UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~Dec~~~~ember~~December 31, 20178

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

For the transition period from to

COMMISSION FILE NUMBER 000-29637

DETERMINE, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE	77-0432030
(State of Incorporation)	(IRS Employer Identification No.)

615 West Carmel Drive, Suite 100, Carmel, IN 46032

(Address of Principal Executive Offices)

(650) 532-1500

~~(Registrant’s~~ (Registrant’s Telephone Number, Including Area Code)

Indicate by a check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares outstanding of the ~~registrant~~’sregistrant’s common stock, par value $0.0001 per share, as of February ~~2, 2018,~~8, 2019, was ~~14,895,865.~~15,245,441.

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

The words “Determine”, “we”, “our”, “ours”, “us”, and the “Company” refer to Determine, Inc. In addition to historical information, this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled ~~“Management~~’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in Item 1A to Part 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 20178. You should carefully review the risks described in other documents the Company files from time to time with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the forward-looking statements, including statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future, which speak only as of the date of this quarterly report on Form 10-Q. The Company undertakes no obligation to release publicly any updates to the forward-looking statements included herein after the date of this document.

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

	Nine Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2017			2016			2018			2017
Operating activities
Net loss	$	(7,127	)	$	(7,707	)	$	(10,651	)	$	(7,127	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,910			2,478			3,219			2,910
Stock-based compensation expense		1,649			1,867			1,415			1,649
Interest expense paid in kind as convertible note debt		587			-
Income tax benefit		(25	)		(143	)
Interest expense paid-in-kind as convertible note debt								691			587
Non-cash income tax expense (benefit)								76			(25	)
Loss on fixed asset disposal		2			-			-			2
Unrealized currency translation gains		(43	)		-
Unrealized currency translation losses (gains)								151			(43	)
Changes in assets and liabilities:
Accounts receivable, net		(1,989	)		272			(742	)		(1,989	)
Prepaid expenses and other current assets		308			143			211			308
Other assets		691			435			92			691
Accounts payable		(199	)		462			263			(199	)
Accrued payroll and related liabilities		256			147			(8	)		256
Accrued restructuring costs		-			(403	)
Other accrued liabilities and other long-term liabilities		365			(422	)		894			365
Deferred revenue		276			(333	)		(476	)		276
Net cash used in operating activities		(2,339	)		(3,204	)		(4,865	)		(2,339	)

Investing activities
Purchase of property and equipment		(34	)		(39	)		(58	)		(34	)
Capitalized software development costs, net		(1,780	)		(1,267	)		(1,938	)		(1,780	)
Net cash used in investing activities		(1,814	)		(1,306	)		(1,996	)		(1,814	)

Financing activities
Proceeds from issuance of stock, net of issuance costs		4,909			-
Credit facility borrowing		29,415			3,000			29,183			29,415
Credit facility payment		(29,455	)		(1,139	)		(26,856	)		(29,455	)
Net employee withholding taxes paid in connection to issuance of restricted stock		(39	)		78
Proceeds from long-term promissory notes, net of issuance costs								2,979			-
Proceeds from issuance of stock, net of issuance costs								-			4,909
Issuance of stock under employee stock purchase plan		73			80			72			73
Net employee withholding taxes paid in connection with issuance of restricted stock								(9	)		(39	)
Repayment of loan		(154	)		(185	)		-			(154	)
Proceeds from exercise of stock options		6			-			-			6
Issuance of debt, net of costs		-			2,429
Net cash provided by financing activities		4,755			4,263			5,369			4,755

Effect of exchange rate changes on cash		46			216			(121	)		39

Net increase (decrease) in cash and cash equivalents		648			(31	)
Cash and cash equivalents at beginning of the period		9,429			9,418
Cash and cash equivalents at end of the period	$	10,077		$	9,387
Net (decrease) increase in cash, cash equivalents and restricted cash								(1,613	)		641
Cash, cash equivalents and restricted cash at beginning of the period								9,956			9,463
Cash, cash equivalents and restricted cash at end of the period							$	8,343		$	10,104

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents							$	8,318		$	10,077
Restricted cash								25			27
Total cash, cash equivalents and restricted cash							$	8,343		$	10,104

Supplemental disclosure of cash flow information:
Cash paid for interest	$	116		$	161		$	190		$	116
Cash paid for taxes	$	101		$	39		$	55		$	101
Issuance of warrant in connection with long-term promissory notes							$	940		$	-
Stock issued in connection with loan guarantee extension	$	169		$	-		$	-		$	169
Stock issued upon conversion of convertible note	$	973		$	-		$	-		$	973
Stock issued in connection with interest on convertible note	$	-		$	277
Stock issued in connection with interest on loan guaranty	$	-		$	524
Issuance of common stock for legal settlement	$	-		$	35
Gain from convertible note extinguishment	$	-		$	166

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

2. Summary of Significant Accounting Policies

There have been no significant changes to the Company’s accounting policies since it filed its audited consolidated financial statements in its Annual Report on Form 10-K10-K for the year ended March 31, ~~2017.~~2018, except for the changes applied due to the adoption of Accounting Standard Codification (“ASC”) 606, Revenue from Contracts with Customers. Refer to “Recent Accounting Pronouncements.”

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Additionally, certain prior period amounts have been reclassified to conform to the current year presentation on the condensed consolidated financial statements. The reclassification of the prior period amounts ~~were~~ was not material to the previously reported condensed consolidated financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates these estimates, including, but not limited to, those related to the allowance for doubtful accounts, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, ~~best estimate~~standalone selling price, the benefit period of ~~selling price~~deferred commissions and income taxes. Actual results could differ from those estimates.

Revenue Recognition

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

Revenue recognition ~~criteria~~. ~~The Company recognizes revenue when (~~1In accordance with Accounting Standards Codification (“ASC”) ~~persuasive evidence of an arrangement exists, (~~2~~) delivery has occurred or services have been rendered, (~~3~~) fees are fixed or determinable and (~~4~~) collectability is reasonably assured. If~~Topic 606, Revenue from Contracts with Customers, the Company determines ~~that any~~ ~~one~~revenue recognition through the following five-step framework: (1) identification of the ~~four~~ ~~criteria is~~ ~~not~~ ~~met,~~contract, or contracts, with a customer; (2) identification of the ~~Company will defer~~performance obligations in a contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue ~~until all~~when, or as, the ~~criteria are met.~~Company satisfies a performance obligation.

~~Multiple-Deliverable Arrangements.~~ The Company enters into arrangements with multiple-deliverables that generally include subscription, support and professional services. If a deliverable has standalone value, and delivery is probable and within the Company’s control, the Company accounts for the deliverable as a separate unit of accounting.

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

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

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

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

Non-recurring revenues. Non-recurring revenues are comprised of revenues from professional services for system implementations, enhancements and training. For professional services arrangements billed on a time-and-materials basis, services are recognized as revenue as they are ~~rendered.~~rendered, at a point in time. For fixed-fee professional service arrangements, the Company recognizes revenue under the proportional performance method of accounting, using the input method, and estimates the proportional performance utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress toward completion, revenue is recognized upon completion. The Company recognizes a loss for a fixed-fee professional service if the total estimated project costs exceed project revenues.

Reimbursements, including those related to travel and out-of-pocket expenses are included in non-recurring revenues, and an equivalent amount of reimbursable expenses are included in non-recurring cost of revenues.

Performance Obligations. The Company enters into arrangements with multiple performance obligations that generally include subscription and professional services. For these arrangements, the Company accounts for individual performance obligations separately if they are distinct. Subscription services and professional services are both distinct performance obligations that are accounted for separately. In agreements with multiple performance obligations, the transaction price is allocated to separate performance obligations on a relative standalone selling price (“SSP”) basis.

If the standalone selling price is not observable through past transactions, the Company determines the SSP based on overall pricing objectives, taking into consideration available information such as market conditions and internally approved pricing guidelines related to the performance obligations. This includes a review of historical data related to the size of arrangements, the cloud solutions being sold, customer demographics and the numbers and types of users within the arrangements. The Company uses a range of amounts to estimate SSP for performance obligations. There is typically more than one SSP for individual products and services due to the stratification of those products and services by information such as size and type of customer.

Contract Balances: The timing of revenue recognition may differ from the timing of the invoicing for contracts with customers. The Company records a receivable or contract asset when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Subscription services and certain professional services arrangements are commonly billed in advance which results in a deferred revenue balance amortized as revenue is recognized over time. However, other professional service arrangements, primarily those recognized on a time-and-materials basis, are billed in arrears following services that have been rendered. This may result in revenue recognition greater than the invoiced amounts which results in a receivable balance. Receivables represent an unconditional right to payment. Payment terms vary by contract type, however arrangements typically stipulate a requirement for the customer to pay within 60 days. As of December 31, 2018 and March 31, 2018, the balance of unbilled receivable amounts was $0.9 million and $0.8 million, respectively, and was included as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets.

At any point in the contract term, transaction price may be allocated to performance obligations that are unsatisfied or partially unsatisfied. These amounts relate to remaining performance obligations on non-cancelable contracts which include both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods. As of December 31, 2018, approximately $20.5 million of revenue is expected to be recognized from remaining performance obligations for subscription contracts, a majority of which is related to multi-year subscriptions. The Company expects to recognize approximately 21%, or $4.3 million, of these remaining performance obligations over the remainder of the current fiscal year, with the balance recognized thereafter. As of December 31, 2018, approximately $1.2 million of revenue is expected to be recognized from remaining performance obligations related to professional services contracts. The Company expects approximately 43%, or $0.5 million, of these remaining performance obligations within the current fiscal year, with the balance recognized thereafter.

