
%
|
|
95.4
|
|
%
|
Income from
operations
|
|
5.5
|
|
%
|
|
9.2
|
|
%
|
|
7.8
|
|
%
|
|
4.6
|
|
%
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of
debt
|
|
0.0
|
|
%
|
|
0.0
|
|
%
|
|
(6.4
|
)
|
%
|
|
0.0
|
|
%
|
Gain
(loss) from change in fair value of common stock warrant
liability
|
|
0.3
|
|
%
|
|
(1.9
|
)
|
%
|
|
1.9
|
|
%
|
|
1.2
|
|
%
|
Interest expense
|
|
(4.2
|
)
|
%
|
|
(8.2
|
)
|
%
|
|
(5.4
|
)
|
%
|
|
(6.9
|
)
|
%
|
Other,
net
|
|
(0.8
|
)
|
%
|
|
0.0
|
|
%
|
|
(0.2
|
)
|
%
|
|
(0.5
|
)
|
%
|
Total other income (expense)
|
|
(4.7
|
)
|
%
|
|
(10.1
|
)
|
%
|
|
(10.1
|
)
|
%
|
|
(6.2
|
)
|
%
|
Earnings (loss) before income taxes
|
|
0.8
|
|
%
|
|
(0.9
|
)
|
%
|
|
(2.3
|
)
|
%
|
|
(1.6
|
)
|
%
|
Provision for income taxes
|
|
0.3
|
|
%
|
|
0.8
|
|
%
|
|
0.5
|
|
%
|
|
0.6
|
|
%
|
Net
income (loss)
|
|
0.5
|
|
%
|
|
(1.7
|
)
|
%
|
|
(2.8
|
)
|
%
|
|
(2.2
|
)
|
%
|
Total
Revenues
The Company generates revenue
from eDiscovery software and service sales. All of our eDiscovery software and
services sales are sold by our direct sales force in the United States. The
Company generates database, archive, and migrations revenue from software
license sales and related services, including maintenance, support and
consulting services. We sell our database, archive, and migration solutions
through our direct sales force in the United States and Europe, and through
indirect channels comprised of distributors, ISVs, VARs, and other partners
worldwide.
Total revenues in the third
quarter of fiscal 2012 were $11.1 million, a decrease of $1.3 million from the
third quarter of fiscal 2011. This represents a decrease of 11% from the third
quarter of fiscal 2011 revenues of $12.4 million. Total revenues for the nine
months ended January 31, 2012 were $33.7 million, a decrease of $1.5 million
over revenues for the nine months ended January 31, 2011. This represents a
decrease of 4% over revenues from the nine months ended January 31, 2011 of
$35.2 million. Total eDiscovery revenues in the third quarter of fiscal 2012
were $4.2 million, a decrease of $2.3 million from the third quarter of fiscal
2011. This represents a decrease of 36% over the third quarter of fiscal 2011
revenues of $6.5 million. The decrease in eDiscovery revenue for the third
quarter of fiscal 2012 is primarily related to having fewer large legal matters
in process in the third quarter of fiscal 2012 compared to the third quarter of
fiscal 2011. Total eDiscovery revenues for the nine months ended January 31,
2012 were $15.7 million, a decrease of $0.9 million from the nine months ended
January 31, 2011. This represents a decrease of 5% in revenue from the nine
months ended January 31, 2011 revenues of $16.6 million. The decrease is
primarily related to having fewer large legal matters in process in fiscal 2012
compared to the fiscal 2011. This is partially offset by having three months of
eDiscovery revenue in the first quarter of fiscal 2012 and only one month of
eDiscovery revenue in the first quarter of fiscal 2011. Total database, archive,
and migrations revenues in the third quarter of fiscal 2012 were $6.9 million,
an increase of $1.0 million from the third quarter of 2011. This represents an
increase of 17% from the third quarter of fiscal 2011 revenues of $5.9 million.
The increase in database, archive, and migrations revenue for the three months
ending January 31, 2012 is primarily due to a large license and maintenance sale
that did not exist in fiscal 2011 and the receipt of a large maintenance
renewal. Total database, archive, and migrations revenues for the nine months
ended January 31, 2012 were $17.9 million, a decrease of $0.7 million from the
nine months ended January 31, 2011. This represents a decrease of 3% in revenue
from the nine months ended January 31, 2011 revenues of $18.6 million. The
decrease in database, archive, and migrations revenue for the nine months ending
January 31, 2012 is primarily due to current year delays in large government
migration projects and fewer archive sales and is partially offset by the large
license and maintenance sale noted above.
22
For the third quarter of
fiscal 2012 and 2011, total revenues from the United States were 58% and 74% of
total revenues, respectively. Total revenue from the United States in absolute
dollars was $6.5 million for the third quarter of fiscal 2012 and $9.2 million
for the third quarter of fiscal 2011. Total revenue from all other countries was
$4.6 million in the third quarter of fiscal 2012 and $3.2 million for the third
quarter of fiscal 2011. On a percentage basis, revenue from other countries was
42% for the third quarter of fiscal 2012 and 26% for the third quarter of fiscal
2011.
Operating Expenses
Direct Costs of eDiscovery
Revenue.
Direct costs of
eDiscovery revenue consist primarily of expenses related to employees,
facilities, and third party assistance that were directly related to the
generation of eDiscovery revenue. Direct costs of eDiscovery revenue were $2.5
million and $2.2 million for the third quarter of fiscal 2012 and fiscal 2011,
respectively. For the first nine months ended January 31, 2012 and 2011, the
direct costs of eDiscovery revenue were $7.1 million and $4.7 million,
respectively. The increase in the nine months ended January 31, 2012 is
primarily related to the fact that eDiscovery only had one month of costs
included in the first quarter of fiscal 2011.
Direct Costs of Database,
Archive, and Migrations Revenue.
Direct costs of database, archive and migrations revenue consist primarily of
expenses related to employees, facilities, third party assistance, royalty
payments, and the amortization of purchased technology from third parties that
were directly related to the generation of database, archive, and migrations
revenue. Direct costs of database, archive and migrations revenue were $1.3
million for both the third quarter of fiscal 2012 and fiscal 2011. For the nine
months ended January 31, 2012 and 2011, direct costs of database, archive and
migrations revenue were $4.0 million and $4.3 million, respectively. The
decrease in direct costs of database, archive and migrations revenue for the
nine month period over the comparable prior year expenses is primarily due to a
reallocation of employees to eDiscovery departments combined with a small
reduction in force.
Product Development.
Product development expenses
consist primarily of employee and facilities costs incurred in the development
and testing of new products and in the porting of new and existing products to
additional hardware platforms and operating systems. Product development costs
in the third quarter of fiscal 2012 were $1.8 million compared to $2.0 million
in the same period of fiscal 2011. For both the nine months ended January 31,
2012 and 2011, product development expenses were $5.7 million.
Selling, General and
Administrative.
Selling, general
and administrative (SG&A) expenses consist primarily of salaries and
benefits, marketing programs, travel expenses, professional services, facilities
expenses and bad debt expense. SG&A expenses were $4.9 million in the third
quarter of fiscal 2012 and $5.9 million for the third quarter of fiscal 2011.
The major components of SG&A for the third quarter of fiscal 2012 were sales
expenses of $2.0 million, marketing expenses of $0.6 million and general and
administrative expenses of $2.3 million. For the third quarter of fiscal 2011,
the major components of SG&A were sales expenses of $1.9 million, marketing
expenses of $0.7 million and general and administrative expenses of $3.3
million. As a percentage of total revenue, SG&A expenses were 44% in the
third quarter of fiscal 2012 and 47% in the third quarter of fiscal 2011. In the
nine months ended January 31, 2012 and 2011, our SG&A expenses were $14.3
million and $19.0 million, respectively. The major components of SG&A for
the nine month period ended January 31, 2012 were sales expenses of $5.8
million, marketing expenses of $1.8 million and general and administrative
expenses of $6.7 million. The major components of SG&A for the nine month
period ended January 31, 2011 were sales expenses of $5.9 million, marketing
expenses of $1.9 million and general and administrative expenses of $11.2
million. As a percentage of total revenue, SG&A expenses were 42% in the
first nine months of fiscal 2012 and 54% in the first nine months of fiscal
2011. The decrease in SG&A costs for the three and nine months ended January
31, 2012 is primarily related to decreases in amortization expense due to the
impairment of intangible assets in the fourth quarter of fiscal 2011, reduced
incentive compensation payments and decreases in outside labor expense. This is
combined with approximately $1.4 million of transaction costs for the Daegis
acquisition included in the first quarter of 2011.