Deferred Revenue. Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue and is recognized as revenue as the revenue recognition criteria are met. The Company generally invoices its customers annually for the forthcoming year of service. Accordingly, the Company's deferred revenue balance does not include revenue for future years of multiple-year, non-cancellable contracts that have not yet been billed. During the three and nine months ended December 31, 2018, the Company recognized revenue of $3.8 million that was included in the deferred revenue balance as of September 30, 2018 and $8.9 million that was included in the deferred revenue balance as of March 31, 2018, respectively.

Deferred Commissions. Commissions are earned by sales personnel upon the execution of the sales contract by the customer, and commission payments are made shortly after they are earned. Commissions earned by the Company's sales personnel are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized over the life of the contract. The Company determined the period of benefit by taking into consideration its past experience with customers, industry peers and other available information.

The current portion of deferred commissions was $0.4 million and $0.5 million at December 31, 2018 and March 31, 2018, respectively, and is recorded as a component of prepaid expenses and other current assets on the condensed consolidated balance sheets. For both the three months ended December 31, 2018 and 2017, $0.2 million, respectively, of deferred commissions were amortized to sales and marketing expense on the condensed consolidated statements of operations and comprehensive loss, respectively. For both the nine months ended December 31, 2018 and 2017, $0.6 million, respectively, of deferred commissions were amortized to sales and marketing expense on the condensed consolidated statements of operations and comprehensive loss, respectively. There was no impairment loss in relation to the costs capitalized for the periods presented.

Customer Concentrations

D~~uring~~During the three and nine months ended December 31, 2018 and 2017, ~~and~~ ~~2016,~~no customer accounted for 10% or more of the Company’s consolidated revenues or consolidated net accounts receivable, respectively.

~~Geographic Information~~Disaggregation of Revenue

International revenues are attributable to countries based on the location of the customer. For the three and nine months ended December 31, ~~2017~~ 2018 and ~~2016,~~2017, sales to international locations were derived primarily from France, the United Kingdom, Ireland, Norway, Australia, Canada, Switzerland, Italy, Germany, Bermuda, the Netherlands, United Arab Emirates, Denmark, China, Hong Kong, Bulgaria, Finland, Belgium, Singapore and ~~Belgium.~~ Portugal.

	~~Three Months Ended~~						~~Nine~~ ~~Months Ended~~
	~~December 31,~~ ~~2017~~			~~December 31,~~ ~~2016~~			~~December 31,~~ ~~2017~~			~~December 31,~~ ~~2016~~
~~International revenues~~		35	%		27	%		32	%		27	%
~~Domestic revenues~~		65	%		73	%		68	%		73	%
~~Total revenues~~		~~100~~	%		~~100~~	%		~~100~~	%		~~100~~	%

	Three Months Ended				Nine Months Ended
	December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017
	(in thousands)
International revenues
Recurring revenues	$	1,715	$	1,839	$	5,236	$	5,158
Non-recurring revenues		595		810		1,286		1,930
Total international revenues		2,310		2,649		6,522		7,088

Domestic revenues
Recurring revenues		3,176		3,713		9,950		11,239
Non-recurring revenues		456		1,105		1,244		3,016
Total domestic revenues		3,632		4,818		11,194		14,255
Total revenues	$	5,942	$	7,467	$	17,716	$	21,343

Fair Value Measurements

In December 2018, the Company entered into an amendment to its existing Junior Secured Convertible Note Purchase Agreement dated December 27, 2016 that, among other things, resulted in the issuance of warrants exercisable for up to 10,500,000 shares of the Company��s common stock, as discussed in Note 8, Credit Facility and Convertible Notes. The Company classified the warrants as a liability at the time of issuance and reevaluates such classification as of each balance sheet date.

The warrant liability is recorded at its estimated fair value using observable, quoted market prices, a Level 1 input, as defined by ASC 820, Fair Value Measurements, given the underlying financial instrument of the liability is the Company’s own publicly-traded stock.

Recent Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which allows companies to account for nonemployee awards in the same manner as employee awards. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU ~~2017~~-~~09,~~2017-09, Compensation-Stock Compensation (Topic ~~718~~)718): Scope of Modification Accounting, which clarifies what constitutes a modification of a share-based payment award. This guidance is effective for fiscal years beginning after December 15, 2017. The ~~Company does~~ ~~not~~ ~~expect the~~ adoption of ~~ASU~~ ~~2017~~-09 tothis update did not have a material impact on ~~its condensed~~the Company’s consolidated financial statements.

In January 2017, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standard Update (“ASU”)~~ ~~2017~~-~~04,~~ASU 2017-04, ~~Intangibles—~~Intangibles – Goodwill and Other (Topic ~~350~~)350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. ASU ~~2017~~-042017-04 also clarifies the requirements for excluding and allocating foreign currency translation adjustments to reporting units related to an entity’s testing of reporting units for goodwill impairment, and clarifies that an entity should consider income tax effects from any ~~tax deductible~~tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for annual reporting periods beginning after December ~~15,~~31, 2019 and interim periods within those fiscal years. The Company is currently assessing the potential impact of the adoption of ~~ASC~~ ~~2017~~-04ASU 2017-04 on its consolidated financial statements.

In January 2017, the FASB issued ASU ~~2017~~-~~01,~~2017-01, Clarifying the Definition of a Business. The new guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. This guidance iswill be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The ~~Company does~~ ~~not~~ ~~expect the~~ adoption of this update todid not have a material impact on ~~its~~the Company’s consolidated financial statements.

In ~~August~~November 2016, the FASB issued ASU ~~No.~~~~2016~~-~~15,~~2016-18, Statement of Cash Flows (Topic ~~230~~)230): Restricted Cash~~Classification of Certain Cash Receipts and Cash Payments (Topic~~ ~~230~~), which ~~addresses~~ ~~eight~~ ~~specific~~requires restricted cash ~~flow matters~~to be included with ~~the objective of reducing diversity in practice in how certain~~ cash ~~receipts~~ and cash ~~payments are classified in~~equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update is effective for ~~fiscal years beginning after~~ ~~December 15, 2017,~~ ~~including interim reporting periods within that fiscal year.~~ ~~The Company does~~ ~~not~~ ~~expect the adoption of this update to have a material impact on its consolidated financial statements.~~

In ~~March 2016,~~ ~~the FASB issued~~ ~~ASU~~ ~~2016~~-~~09,~~~~Compensation~~~~-Stock Compensation (Topic~~ ~~718~~~~): Improvements to Employee Share-Based Payment Accounting.~~ The amendments in this ASU affect all entities that issue share-based payment awards to their employees. The amendments simplify the accounting in various aspects for these types of transactions: i.e. Accounting for Income Taxes, Excess tax benefits on the Statements of Cash Flows, Forfeitures, Employee taxes and Intrinsic Value. The new guidance was effective for the Company beginning on April 1, ~~2017.~~ 2018. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In ~~May 2014,~~ October 2016, the FASB issued ASU ~~2014~~-~~09,~~2016-16, ~~Revenue from Contracts with Customers: Topic~~ ~~606~~Accounting for Income Taxes (Topic 740): Intra-Entity Asset Transfers of Assets Other than Inventory, which removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The update is effective for the Company beginning April 1, 2018. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and issued subsequent amendments to the initial guidance in July 2018 within ASU 2018-10 and ASU 2018-11 (ASU 2016-02, ASU 2018-10, ASU 2018-11 and ASU 2018-20, collectively, “Topic 842”) which establish a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. A modified retrospective transition approach is required for lessees with capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently assessing the potential impact of the adoption of Topic 842 on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, September 2017 and November 2017 within ASU ~~2015~~-~~14,~~2015-14, ASU ~~2016~~-~~08,~~2016-08, ASU ~~2016~~-~~10,~~2016-10, ASU ~~2016~~-122016-12, ASU 2017-13 and ASU ~~2017~~-~~13,~~2017-14, respectively (ASU ~~2014~~-~~09,~~2014-09, ASU ~~2015~~-~~14,~~2015-14, ASU ~~2016~~-~~08,~~2016-08, ASU ~~2016~~-~~10,~~2016-10, ASU ~~2016~~-~~12,~~2016-12, ASU ~~2017~~-132017-13 and ASU ~~2017~~-~~14,~~2017-14 collectively, “Topic 606”). Topic 606 supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a ~~five~~~~-step~~five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts. ASU No.~~2015~~-14 2015-14 deferred the effective date of the new revenue standard for periods beginning after December 15, 2016 to December 15, ~~2017,~~ ~~with early adoption permitted but~~ ~~not~~ ~~earlier than~~2017. On April 1, 2018, the ~~original effective date.~~ ~~The~~ Company ~~did~~ ~~not~~ ~~early adopt~~adopted the new standard and continues to assess the impact of the adoption on its financial position, results of operations, cash flows and related disclosures and whether the effect will be material. The Company preliminarily believes that the commissions accounting under the ~~new standard is expected to be significantly different than~~full retrospective method. The adoption of this update did not have a material impact on the Company’s current capitalization policy. The new standard will result in additional types of costs that will be capitalized and amounts will be amortized over a period longer than the Company’s current policy. The new standard also requires incremental disclosures including information about the remaining transaction price and when the Company expects to recognize revenue. The Company continues to assess the new standard along with industry trends and additional interpretive guidance and ~~may~~ ~~adjust its interpretation and implementation plan accordingly.~~consolidated financial statements.

The Company has ~~review~~edreviewed other new accounting pronouncements that were issued as of December 31, ~~2017~~ 2018 and does not believe that these pronouncements are applicable to the Company, or that they will have a material impact on its financial position or results of operations.

Acquired developed technology and customer relationships are being amortized on a straight-line basis and have weighted-average remaining useful lives of ~~2.07~~0.91 years and ~~2.29~~1.32 years, respectively, as of December 31, ~~2017.~~ 2018. Amortization expense of intangible assets was ~~$0.5~~$0.5 million for both the three months ended December 31, ~~2017~~ 2018 and ~~2016,~~2017, respectively, and ~~$1.6~~$1.6 million for both the nine months ended December 31, 2018 and 2017, ~~and~~ ~~2016,~~respectively.

Depreciation expense was approximately ~~$0.01~~$0.01 million during both the three months ended December 31, 2018 and 2017, respectively, and $0.04 million and ~~$0.03~~$0.03 million during the ~~three~~nine months ended December 31, 2018 and 2017, ~~and~~ ~~2016,~~ ~~respectively, and~~ ~~$0.03~~ ~~million and~~ ~~$0.08~~ ~~million during the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~respectively.

6. ~~Stockholders’~~ ~~Equity~~

~~Equity Incentive Program~~

~~The Company~~’s equity incentive program is a broad-based, retention program comprised of stock options, restricted stock units and an employee stock purchase plan (“ESPP”) designed to align stockholder and employee interests. For a description of the Company’s equity plans, see the notes to consolidated financial statements contained in the Company’s Annual Report on Form 10~~-K for the year ended~~ ~~March 31, 2017.~~

~~Valuation Assumptions~~

~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively, the~~ ~~Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:~~

Period Ended

December 31, 2017

Three Months

Nine Months

Risk-free interest rate
2.16
%
2.01
%
Dividend yield
0
%
0
%
Expected volatility
56.00
%
55.00
%
Expected term in years
6.08 6.08
Weighted average fair value at grant date
$ 0.98 $ 1.47

Period Ended

December 31, 2016

Three Months

Nine Months

Risk-free interest rate
1.86
%
1.28
%
Dividend yield
0
%
0
%
Expected volatility
58.10
%
52.75
%
Expected term in years
6.08 6.08
Weighted average fair value at grant date
$ 1.11 $ 0.91

~~The following tables summarize activity under the equity incentive plans for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017:~~

Options Outstanding

Restricted Stock Units
Outstanding

Number of
shares
(in thousands)

Weighted
average
exercise price

Number of
shares
(in thousands)

Weighted
average fair
value

Outstanding at October 1, 2017
4,450 $ 3.01 89 $ 3.96
Granted
47 $ 1.81 224 $ 1.81
Exercised/Released
(4 ) $ - (11
)
$ 5.66
Cancelled
(207
)
$ 4.81 (1
)
$ 5.80
Outstanding at December 31, 2017
4,286 $ 2.91 301 $ 2.30

Vested and expected to vest
4,108 $ 2.94

	~~Shares Available for Grant~~
	~~(in thousands)~~
~~Balance at~~ ~~October 1, 2017~~		~~503~~
~~Options:~~
~~Granted~~		~~(47~~	)
~~Cancelled~~		77
~~Restricted Stock Units:~~
~~Granted~~		~~(224~~	)
~~Cancelled~~		1
~~Balance at~~ ~~December 31, 2017~~		~~310~~

~~The weighted average remaining contractual term for exercisable options is~~ 7.61 ~~years. The intrinsic value is calculated as the difference between the market value as of~~ ~~December 31, 2017~~ ~~and the exercise price of the shares. The market value of the Company’s common stock as of~~ ~~December 31, 2017~~ ~~was~~ ~~$1.80~~ ~~as reported by the NASDAQ Capital Market. The aggregate intrinsic value of stock options outstanding at~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$0.4~~ ~~million and~~ ~~$0.7~~ ~~million, respectively. The aggregate intrinsic value of restricted stock units outstanding at~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$0.5~~ ~~million and~~ ~~$0.3~~ ~~million, respectively.~~

~~The options outstanding and exercisable at~~ ~~December 31, 2017~~ ~~were in the following exercise price ranges:~~

Options Outstanding

Options Vested

Range of Exercise Prices
per share

Number of
Shares
(in thousands)

Weighted-
Average
Remaining
Contractual
Life
(in years)

Number of
Shares (in
thousands)

Weighted-
Average
Exercise
Price per
Share

$1.35 — $1.35 92 8.39 38 $ 1.35
$1.64 — $1.64 1,925 8.15 873 $ 1.64
$1.75 — $2.00 560 8.75 192 $ 1.86
$2.59 — $3.99 448 8.26 206 $ 3.44
$4.32 — $4.32 627 7.58 378 $ 4.32
$5.18 — $6.30 369 6.73 287 $ 5.95
$6.61 — $6.61 205 6.20 176 $ 6.61
$6.83 — $6.83 50 6.14 50 $ 6.83
$7.20 — $7.20 5 1.16 5 $ 7.20
$11.40 — $11.40 5 0.64 5 $ 11.40
$1.35 — $11.40 4,286 7.91 2,110 $ 3.39

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

Three Months Ended

Nine Months Ended

December 31,
2017

December 31,
2016

December 31,
2017

December 31,
2016

Cost of revenues
$ 23 $ 111 $ 144 $ 236
Research and development
61 66 225 181
Sales and marketing
78 160 309 512
General and administrative
281 293 971 938
Impact on net loss
$ 443 $ 630 $ 1,649 $ 1,867

~~As of~~ ~~December 31, 2017,~~ ~~the unrecorded stock-based compensation balance related to stock options and restricted stock units outstanding excluding estimated forfeitures was~~ ~~$2.5~~ ~~million and~~ ~~$0.6~~ ~~million, respectively, and will be recognized over an estimated weighted average amortization period of~~ ~~2.13~~ ~~years for stock options and~~ ~~1.62~~ ~~years for restricted stock units. The amortization period is based on the expected remaining vesting term of the options and restricted stock units.~~

~~1999~~ ~~Employee Stock Purchase Plan (“ESPP”)~~

~~The price paid for the Company’s common stock purchased under the ESPP is equal to~~ ~~85%~~ of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for both the ~~three~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~was~~ ~~$0.02~~ ~~million, respectively, and~~ ~~$0.06~~ ~~million and~~ ~~$0.07~~ ~~million for the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~respectively. During the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016,~~ ~~there were~~ ~~41,205~~ ~~and~~ ~~46,604~~ ~~shares issued under the ESPP, respectively.~~

~~Registered Direct Offering~~

On ~~June 26, 2017,~~ ~~the Company, pursuant to a securities purchase agreement with certain investors, sold~~ ~~2,184,000~~ ~~shares of the Company’s common stock at a price of~~ ~~$2.50~~ ~~per share for aggregate proceeds of~~ ~~$4.9~~ ~~million, net of~~ ~~$0.3~~ ~~million placement agency fees and~~ ~~$0.2~~ ~~million other offering expenses.~~

108. Credit Facility and Convertible Notes

The Company maintains financing facilities and convertible note purchase agreements. For a description of the Company’s debt financing, see the notes to consolidated financial statements contained in the Company’s Annual Report on Form 10-K10-K for the year ended March 31, ~~2017~~ 2018 and the summaries set forth below.

Amendments to Convertible Notes and Issuances of Promissory Notes

On November 16, 2018, the Company entered into Amendment No. 1 (the “November Amendment”) to its existing Junior Secured Note Purchase Agreement dated as of December 27, 2016 (the “2016 Notes”) with MILFAM II L.P. (“MILFAM”) and Alimco Financial Corporation, a Delaware corporation formerly known as Alliance Semiconductor Corporation (“Alimco”, and, together with MILFAM, the “Investors”), each an affiliate of the estate of Lloyd I. Miller, II (“Miller”), the Company’s largest stockholder, pursuant to which the Investors issued promissory notes (the “November Notes”) to the Company in the aggregate principal amount of $3.0 million. The November Notes are due on December 27, 2021 or upon any transaction resulting in a change of control of the Company and accrue interest at an annual rate of 10% on the aggregate outstanding principal amount, payable quarterly, beginning on December 31, 2018. The Company has the option to pay any amounts of interest due under the November Notes by compounding and adding such interest amount to the unpaid principal amount of the November Notes, based on an interest rate calculated at 12% per year, provided that the Company is not then in default under any of its debt financing agreements. Pursuant to the terms of the November Amendment, the Company has agreed to pay to the Investors, conditioned on the amount of outstanding advances made by them, an amendment fee of up to $0.5 million payable upon the maturity date of the of the November Notes, as well as a supplemental fee based on certain contingencies. At December 31, 2018, the Company has drawn $0.5 million from the November Notes and has accrued $0.3 million of the amendment fee in other long-term liabilities on the condensed consolidated balance sheets.