Change in Fair Value of
Contingent Consideration
. In
applying ASC 805 to the June 2009 acquisition of AXS-One, the Company calculated
the fair value of contingent consideration related to net license revenue on a
quarterly basis and recorded any change in the calculated amount as adjustments
in the statement of operations. The contingent consideration arrangement was
completed and paid in full in fiscal 2011. There were no contingent
consideration arrangements related to the June 2010 acquisition of Daegis.
Loss on Extinguishment of
Debt.
The loss on extinguishment
of debt is the result of the refinancing of the Hercules Term Loan and Credit
Facility on June 30, 2011. The Company expensed $1.8 million of unamortized loan
costs and warrant discounts on notes payable that were associated with the
borrowings under the Hercules Term Loan and Credit Facility. Additionally, the
Company was assessed prepayment fees of $0.4 million.
23
Gain from Change in Fair Value of
Common Stock Warrant Liability
.
The change in fair value of common stock warrant liability for the three
and nine months ended January 31, 2012 resulted in a gain of $34,000 and
$636,000, respectively. The change in fair value of common stock warrant
liability for the three and nine months ended January 31, 2011 resulted in a
loss of $240,000 and a gain of $427,000, respectively. The gains are due
primarily to a decrease in the Companys common stock share price during the
period. The loss is due primarily to an increase in the Companys common stock
share price during the period.
Interest Expense
. Interest expense consists primarily of interest incurred on
outstanding debt obligations, plus the amortization of related debt issuance
costs and the amortization of the discount on notes payable. Interest expense
for the third quarter of fiscal 2012 and 2011 was $0.5 million and $1.0 million,
respectively. Interest expense for the nine months ended January 31, 2012 and
2011 was $1.8 million and $2.5 million, respectively. The decrease in the
interest expense for the three and nine months ended January 31, 2012 is due to
the lower interest rates on debt that resulted from our refinancing. This is
partially offset in the nine months ending January 31, 2012 because the debt
associated with the acquisition of Daegis was outstanding for only one month in
the first quarter of fiscal 2011.
Other, Net.
Other, net consists primarily of foreign exchange rate gains and losses
and other income. Foreign exchange rate losses for the third quarter of fiscal
2012 and 2011 were $95,000 and $1,000, respectively. Foreign exchange rate
losses for the nine months ended January 31, 2012 and 2011 were $74,000 and
$220,000, respectively. Other income for the third quarter of fiscal 2012 and
2011 was $2,000 and $3,000, respectively. Other income for the nine months ended
January 31, 2012 was $8,000. Other income for the nine months ended January 31,
2011 was $58,000.
Provision for Income Taxes.
For the third quarter of fiscal 2012, the
Company recorded $30,000 in federal, state, and foreign income tax expense. For
the third quarter of fiscal 2011, the Company recorded $97,000 in federal,
state, and foreign income tax expense. For the nine months ended January 31,
2012 the Company recorded $150,000 in federal, state, and foreign income tax
expense. For the nine months ended January 31, 2011 the Company recorded
$219,000 in federal, state, and foreign income tax expense.
Liquidity and Capital
Resources
At January 31, 2012, the Company had cash
and cash equivalents of $6.5 million, compared to $4.6 million at April 30,
2011. The Company had net accounts receivable of $10.9 million as of January 31,
2012, and $15.7 million as of April 30, 2011.
In June 2011, the Company entered into a
new Revolving Credit and Term Loan Agreement with Wells Fargo (the Wells Fargo
Credit Agreement). In order to secure its obligations under the Wells Fargo
Credit Agreement, the Company has granted the lender a first priority security
interest in substantially all of its assets. The Wells Fargo Credit Agreement
consists of two term notes and a revolving credit note agreement. Term Note A is
for $12.0 million payable over four years with principal payments of $300,000
quarterly plus an additional annual payment based on the Companys free cash
flow for the year with any remaining amount due at maturity, June 30, 2015. The
Company incurs interest at the prevailing LIBOR rate plus 5.0% per annum with a
minimum rate of 6.25% (6.25% at January 31, 2012). Term Note B is a four year
note for $4.0 million payable in full at maturity, June 30, 2015. The Company
incurs interest at the prevailing LIBOR rate plus 10% per annum with a minimum
rate of 12.0% (12.0% at January 31, 2012). As of January 31, 2012 there is $15.7
million outstanding on the term notes of which $1.2 million is current. Under
the terms of the revolver, the Company can borrow up to $8.0 million. The
Company incurs interest expense on funds borrowed at the prevailing LIBOR rate
plus 5.0% per annum with a minimum rate of 6.25% (6.25% at January 31, 2012).