On December 21, 2018, the Company entered into Amendment No. 2 (the “December Amendment”) to the 2016 Notes, pursuant to which the Investors issued promissory notes (the “December Notes”) to the Company in the aggregate outstanding principal amount of $2.5 million. The December Notes have the same maturity date and interest options as the November Notes discussed above. Pursuant to the December Amendment, no further amounts will be drawn and no further fees will be accrued under the November Amendment. In connection with the December Amendment, the Company issued warrants exercisable for up to 10,500,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the “Warrants”) to the Investors. At December 31, 2018, the Company had drawn the full amount of $2.5 million from the December Notes.

As a result of the November and December Amendment, the Company recorded a loss on extinguishment of approximately $0.3 million, which consisted of deferred financing costs associated with the 2016 Notes, as well as the November and December Amendments. As the extinguishment was with a related party, the transaction was deemed to be a capital transaction and the gain is recorded in the Company’s stockholders’ equity as of December 31, 2018.

Amendments of Business Financing Agreement

On June ~~1, 2017,~~ 14, 2018, the Company and its wholly owned subsidiary, Determine Sourcing, Inc., entered into Amendment Number ~~Ten~~Eleven to the Amended and Restated Business Financing Agreement (the “Amendment”) with Western Alliance Bank, an Arizona corporation, as successor in interest to Bridge Bank, National Association (“Western Alliance”). The Amendment extended the maturity date of the underlying credit facility to ~~April 20,~~July 31, 2019, revised the definition of “Prime Rate” to be 4.75% and ~~increased~~revised certain of the ~~interest rate to the prime rate or~~ ~~4.00%,~~ ~~whichever is greater, plus~~ ~~0.25%.~~financial and compliance reporting obligations.

On August 7, 2018, the Company and its wholly owned subsidiary, Determine Sourcing Inc. entered into Amendment Number Twelve to the Amended and Restated Business Financing Agreement (the “August Amendment”) with Western Alliance . The August Amendment, among other things, increased the Company’s available credit under the existing facility with Western Alliance (the “Credit Facility”) by $2 million (the “Additional Limit”), up to a total available credit amount of $15 million. In connection with the August Amendment, the Company agreed to pay Western Alliance cash fees of $40,000 plus a one-time facility fee equal to 0.75% of the Additional Limit on the date of the August Amendment, and the Additional Limit amount was added to the calculation of the annual facility fee payable under the Credit Facility. Additionally, the definitions of “Finance Charge Percentage” and “Prime Rate” were revised to increase the respective base percentage rates to 5.00%.

Amendment of Limited ~~Guarantie~~Guarantys

In connection with the Amendment, on June ~~1, 2017,~~ ~~Lloyd I. Miller III (as succeeded by the estate of Lloyd I. Miller III after his death “Miller”) and its affiliates~~14, 2018, MILFAM ~~II, L.P. (“MILFAM”) and Alimco Financial Corporation, a Delaware corporation formerly known as Alliance Semiconductor Corporation (“ALMC”) each~~ entered into a ~~further~~Third Amended and Restated Limited Guaranty ~~(collectively, the~~(the “Amended ~~Guaranties”~~Guaranty”) with Western Alliance. The Amended ~~Guaranties extend~~Guaranty (i) extends the term of ~~the Amended and Restated Limited Guaranties entered into by Miller and MILFAM with Western Alliance on~~ ~~April 22, 2016,~~ ~~and~~ the Second Amended and Restated Limited Guaranty entered into by ~~ALMC~~MILFAM with Western Alliance on ~~January 23,~~June 1, 2017 to ~~April 30, 2019.~~ August 10, 2019, and (ii) terminates the Second Amended and Restated Limited Guaranty entered into by the estate of Mr. Miller with Western Alliance on June 1, 2017. The Amended ~~Guaranties~~Guaranty also ~~provide~~provides that if the maturity date of the ~~credit facility with Western Alliance~~Credit Facility is subsequently amended, the ~~terms~~term of the Amended ~~Guaranties~~Guaranty would automatically extend to a date ten (10) (10) days following the extended maturity date under ~~such credit facility,~~the Credit Facility, but no later than July 30, ~~2020~~.2020.

~~Amendment to~~In connection with the Amended Guaranty, ~~Fee Agreement~~s

On on June ~~1, 2017,~~ 14, 2018, the Company ~~Miller, MILFAM and ALMC (the “Guarantors”)~~ entered into a Guaranty Fee Agreement (the “Fee Agreement”), with MILFAM, pursuant to which the Company agreed to pay ~~the Guarantors an extension~~MILFAM a commitment fee of ~~an aggregate~~$108,000 and a monthly fee that shall accrue each calendar month during the term of ~~50,000~~ ~~shares~~the Amended Guaranty equal to ten percent of the commitment fee divided by twelve. The commitment fee and the accrued monthly fee shall be payable in cash by the Company upon the termination or expiration of the Amended Guaranty.

In order to satisfy certain conditions for Western Alliance Bank to lend additional funds under the Credit Facility and enter into the August Amendment, on August 7, 2018, MILFAM entered into a Fourth Amended and Restated Limited Guaranty (the “Fourth Amended Guaranty”) with Western Alliance. The Fourth Amended Guaranty increases the amount of the limited, non-revocable guaranty of the Company’s ~~common stock on a pro rata basis~~Credit Facility provided by MILFAM by $2 million, from $2 million to each of the respective Guarantors. Additionally, if the maturity date under the credit facility with Western Alliance is subsequently amended such that the terms of the Amended Guaranties are further extended as described above, the Company would pay the Guarantors an additional extension fee of an aggregate of ~~62,500~~ ~~shares of the Company’s common stock on a pro rata basis to each of the respective Guarantors.~~$4 million.

~~Note Conversion~~Amendment to Guaranty Fee Agreement

On Additionally, in connection with the Amended Guaranty, on June ~~21, 2017,~~ ~~Miller~~14, 2018, the Company entered into an Amendment to Guaranty Fee Agreement (the “Fee Agreement Amendment”) with MILFAM, Mr. Miller’s estate and ~~two~~Alimco Financial Corporation, an affiliate of ~~its affiliates (the “~~ ~~March 2015~~ ~~Investors”) elected to convert approximately~~ ~~$1.0~~ ~~million of outstanding interest and principal payable under~~Mr. Miller’s estate (collectively, the ~~junior secured convertible promissory notes~~“Guarantors”). The Fee Agreement Amendment, among other things, amends the Guaranty Fee Agreement, dated as of ~~March 11, 2015,~~ ~~as amended~~June 1, 2017 (the ~~“March 2015~~ ~~Notes”~~“June 2017 Fee Agreement”), ~~into an aggregate~~among the Company and the Guarantors, to eliminate the payment of ~~170,733~~certain shares of ~~the Company’s~~Company common stock atin connection with any extension of the ~~conversion price~~guarantees provided by the Guarantors under the June 2017 Fee Agreement and replace such payment with a cash commitment fee of ~~$5.70~~ ~~per share. To induce~~$0.2 million plus a monthly fee equal to ten percent of such commitment fee divided by twelve.

Guaranty Fee Agreement

In connection with the ~~March 2015~~ ~~Investors to convert the~~ ~~March 2015~~ ~~Notes,~~Fourth Amended Guaranty, on August 7, 2018, the Company entered into a ~~subscription and investment representation agreement~~Guaranty Fee Agreement with ~~the~~ ~~March 2015~~ ~~Investors~~MILFAM, pursuant to which the Company ~~issued an additional~~ ~~218,540~~ ~~shares~~agreed to pay MILFAM a commitment fee of ~~common stock to~~$0.1 million and a monthly fee that shall accrue each calendar month during the ~~March 2015~~ ~~Investors. The shares converted and shares issued to induce the conversion together resulted in an acquisition of shares at a price approximately equivalent to the price to the investors~~term of the ~~shares sold~~Fourth Amended Guaranty equal to ten percent of the commitment fee divided by twelve. The commitment fee and the accrued monthly fee shall be payable in cash by the ~~Registered Direct Offering discussed in Note~~ 6,~~Stockholders’ Equity~~~~, above. As~~Company upon the termination or expiration of ~~December 31, 2017,~~ the ~~March 2015~~ ~~Notes had an outstanding principal balance of~~ ~~$2.4~~ ~~million.~~Fourth Amended Guaranty.

As of December 31, ~~2017~~ 2018 and March 31, ~~2017,~~ 2018, the Company owed ~~$11.8~~$14.5 million and ~~$11.9~~$12.1 million, respectively, under the Credit Facility, and ~~$1.2~~$0.5 million and ~~$1.1~~$0.9 million was available for future borrowings, respectively. The Company’s Credit Facility with Western Alliance contains certain financial covenants that require, among other things, the maintenance of an asset coverage ratio of not less than 2:00 to 1:00 at the end of each month. During the ~~three~~ ~~and~~ nine months ended December 31, ~~2017,~~ 2018, the Company met all the requirements and was in ~~compliance.~~compliance with the financial covenants.

10. Stockholders’ Equity (Deficit)

Equity Incentive Program

The Company’s equity incentive program is a broad-based, retention program comprised of stock options, restricted stock units and an employee stock purchase plan (“ESPP”) designed to align stockholder and employee interests. For a description of the Company’s equity plans, see the notes to consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018.

Valuation Assumptions

There were no stock options granted during the three months ended December 31, 2018. During the three months ended December 31, 2017, the Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:

Three Months Ended

December 31,
2017

Risk-free interest rate
2.16
%
Dividend yield
0
%
Expected volatility
56.00
%
Expected term in years
6.08
Weighted average fair value at grant date
$ 0.98

During the nine months ended December 31, 2018 and 2017, the Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions:

Nine Months Ended

December 31,
2018

December 31,
2017

Risk-free interest rate
2.75
%
2.01
%
Dividend yield
0
%
0
%
Expected volatility
61.35
%
55.00
%
Expected term in years
5.50 6.08
Weighted average fair value at grant date
$ 0.57 $ 1.47

The following tables summarize activity under the equity incentive plans for the three months ended December 31, 2018:

Options Outstanding

Restricted Stock Units
Outstanding

Number of
shares
(in thousands)

Weighted
average
exercise price

Number of
shares
(in thousands)

Weighted
average fair
value

Outstanding at October 1, 2018
4,407 $ 2.64 315 $ 1.87
Exercised/Released
- $ - (192
)
$ 1.88
Cancelled
(306
)
$ 2.25 - $ -
Outstanding at December 31, 2018
4,101 $ 2.61 123 $ 1.85

Vested and expected to vest
4,024 $ 2.62

	Shares Available for Grant
	(in thousands)
Balance at October 1, 2018		232
Options:
Cancelled		255
Shares added to the plans		50
Balance at December 31, 2018		537

The weighted average remaining contractual term for exercisable options is 6.84 years. The intrinsic value is calculated as the difference between the market value as of December 31, 2018 and the exercise price of the shares. The market value of the Company’s common stock as of December 31, 2018 was $0.23 as reported by the OTC Bulletin Board. The aggregate intrinsic value of stock options outstanding at December 31, 2018 and 2017 was zero and $0.4 million, respectively. The aggregate intrinsic value of restricted stock units outstanding at December 31, 2018 and 2017 was $0.03 million and $0.5 million, respectively.

The options outstanding and exercisable at December 31, 2018 were in the following exercise price ranges:

Options Outstanding

Options Vested

Range of Exercise Prices
per share

Number of Shares
(in thousands)

Weighted-
Average
Remaining
Contractual Life
(in years)

Number of
Shares (in
thousands)

Weighted-Average
Exercise Price per
Share

$0.78 — $1.53 324 8.37 114 $ 1.28
$1.64 — $1.64 1,892 7.09 1,330 $ 1.64
$1.75 — $1.81 484 8.16 252 $ 1.79
$2.00 — $3.99 374 7.04 275 $ 3.27
$4.32 — $4.32 627 6.58 535 $ 4.32
$5.18 — $5.99 123 4.59 124 $ 5.68
$6.14 — $6.14 213 6.45 187 $ 6.14
$6.30 — $6.30 23 4.87 23 $ 6.30
$6.61 — $6.61 36 2.56 36 $ 6.61
$7.20 — $7.20 5 0.16 5 $ 7.20
$0.78 — $7.20 4,101 7.10 2,881 $ 2.87

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

Three Months Ended

Nine Months Ended

December 31,
2018

December 31,
2017

December 31,
2018

December 31,
2017

Cost of revenues
$ 15 $ 23 $ 73 $ 144
Research and development
58 61 193 225
Sales and marketing
58 78 244 309
General and administrative
284 281 905 971
Impact on net loss
$ 415 $ 443 $ 1,415 $ 1,649

As of December 31, 2018, the unrecorded stock-based compensation balance related to stock options and restricted stock units outstanding excluding estimated forfeitures was $1.4 million and $0.2 million, respectively, and will be recognized over an estimated weighted average amortization period of 1.53 years for stock options and 1.28 years for restricted stock units. The amortization period is based on the expected remaining vesting term of the options and restricted stock units.

1999 Employee Stock Purchase Plan (“ESPP”)

The price paid for the Company’s common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for the three months ended December 31, 2018 and 2017 was $0.01 million and $0.02 million, respectively. The compensation expense in connection with the ESPP for the nine months ended December 31, 2018 and 2017 was $0.02 million and $0.06 million, respectively. During the nine months ended December 31, 2018 and 2017, there were 65,350 and 41,205 shares issued, respectively, under the ESPP.

Registered Direct Offering

On June 26, 2017, the Company, pursuant to a securities purchase agreement with certain investors, sold 2,184,000 shares of the Company’s common stock at a price of $2.50 per share for aggregate proceeds of $4.9 million, net of $0.3 million placement agency fees and $0.2 million other offering expenses.

The c~~omponents~~components of the ~~benefit from~~provision for income taxes are as follows (in thousands):

TheThe Company accounts for its income taxes in accordance with ASC 740, Income Taxes. ASC 740 clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold, measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. Under ASC 740, the Company is required to recognize in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company policy is to record interest and penalties related to unrecognized tax benefits in income tax expense.

At December 31, ~~2017,~~ 2018, there was no material increase in the liability for unrecognized tax benefits nor any accrued interest and penalties related to uncertain tax positions.

In addition, at December 31, ~~2017,~~ 2018, the Company had approximately ~~$1.4~~$1.5 million of unrecognized tax benefits which were netted against deferred tax assets with a full valuation allowance. If these amounts are recognized, there will be no effect on the Company’s effective tax rate due to the full valuation allowance.

ASC 740 ~~also requires~~ provides for the ~~allocation~~recognition of ~~tax benefits recorded in other components of the financial statements to be recorded in continuing operations in interim periods. During the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017,~~ ~~the Company recorded a~~ deferred tax ~~liability~~assets if realization of such assets is more likely than not. Based on the weight of available evidence, which includes the Company's historical operation performance and the reported cumulative net losses in ~~Other Comprehensive Income related to currency translation gains. Because~~all prior years, the Company has ~~a loss and~~provided a full valuation allowance ~~in the United States, a~~against its U.S. federal and state net deferred tax ~~benefit of~~ ~~$0.06~~ ~~million was recorded in continuing operations in the U.S. to record the impact of the valuation allowance release related to the currency translation gain during the~~ ~~nine~~ ~~months ended~~ ~~December 31, 2017.~~assets

The ~~Company~~’sCompany’s Federal, state and foreign tax returns may be subject to examination by the tax authorities for fiscal ~~year~~years ended from 1998 to ~~2016~~2018 due to net operating losses and tax carryforwards unutilized from such years.

The Tax Cuts and Jobs Act of 2017 was enacted in December 2017, ~~lowering~~which introduced the ~~U.S. federal corporate tax rate~~Global Low Taxed Intangible Income (“GILTI”) inclusion. Due to ~~21%.~~ ~~Given~~ the ~~tax rate reduction,~~losses in the foreign subsidiaries, the Company ~~remeasured~~projects no GILTI income inclusion for its ~~U.S. federal and state deferred tax assets which resulted in decreasing the Company’s deferred tax assets by approximately~~ ~~$7.9~~ ~~million.~~fiscal year ended March 31, 2019. The Company ~~has a full valuation allowance in~~continues to evaluate its accounting policy with respect to temporary differences related to the ~~U.S. Accordingly, the Company’s valuation allowance also decreased by~~ ~~$7.9~~ ~~million, resulting in~~ no ~~net tax expense.~~GILTI inclusion.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to historical information, this quarterly report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled ~~“Management~~’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in the “Risk Factors” in Item 1A to Part 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 20178 (the “Form 10-K”). They include the following: the level of demand for Determine’s products and services; the intensity of competition; Determine’s ability to effectively manage product transitions and to continue to expand and improve internal infrastructure; and the impact of current economic conditions on our customers and our business. For a more detailed discussion of the risks relating to our business, readers should refer to Item 1A to Part 1 in the Form 10-K entitled “Risk Factors.” Readers are cautioned not to place undue reliance on the forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future, which speak only as of the date of this quarterly report. We assume no obligation to update these forward-looking statements

Determine, Inc. isis a leading global provider of SaaS Source-to-Pay and Enterprise Contract Lifecycle Management (“ECLM”) solutions. We provide cloud-based software solutions that empower users across the full source-to-pay continuum, including sourcing, supplier management, contract management and procure-to-pay applications, to deliver efficiency and data insight for their operational business processes, third-party relationships and contractual obligations.

The Determine platform is an open technology infrastructure based on smart process application models. The goal of our platform is to establish awareness of relevant data, manage business documents, embed analytical tools, create a means for collaboration, and provide advanced process management tools for fully integrating business processes through an open application program interface (“API”) infrastructure. Built on a unified and highly scalable platform, we deliver deep and innovative capabilities in strategic sourcing, supplier management, ECLM, e-procurement, invoicing and other business operation areas.

In addition to our source to pay and enterprise contract lifecycle management solutions suite, we also provide a powerful, patented configuration engine solution, which Global 1000 companies use to increase revenue by facilitating the right combination of products, services and price.

During the three months ended December 31, ~~2017,~~2018, our total revenues ~~increased~~decreased by 9%20%, or ~~$0.6~~$1.5 million, to ~~$7.5~~$5.9 million compared with total revenues of ~~$6.9~~$7.5 million during the three months ended December 31, ~~2016.~~2017. Recurring revenues, comprised of subscription license sales and services, maintenance sales from previously sold perpetual licenses, application services management and hosting revenues, ~~increased to $5.6~~decreased $0.7 million during the three months ended December 31, ~~2017,~~2018, compared to ~~$5.1 million~~ during the three months ended December 31, ~~2016.~~2017. As a percent of total revenues, recurring revenues comprised 82% and 74% of total revenues during ~~both~~ the three months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively. Non-recurring revenues, comprised of perpetual license sales and revenues from professional services for system implementations, enhancements and training, totaled ~~$1.9~~$1.1 million, or ~~26%~~18% of total revenues, representing ~~an increase~~a decrease of ~~$0.1~~$0.9 million, or 7%45%, over the three months ended December 31, ~~2016.~~2017. The ~~increase~~decrease in total revenues year over year resulted primarily from our focus on migrating customers from our legacy software platform to our cloud-based solutions. These migrations require simpler implementations, so less billable time is incurred. Additionally, the cross-sells and upsells we benefit from these migrations are of lesser dollar value than new customer subscription ~~revenue growth from new customers we entered into contract with during the current period~~contracts.