The revolver has a maturity date of June 30, 2015. The total amount that can be
borrowed under the Term Note A and the revolver is based on a multiplier factor
of the trailing twelve months of maintenance revenue. As of January 31, 2012,
the Company was eligible to borrow the entire amount of $8.0 million. As of
January 31, 2012 there is $5.5 million borrowed on the revolving line of credit,
none of which is current.
The Wells Fargo Credit Agreement requires
ongoing compliance with certain affirmative and negative covenants. The
affirmative covenants include, but are not limited to: (i) maintenance of
existence and conduct of business; (ii) compliance with laws; (iii) use of
proceeds; and (iv) books and records and inspection. The negative covenants set
forth in the Wells Fargo Credit Agreement include, but are not limited to,
restrictions on the ability of the Company (and the Companys subsidiaries): (i)
with certain limited exceptions, to create, incur, assume or allow to exist
indebtedness; (ii) with certain limited exceptions, to create, incur, assume or
allow to exist liens on properties; (iii) with certain limited exceptions, to
make certain payments, transfers of property, or investments; or (iv) with
certain limited exceptions, to make acquisitions.
The Company is obligated to maintain
certain minimum consolidated adjusted EBITDA levels as calculated in accordance
with the terms and definitions determining such amounts as contained in the
Wells Fargo Credit Agreement. The Wells Fargo Credit Agreement also contains
various information and financial reporting requirements. The Company is in
compliance with all such covenants and requirements at January 31,
2012.
24
The Wells Fargo Credit Agreement also
contains customary events of default, including without limitation events of
default based on payment obligations, repudiation of guaranty obligations,
material inaccuracies of representations and warranties, covenant defaults,
insolvency proceedings, monetary judgments in excess of certain amounts, change
in control, certain ERISA events, and defaults under certain other obligations.
In March 2012, the Company amended the
Wells Fargo Credit Agreement. As part of the amendment, the minimum LIBOR used
in the interest rate for Term Note A and the revolving line of credit was
increased to 1.50%. Additionally, modifications were made to certain financial
covenants.
In June 2011, the Company issued through a
private placement 1,666,667 shares of preferred stock to a group of
institutional investors at a price of $2.40 per share for a total of $4.0
million. The preferred stock will automatically convert on a 1-for-1 basis into
shares of common stock of the Company upon the earlier of the second anniversary
of the financing, June 30, 2013, or the date on which the Companys common stock
has an average closing price above $4.00 per share during the preceding 30
trading days. The preferred stock includes an annual dividend of 10% payable in
cash or stock at the Companys option. As of January 31, 2012, the Company had
accrued $236,000 of dividends payable on preferred stock. The preferred stock
has no other provisions or preferences.
Except for the Wells Fargo Credit
Agreement, as of January 31, 2012 the Company had no other notes payable
outstanding.
As of January 31, 2012, the Company has
$747,000 in capital leases payable, $394,000 of which is current.
Operating Cash Flows.
For the first nine months of fiscal year 2012 cash provided
by operations was $5.9 million. Cash flows provided by operations for the first
nine months of fiscal 2012 principally resulted from a decrease in accounts
receivable of $4.7 million, amortization of intangible assets of $1.6 million,
depreciation of $0.8 million, loss on extinguishment of debt of $2.2 million,
interest added to long term debt principal of $0.1 million, and stock based
compensation expense of $0.7 million. Offsetting these amounts was a net loss of
$0.9 million, an increase in prepaid expenses and other current assets of $0.2
million, a decrease in accounts payable of $1.0 million, a decrease in accrued
compensation and related expenses of $0.7 million, a decrease in other accrued
liabilities of $0.8 million, a decrease in other long term liabilities of $0.1
million, and a gain from change in fair value of common stock warrant liability
of $0.6 million.