During the three months ended December 31, ~~2017,~~2018, our net loss from operations increased ~~$0.1~~$0.8 million, or 6%44%, to ~~$1.8~~$2.7 million, compared to ~~$1.7~~$1.8 million during the three months ended December 31, ~~2016.~~2017. The increase in net loss is primarily due to ~~increased operating expenses offset by increased~~decreased gross ~~margins, as we continue to grow and enhance our cloud-based solutions.~~margins. See “Results of Operations” below for further discussion on the components of our net loss.

T~~here~~There have been no material changes to any of our critical accounting policies and estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2017.~~2018.

Recurring revenues. Recurring revenues consist of subscription license sales and services, maintenance revenues from previously sold perpetual licenses and hosting revenues. Recurring revenues ~~increased $0.5~~decreased $0.7 million, or ~~10%~~12%, during the three months ended December 31, ~~2017,~~2018, in comparison to the three months ended December 31, ~~2016,~~2017, and ~~$1.1~~$1.2 million, or 7%, during the nine months ended December 31, ~~2017,~~2018, in comparison to the nine months ended December 31, ~~2016~~2017. Maintenance revenues continued to decrease in the current period. Subscription revenues decreased due to our focus on existing customer migrations to our cloud-based solutions, decreasing the number of new customer subscription ~~revenue growth, offset by decreased maintenance revenues. Subscription revenue growth continued to drive the growth in recurring revenues, due primarily to new customers we~~license contracts entered into ~~contract with~~ during the current period, ~~offset by slightly decreased maintenance revenues.~~as well as customer turnover.

S~~ubscription~~Subscription revenues ~~grew~~decreased to $4.2 million during the three months ended December 31, 2018, compared to $4.6 million during the three months ended December 31, 2017, ~~compared to $4.1~~representing a 10% decrease, and $12.9 million during the ~~three~~nine months ended December 31, ~~2016, representing a 13% increase, and~~2018, compared to $13.6 million during the nine months ended December 31, 2017, representing a 5% decrease. Maintenance revenues were $0.7 million during the three months ended December 31, 2018, compared to ~~$12.3~~$0.9 million during the three months ended December 31, 2017, representing a 21% decrease, and $2.1 million during the nine months ended December 31, ~~2016, representing a 10% increase. Maintenance revenues remained flat~~2018, compared to $2.6 million during ~~both~~ the ~~three and~~ nine months ended December 31, 2017, ~~slightly decreasing from the same periods ended December 31, 2016.~~representing a 18% decrease.

Recurring revenues continue to account for the majority of our total revenues, and we expect this trend to continue going forward as we continue to emphasize our cloud-based solutions. This will depend in part on the number of maintenance renewals and the number and size of new subscription license contracts. In addition, maintenance renewals are extremely dependent upon economic conditions, customer satisfaction and the level of need to make changes or upgrade versions of our software by our customers.

Non-recurring revenues. Non-recurring revenues are mainly comprised of revenues from professional services for system implementations, enhancements and training. Non-recurring revenues ~~increased~~decreased by ~~$0.1~~$0.9 million, or 7%45%, during the three months ended December 31, ~~2017,~~2018, compared to the three months ended December 31, ~~2016,~~2017, and ~~by $0.3~~$2.4 million, or 6%49%, during the nine months ended December 31, ~~2017,~~2018, compared to the nine months ended December 31, ~~2016.~~2017. This ~~increase~~decrease was primarily due to ~~increased~~decreased time spent on implementations, ~~and follow-on services resulting~~as our customers migrate from the legacy software platform to our ~~overall growth.~~cloud-based solutions, which require simpler implementations. We expect non-recurring revenues to continue to fluctuate in future periods as a percentage of total revenues and in absolute dollars. This will depend on the number and size of new software implementations and follow-on services to our existing customers.

Fluctuations in revenue are also due to the timing of revenue recognition, achievement of milestones, customer acceptance, changes in scope or renegotiated terms and additional services. In addition, we anticipate that as we continue to transition more of our business to our cloud-based solutions, revenue from our legacy software platforms will continue to decline.

Sales to foreign customers accounted for ~~35%~~39% and ~~27%~~35% of total revenues during the three months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively. The majority of these sales were denominated in US dollars. We do not anticipate that our exposure to foreign currency fluctuations will be significant in the foreseeable future.

Cost of recurring revenues. Cost of recurring revenues consists of costs associated with supporting our data center, a fixed allocation of our research and development costs and salaries and related expenses of our support organization. ~~During~~Cost of recurring revenues remained flat during the three months ended December 31, ~~2017, cost of recurring revenues increased $0.1 million, or 7%,~~2018, compared to the three months ended December 31, ~~2016,~~2017, and ~~$0.8~~increased $0.1 million, or ~~15%~~2%, during the nine months ended December 31, ~~2017,~~2018, compared to the nine months ended December 31, ~~2016.~~2017. These ~~increases~~changes were ~~driven by~~the result of increased data center costs and amortization of capitalized software, ~~and increased data center and~~offset by decreased maintenance costs.

Cost of non-recurring revenues. Cost of non-recurring revenues is comprised mainly of salaries and related expenses of our services organization, fees paid to resellers and certain allocated corporate expenses. During the three months ended December 31, ~~2017, these costs~~2018, cost of non-recurring revenues decreased $0.3 million, or ~~19%~~24%, compared to the three months ended December 31, ~~2016,~~2017, and, ~~$0.8 million, or 16%,~~ during the nine months ended December 31, ~~2017,~~2018, decreased $0.8 million, or 18%, compared to the nine months ended December 31, ~~2016,~~2017. These decreases were primarily due to reduced labor costs associated with delivering our cloud-based solutions.

We expect costs of recurring and non-recurring revenues to remain relatively flat as a percentage of recurring revenues in the foreseeable future.

Gross profit dollars ~~increased $0.~~8decreased $1.2 million, or ~~25%~~30%, during the three months ended December 31, ~~2017,~~2018, compared to the three months ended December 31, ~~2016,~~2017, and ~~$1.4~~$3.0 million, or ~~14%~~26%, during the nine months ended December 31, ~~2017,~~2018, compared to the nine months ended December 31, ~~2016.~~2017. As we emphasize our cloud-based solutions, and move away from our legacy software platforms, our gross profit will fluctuate due to the timing between costs associated with deploying our newer solutions and the related revenue recognition.

Gross margins represent gross profit as a percentage of revenue and were affected by the factors discussed above under “Revenues” and “Costs of Revenues.”

We expect that our overall gross margins will continue to fluctuate primarily due to the timing of revenue recognition. The impact on our gross margin will depend on the mix of services we provide, whether the services are performed by our professional services employees or ~~third-party~~third-party consultants and the overall utilization rates of our professional services organization.

Research and development expenses consist mainly of salaries and related costs of our engineering, quality assurance, technical publication efforts and certain allocated expenses. ~~During~~ Research and development expenses decreased $0.2 million, or 16%, during the three months ended December 31, 2018, compared to the three months ended December 31, 2017, and increased $0.1 million, or 3%, during the nine months ended December 31, ~~2017, research and development expenses increased $0.2 million, or 23%, and $0.3 million, or 10%,~~2018, compared to the ~~three and~~ nine months ended December 31, 2017. These ~~increases~~changes were due primarily to further development of our cloud-based solutions in line with our transition from our legacy software platforms, offset by an increase in capitalized research and development costs. We capitalized $0.6 million ~~and $0.5 million~~ of research and development costs during the three months ended December 31, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$1.8~~$1.9 million and ~~$1.3~~$1.8 million during the nine months ended December 31, 2018 and 2017, ~~and 2016,~~ respectively.

We expect research and development expenditures to ~~slightly increase~~decline moderately in the ~~foreseeable~~ future. quarters. As we continue to invest in enhancements to our existing products, by adding new features, improving functionality and incorporating feedback and suggestions from our customers, the expenditures will be offset by our ability to capitalize the related allowable costs.

Sales and marketing expenses consist primarily of salaries and related costs for our sales and marketing organization, sales commissions, expenses for travel and entertainment, sales materials, advertising and certain allocated expenses. During the three ~~and nine~~ months ended December 31, ~~2017,~~2018, sales and marketing expenses ~~increased~~decreased $0.5 million, or ~~20%~~18%, compared to the three months ended December 31, 2017, and $0.1 million, or 1%, compared to the ~~three and~~ nine months ended December 31, ~~2016, respectively,~~2017, due primarily to ~~increased~~management’s strategic plan to continue to build and increase our pipeline, while reducing the remaining sales and marketing ~~efforts, which include lead generation programs, speaking programs, creation and production of thought leadership resources, event hosting and market analyst relations.~~expenses in the current quarter.

We expect sales and marketing expenses to ~~increase~~ remain flat in the foreseeable future as we ~~increase headcount~~continue to focus on building our pipeline and ~~marketing efforts to promote our cloud-based solutions.~~decreasing overall expenses.

General and administrative expenses consist mainly of personnel and related costs for general corporate functions, including finance, accounting, legal, human resources, bad debt expense and certain allocated expenses. General and administrative expense increased ~~$0.2~~$0.3 million, or ~~13%~~14%, during the three months ended December 31, ~~2017,~~2018, compared to the three months ended December 31, ~~2016,~~2017, and ~~$0.4~~$0.6 million, or 8%11%, during the nine months ended December 31, ~~2017,~~2018, compared to the nine months ended December 31, ~~2016.~~2017. These increases were primarily due ~~primarily~~ to increased legal ~~expense related to securities work~~ and ~~tax planning and a gain~~bad debt reserve activity in the ~~settlement of an outstanding litigation during the nine months ended December 31, 2016.~~current period.

We expect general and administrative expenses to remain flat in the foreseeable future.

Other expense, net consists primarily of interest expense on the credit facility, foreign currency transaction fluctuations and other miscellaneous expenditures. During the three and nine months ended December 31, ~~2017,~~2018, other expenses ~~remained flat~~decreased $0.2 million, when compared to the three and nine months ended December 31, ~~2016, respectively.~~2017, due primarily to the unrealized gain on the fair value remeasurement of our warrant liability.

Our primary source of liquidity consisted of approximately $~~10.1~~$8.3 million in cash and cash equivalents as of December 31, ~~2017~~2018, which decreased compared to March 31, 2018 primarily due to ~~$4.9~~payments to pay down our short-term credit facility and the normal course of operations, partially offset by $3.0 million of proceeds received from ~~a direct registration offering, net of related costs,~~long-term promissory notes entered into during the current quarter.

Net cash used in operating activities for the nine months ended December 31, ~~2017.~~

2018 resulted primarily from our net loss of $10.7 million, offset by non-cash expense adjustments of $5.7 million. Net cash ~~used in~~provided by operating activities ~~for~~during the nine months ended December 31, 2017 resulted primarily from our net loss of $7.1 million, offset by non-cash expense adjustments of $5.2 million. Net cash used in operating activities was $3.2 million during the nine months ended December 31, 2016, resulting primarily from our net loss of $7.7 million, offset by non-cash expense adjustments of $4.2$5.1 million. Non-cash expense adjustments typically include items such as depreciation and amortization, stock-based compensation, interest expense paid in kind as convertible note debt and income tax benefit or expense.

Net cash used in investing activities for both the nine months ended December 31, ~~2017~~2018 and ~~2016~~2017 primarily consisted of capitalized software costs, which increased ~~$0.5~~$0.2 million during the current period, compared to the prior period.

The increase in netnet cash provided by financing activities during the nine months ended December 31, ~~2017,~~2018, compared to the nine months ended December 31, ~~2016,~~2017, was primarily due to proceeds from the issuance of long-term notes payable and decreased loan repayments in the current period, offset by $4.9 million of proceeds received from a direct registration offering, net of related costs, during the ~~nine~~three months ended ~~December 31, 2017, offset by the issuance of convertible notes and increased borrowings on our credit facility during the nine months ended December 31, 2016.~~June 30, 2017.

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

While we have made significant progress in reducing our expenditures, our current cash on hand and future cash flows provided by operating activities may not be sufficient to fund our working capital and general corporate needs and the non-discretionary capital expenditures without increasing cash flows through our operating activities, ~~raising additional funds through the sale and issuance of additional securities,~~ reducing expenditures, borrowing additional funds under our credit facility or debt arrangements, or a combination of the foregoing. There can be no guarantee that additional financing will be available to us at this time or in the future, that any available financing will be on terms favorable to the Company and its stockholders or that additional funds will be available under our credit facility.

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

Pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the period ending December 31, ~~2017.~~2018. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, ~~2017.~~2018.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act that was conducted during the quarter ended December 31, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PART I FINANCIAL INFORMATION

ITEM 1: Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, ~~2017~~2018 and March 31, ~~2017~~2018	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended December 31, ~~2017~~2018 and ~~2016~~2017	5
Condensed Consolidated Statements of Equity (Deficit) for the three and nine months ended December 31, 2018	7
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, ~~2017~~2018 and ~~2016~~2017	78
	Notes to Condensed Consolidated Financial Statements	89
ITEM 2: ~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations	1720
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk	2125
ITEM 4: Controls and Procedures	2125

PART II OTHER INFORMATION	2125

ITEM 1: Legal Proceedings	2125
ITEM 1A: Risk Factors	2125
ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds	2125
ITEM 3: Defaults Upon Senior Securities	2125
ITEM 4: Mine Safety Disclosures	2125
ITEM 5: Other Information	2125
ITEM 6: Exhibits	2226
Signatures	2327

	December 31,			March 31,			December 31,			March 31,
	2017			2017			2018			2018
ASSETS
Current assets
Cash and cash equivalents	$	10,077		$	9,429		$	8,318		$	9,928
Accounts receivable, net of allowance for doubtful accounts of $99 and $114 as of December 31, 2017 and March 31, 2017, respectively		9,031			7,042
Accounts receivable, net of allowance for doubtful accounts of $129 and $215 as of December 31, 2018 and March 31, 2018, respectively								6,574			6,605
Restricted cash		27			34			25			28
Prepaid expenses and other current assets		1,243			1,553			2,104			1,542
Total current assets		20,378			18,058			17,021			18,103

Property and equipment, net		83			85			105			90
Capitalized software development costs, net		2,907			2,341			3,375			2,994
Goodwill		15,256			14,448			14,931			15,458
Other intangibles, net		4,452			5,860			2,283			3,952
Other assets		1,100			1,599			1,325			1,467
Total assets	$	44,176		$	42,391		$	39,040		$	42,064

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Credit facility	$	11,821		$	11,861		$	14,465		$	12,128
Accounts payable		2,279			2,478			2,634			2,371
Accrued payroll and related liabilities		1,985			1,729			1,982			1,986
Other accrued liabilities		2,408			2,042			2,898			2,239
Deferred revenue		10,179			10,070			8,935			9,487
Income tax payable		77			23			53			48
COFACE loan		20			174
Total current liabilities		28,769			28,377			30,967			28,259

Long-term deferred revenue		177			10			160			84
Convertible note, net of debt discount		7,260			7,599			8,154			7,475
Long-term promissory notes								2,071			-
Other long-term liabilities		1,306			1,306			2,837			1,306
Total liabilities		37,512			37,292			44,189			37,124

Commitments and contingencies (Notes 8 and 9):
Commitments and contingencies (Notes 6 and 7)

Stockholders' equity:
Common stock, $0.0001 par value; Authorized: 35,000 shares at December 31, 2017 and March 31, 2017; Issued: 14,963 and 12,223 shares at December 31, 2017 and March 31, 2017, respectively; Outstanding: 14,818 and 12,078 shares at December 31, 2017 and March 31, 2017, respectively		7			5
Additional paid-in capital		325,105			317,367
Treasury stock at cost - 145 shares at December 31, 2017 and March 31, 2017		(472	)		(472	)
Stockholders' equity (deficit):
Common stock, $0.0001 par value; Authorized: 35,000 shares at December 31, 2018 and March 31, 2018; Issued: 15,382 and 15,050 shares at December 31, 2018 and March 31, 2018, respectively; Outstanding: 15,237 and 14,905 shares at December 31, 2018 and March 31, 2018, respectively								7			7
Additional paid-in capital								327,096			325,942
Treasury stock at cost - 145 shares at December 31, 2018 and March 31, 2018								(472	)		(472	)
Accumulated deficit		(318,872	)		(311,749	)		(332,348	)		(321,697	)
Accumulated other comprehensive income (loss)		896			(52	)
Total stockholders’ equity		6,664			5,099
Total liabilities and stockholders’ equity	$	44,176		$	42,391
Accumulated other comprehensive income								568			1,160
Total stockholders’ equity (deficit)								(5,149	)		4,940
Total liabilities and stockholders’ equity (deficit)							$	39,040		$	42,064

	Three Months Ended						Nine Months Ended
	December 31, 2017			December 31, 2016			December 31, 2017			December 31, 2016			Three Months Ended						Nine Months Ended
													December 31, 2018			December 31, 2017			December 31, 2018			December 31, 2017

Revenues:
Recurring revenues	$	5,552		$	5,054		$	16,397		$	15,267		$	4,891		$	5,552		$	15,186		$	16,397
Non-recurring revenues		1,915			1,798			4,946			4,661			1,051			1,915			2,530			4,946
Total revenues		7,467			6,852			21,343			19,928			5,942			7,467			17,716			21,343

Cost of revenues:
Cost of recurring revenues		1,903			1,777			5,863			5,085			1,938			1,903			5,973			5,863
Cost of non-recurring revenues		1,404			1,734			4,203			4,978			1,074			1,404			3,427			4,203
Total cost of revenues		3,307			3,511			10,066			10,063			3,012			3,307			9,400			10,066

Gross profit (loss):
Gross profit:
Recurring gross profit		3,649			3,277			10,534			10,182			2,953			3,649			9,213			10,534
Non-recurring profit (loss)		511			64			743			(317	)
Non-recurring gross profit (loss)														(23	)		511			(897	)		743
Total gross profit		4,160			3,341			11,277			9,865			2,930			4,160			8,316			11,277