For the first nine months of fiscal year
2011 cash used by operations was $1.2 million. Cash flows used in operations for
the first nine months of fiscal 2011 principally resulted from a net loss of
$0.8 million, an increase in accounts receivable of $3.5 million, a decrease in
deferred revenue of $1.4 million, change in fair value of contingent
consideration of $0.2 million, and a gain from change in fair value of common
stock warrant liability of $0.4 million. Offsetting these amounts was a decrease
in prepaid expenses and other current assets of $0.2 million, a decrease in
other long term assets of $0.2 million, an increase in accrued compensation and
related expenses of $0.1 million, an increase in other accrued liabilities of
$0.2 million, amortization of intangible assets of $2.7 million, depreciation of
$0.6 million, amortization of discount on notes payable of $0.2 million,
interest added to long term debt principal of $0.3 million, and stock based
compensation expense of $0.7 million. During the third quarter of fiscal year
2012, the Company revised the statements of cash flows for the nine months ended
January 31, 2011. See a further a description of the reclassifications in Note 1
to the financial statements.
Investing Cash Flows
. Cash flows used in investing activities was $0.9 million for
the first nine months of fiscal 2012 and was primarily the result of cash used
for the purchase of property and equipment. Net cash used in investing
activities for the first nine months of fiscal 2011 was $22.0 million and was
primarily the result of cash used in the acquisition of Daegis.
Financing Cash Flows.
Net cash used in financing activities for the first nine
months of fiscal 2012 was $2.9 million. Cash used in financing activities was
the result of $24.4 million of principal payments on debt obligations, $0.3
million of principal payments on capital leases, $4.0 million of payments on the
revolving line of credit, $0.6 million of payment of loan costs, and $0.4
million of prepayment penalty on extinguishment of debt. Offsetting this amount
was borrowings on the term loan of $16.0 million, borrowings on the revolving
line of credit of $6.5 million, proceeds from the issuance of common stock of
$0.2 million, and proceeds from the issuance of preferred stock of $4.0 million.
Net cash from financing activities for the first nine months of fiscal 2011 was
$24.4 million. Cash from financing activities was the result of borrowings on
the term loan and revolving line of credit of $24 million and $4.5 million,
respectively. Offsetting this amount was $1.0 of principal payments on debt
obligations, $0.3 million on principal payments on capital leases, and $1.9
million of payments on the revolving line of credit, and $1.0 million of payment
of loan costs.
25
A summary of certain contractual
obligations as January 31, 2012 is as follows (in thousands):
|
|
Payments Due by Period
|
|
|
|
|
|
1
year
|
|
2-3
|
|
4-5
|
|
After
5
|
Contractual Obligations
|
|
Total
|
|
or less
|
|
years
|
|
years
|
|
years
|
Notes payable
|
|
$
|
21,200
|
|
$
|
1,200
|
|
$
|
2,400
|
|
|
17,600
|
|
|
|
Estimated interest expense
|
|
|
4,780
|
|
|
1,494
|
|
|
2,739
|
|
|
547
|
|
|
|
Other
liabilities
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
Capital leases
|
|
|
747
|
|
|
394
|
|
|
289
|
|
|
64
|
|
|
|
Operating leases
|
|
|
3,840
|
|
|
1,288
|
|
|
1,720
|
|
|
832
|
|
|
|
Total contractual cash obligations
|
|
$
|
30,647
|
|
$
|
4,376
|
|
$
|
7,148
|
|
$
|
19,043
|
|
$
|
80
|
Other liabilities primarily include
mandatory employee severance costs associated with a French statutory government
regulated plan covering all France employees.
26
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
Interest Rate Risk
. The Companys exposure to market rate risk for changes in
interest rates relates primarily to its investment portfolio, which consists of
cash equivalents, and its long term debt, which contains notes with variable
interest rates. Cash equivalents are highly liquid investments with original
maturities of three months or less and are stated at cost. Cash equivalents are
generally maintained in money market accounts which have as their objective
preservation of principal. The Company does not believe its exposure to interest
rate risk is material for cash and cash equivalents, which totaled $6.5 million
as of January 31, 2012. The Company had no short-term investments at January 31,
2012.
In June 2011, the Company entered into the
Wells Fargo Credit Agreement. The Wells Fargo Credit Agreement consists of a
$12.0 million Term Note A, a $4.0 million Term Note B, and a revolving credit
note agreement whereby Wells Fargo would provide up to $8.0 million. The Term
Note A, Term Note B, and revolving line of credit have interest rate of LIBOR
plus 5.00%, 10.00% and 5.00%, respectively. The minimum LIBOR used in the
interest rate is 1.25%. LIBOR at January 31, 2012 is approximately 1.1%.