Operating expenses:
Research and development		1,289			1,049			3,363			3,052			1,087			1,289			3,458			3,363
Sales and marketing		2,733			2,273			7,923			7,843			2,232			2,733			7,814			7,923
General and administrative		1,986			1,761			5,863			5,432			2,273			1,986			6,503			5,863
Total operating expenses		6,008			5,083			17,149			16,327			5,592			6,008			17,775			17,149

Loss from operations		(1,848	)		(1,742	)		(5,872	)		(6,462	)		(2,662	)		(1,848	)		(9,459	)		(5,872	)

Other expense, net		(534	)		(462	)		(1,280	)		(1,388	)		(318	)		(534	)		(1,073	)		(1,280	)
Net loss before income tax		(2,382	)		(2,204	)		(7,152	)		(7,850	)		(2,980	)		(2,382	)		(10,532	)		(7,152	)

Benefit from income taxes		36			35			25			143
Consolidated net loss		(2,346	)		(2,169	)		(7,127	)		(7,707	)
Provision for income taxes														(19	)		36			(119	)		25
Net loss													$	(2,999	)	$	(2,346	)	$	(10,651	)	$	(7,127	)

Net loss attributable to non-controlling interest		-			(24	)		-			(36	)
Net loss attributable to common stockholders	$	(2,346	)	$	(2,193	)	$	(7,127	)	$	(7,743	)


Basic and diluted net loss per share (Note 7)	$	(0.16	)	$	(0.18	)	$	(0.51	)	$	(0.67	)
Basic and diluted net loss per share (Note 11)													$	(0.20	)	$	(0.16	)	$	(0.70	)	$	(0.51	)

Weighted-average shares of common stock used in computing basic and diluted net loss per share attributable to common stockholders		14,953			11,944			14,068			11,466			15,122			14,953			15,222			14,068

	Three Months Ended						Nine Months Ended
	December 31, 2018			December 31, 2017			December 31, 2018			December 31, 2017

Statements of comprehensive loss:
Consolidated net loss	$	(2,999	)	$	(2,346	)	$	(10,651	)	$	(7,127	)
Foreign currency translation adjustments, net		(143	)		257			(592	)		1,028
Other comprehensive loss		-			(69	)		-			(80	)
Comprehensive loss	$	(3,142	)	$	(2,158	)	$	(11,243	)	$	(6,179	)

Balance at March 31, 2017	$	14,448
Foreign currency translation adjustment		808
Balance at December 31, 2017	$	15,256

	Three Month Period Ended December 31, 2018
	Common Stock				Additional Paid- In			Treasury Stock						Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Shares			Amount			Deficit			Income (Loss)			Equity (Deficit)
Balance at September 30, 2018		15,194,359	$	7	$	327,007			(145,208	)	$	(472	)	$	(329,341	)		703		$	(2,096	)

Net employee withholding taxes paid in connection to issuance of restricted stock		187,331		—		(2	)		—			—			—			—			(1	)
Stock-based compensation expense		—		—		415			—			—			—			—			415
Debt extinguishment with related party		—		—		(324	)		—			—			—			—			(324	)
Revaluation of prior period balances		—		—		—			—			—			(8	)		8			—
Foreign currency translation adjustment, net		—		—		—			—			—			—			(143	)		(143	)
Net loss		—		—		—			—			—			(2,999	)		—			(2,999	)
Balance at December 31, 2018		15,381,690	$	7	$	327,096			(145,208	)	$	(472	)	$	(332,348	)	$	568		$	(5,149	)

	Nine Month Period Ended December 31, 2018
	Common Stock				Additional Paid- In			Treasury Stock						Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital			Shares			Amount			Deficit			Income (Loss)			Equity (Deficit)
Balance at March 31, 2018		15,049,700	$	7	$	325,942			(145,208	)	$	(472	)	$	(321,697	)	$	1,160		$	4,940

Issuance of stock under employee stock purchase plan		65,350		—		72			—			—			—			—			72
Net employee withholding taxes paid in connection to issuance of restricted stock		266,640		—		(9	)		—			—			—			—			(9	)
Stock-based compensation expense		—		—		1,415			—			—			—			—			1,415
Debt extinguishment with related party		—		—		(324	)		—			—			—			—			(324	)
Foreign currency translation adjustment, net		—		—		—			—			—			—			(592	)		(592	)
Net loss		—		—		—			—			—			(10,651	)		—			(10,651	)
Balance at December 31, 2018		15,381,690	$	7	$	327,096			(145,208	)	$	(472	)	$	(332,348	)	$	568		$	(5,149	)

	December 31, 2017									December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment		Net Carrying Value
Acquired developed technology	$	5,034	$	(3,204	)	$	168	$	1,998	$	5,034	$	(4,189	)	$	134	$	979
Customer relationships		5,857		(3,522	)		119		2,454		5,857		(4,608	)		55		1,304
	$	10,891	$	(6,726	)	$	287	$	4,452	$	10,891	$	(8,797	)	$	189	$	2,283

	March 31, 2017										March 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment		Net Carrying Value
Acquired developed technology	$	5,034	$	(2,347	)	$	(50	)	$	2,637	$	5,034	$	(3,486	)	$	219	$	1,767
Customer relationships		5,857		(2,599	)		(35	)		3,223		5,857		(3,834	)		162		2,185
	$	10,891	$	(4,946	)	$	(85	)	$	5,860	$	10,891	$	(7,320	)	$	381	$	3,952

	Period Ended
	December 31, 2017
	Three Months			Nine Months
Risk-free interest rate		2.16	%		2.01	%
Dividend yield		0	%		0	%
Expected volatility		56.00	%		55.00	%
Expected term in years		6.08			6.08
Weighted average fair value at grant date	$	0.98		$	1.47

	Options Outstanding					Restricted Stock Units Outstanding
	Number of shares (in thousands)			Weighted average exercise price		Number of shares (in thousands)			Weighted average fair value

Outstanding at October 1, 2017		4,450		$	3.01		89		$	3.96
Granted		47		$	1.81		224		$	1.81
Exercised/Released		(4	)	$	-		(11	)	$	5.66
Cancelled		(207	)	$	4.81		(1	)	$	5.80
Outstanding at December 31, 2017		4,286		$	2.91		301		$	2.30

Vested and expected to vest		4,108		$	2.94

			Options Outstanding				Options Vested
Range of Exercise Prices per share			Number of Shares (in thousands)		Weighted- Average Remaining Contractual Life (in years)		Number of Shares (in thousands)		Weighted- Average Exercise Price per Share
$1.35	—	$1.35		92		8.39		38	$	1.35
$1.64	—	$1.64		1,925		8.15		873	$	1.64
$1.75	—	$2.00		560		8.75		192	$	1.86
$2.59	—	$3.99		448		8.26		206	$	3.44
$4.32	—	$4.32		627		7.58		378	$	4.32
$5.18	—	$6.30		369		6.73		287	$	5.95
$6.61	—	$6.61		205		6.20		176	$	6.61
$6.83	—	$6.83		50		6.14		50	$	6.83
$7.20	—	$7.20		5		1.16		5	$	7.20
$11.40	—	$11.40		5		0.64		5	$	11.40
$1.35	—	$11.40		4,286		7.91		2,110	$	3.39

Balance at March 31, 2018	$	-
Issuance of Warrants		940
Change in fair value		(113	)
Balance at December 31, 2018	$	827

	Three Months Ended				Nine Months Ended
	December 31, 2018		December 31, 2017		December 31, 2018		December 31, 2017

Cost of revenues	$	15	$	23	$	73	$	144
Research and development		58		61		193		225
Sales and marketing		58		78		244		309
General and administrative		284		281		905		971
Impact on net loss	$	415	$	443	$	1,415	$	1,649

	Three Months Ended December 31, 2017			Nine Months Ended December 31, 2017			Nine Months Ended December 31, 2018
Domestic pre-tax loss	$	(2,065	)	$	(6,688	)	$	(10,308	)
Foreign pre-tax loss		(317	)		(464	)		(224	)
Total pre-tax loss	$	(2,382	)	$	(7,152	)	$	(10,532	)

	As of
	December 31, 2017			March 31, 2017
	(in thousands)
Cash, cash equivalents and short-term investments	$	10,077		$	9,429
Working capital	$	(8,391	)	$	(10,319	)

Exhibit No.		Description

10.1		Amendment No. 1 to the Junior Secured Convertible Note Purchase Agreement dated November 16, 2018

10.2(1)		Amendment No. 2 to the Junior Secured Convertible Note Purchase Agreement dated December 21, 2018

10.3(1)		Warrant to Purchase Common Stock, issued to MILFAM II L.P.

10.4(1)		Junior Secured Promissory Note, issued to MILFAM II L.P.

10.5(1)		Warrant to Purchase Common Stock, issued to Alimco Financial Corporation.

10.6(1)		Junior Secured Promissory Note, issued to Alimco Financial Corporation.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

32.1		Certification of Chief Executive Officer pursuant to 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 pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		101.INS** XBRL Instance
		101.SCH** XBRL Taxonomy Extension Schema
		101.CAL** XBRL Taxonomy Extension Calculation
		101.DEF** XBRL Taxonomy Extension Definition
		101.LAB** XBRL Taxonomy Extension Labels
		101.PRE** XBRL Taxonomy Extension Presentation

		(1) Previously filed in the Company’s report on Form 8-K on December 28, 2018.
		** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purpose of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Date: February ~~9, 2018~~19, 2019	By:	/s/ JOHN NOLAN
		John Nolan
		Chief Financial Officer