Should the LIBOR interest rate increase above 1.25% during the life of the term
loans and of the revolver, the Company would have exposure to interest rate
risk. As of January 31, 2012, there was $15.7 million outstanding on the term
notes and $5.5 million outstanding on the revolver.
The Company does not use derivative
financial instruments in its short-term investment portfolio, and places its
investments with high quality issuers only and, by policy, limits the amount of
credit exposure to any one issuer. The Company is averse to principal loss and
attempts to ensure the safety of its invested funds by limiting default, market
and reinvestment risk.
Foreign Currency Exchange Rate
Risk
. As a global concern, the Company faces
exposure to adverse movements in foreign currency exchange rates. These
exposures may change over time as business practices evolve and could have an
adverse impact on the Companys business, operating results and financial
position. Historically, the Companys primary exposures have related to local
currency denominated sales and expenses in Europe, Japan and Australia. For
example, when the U.S. dollar strengthens against the major European currencies,
it results in lower revenues and expenses recorded for those regions when
translated into U.S. dollars.
Due to the substantial volatility of
currency exchange rates, among other factors, the Company cannot predict the
effect of exchange rate fluctuations on its future operating results. Although
the Company takes into account changes in exchange rates over time in its
pricing strategy, it does so only on an annual basis, resulting in substantial
pricing exposure as a result of foreign exchange volatility during the period
between annual pricing reviews. The Company also has currency exchange rate
exposures on cash and accounts receivable balances related to activities with
the Companys operations in France, Germany, UK, Australia and Canada. At
January 31, 2012 the Company had cash held in foreign currencies of $1,757,000
in Euros, $32,000 in Canadian dollars, $371,000 in pounds sterling, and $364,000
in Australian dollars. At January 31, 2012 the Company had accounts receivable
in foreign currencies of $1,777,000 in Euros, $434,000 in pounds sterling,
$298,000 in Australian dollars, $42,000 in Japanese yen, $19,000 in Korean won,
and $27,000 in Polish zloty. The Company engages in no hedging activities to
reduce the risk of such fluctuations. A hypothetical ten percent change in
foreign currency rates could have a significant impact on the Companys
business, operating results and financial position. The Company has not
experienced material exchange losses in the past; however, due to the
substantial volatility of currency exchange rates, among other factors, it
cannot predict the effect of exchange rate fluctuations on its future business,
operating results and financial position.
27
Item 4. Controls and Procedures
(a)
Evaluation of Disclosure Controls and
Procedures.
Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of
January 31, 2012. The term disclosure controls and procedures is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934.
Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls were effective as of the end of
the period covered by this quarterly report. Management recognizes that any
disclosure controls and procedures no matter how well designed and operated, can
only provide reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
(b)
Changes in Internal Controls
. There
have been no changes in our internal controls over financial reporting that
occurred during the first nine months of fiscal year 2012 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
28
DAEGIS INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Litigation
The Company is subject to legal
proceedings and claims arising in the ordinary course of business. If such
matters arise, the Company cannot assure that it would prevail in such matters,
nor can it assure that any remedy could be reached on mutually agreeable terms,
if at all. Due to the inherent uncertainties of litigation, were there any such
matters, the Company would not be able to accurately predict their ultimate
outcome. As of January 31, 2012, there were no current proceedings or litigation
involving the Company that management believes would have a material adverse
impact on its financial position, results of operations, or cash flows.
Item 1A. Risk Factors
A description of the risks associated with
our business, financial condition, and results of operations is set forth in
Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended
April 30, 2011. There have been no material changes in our risks from such
description.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior
Securities
None
Item 4. Mine Safety
Disclosure
Not applicable
Item 5. Other
Information
None
29
Item 6. Exhibits
|
|
Exhibits
|
31.1
|
|
Certification of Chief
Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.2
|
|
Certification of Chief
Financial Officer under Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.1
|
|
Certification of Chief
Executive Officer under 18 U.S.C Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of Chief
Financial Officer under 18 U.S.C Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS
|
|
XBRL Instance
Document.
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension
Schema.
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension
Presentation Linkbase.
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension
Label Linkbase.
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension
Calculation Linkbase.
|
30
DAEGIS INC.
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: March 15, 2012
|
Daegis Inc.
|
|
(Registrant)
|
|
|
By:
|
|
|
/s/
STEVEN D. BONHAM
|
|
Steven D. Bonham
|
|
Chief Financial Officer
|
|
(Principal Financial and Accounting
Officer)
|
31