UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q/A

 

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2014

Commission File No. 1-33762

 

inContact, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

87-0528557

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

7730 S. Union Park Avenue, Suite 500, Salt Lake City, UT 84047

(Address of principal executive offices and Zip Code)

(801) 320-3200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

 

¨  Large accelerated filer

x  Accelerated filer

¨  Non-accelerated filer

¨  Smaller reporting company

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding as of August 4, 2014

Common Stock, $0.0001 par value

 

60,818,889 shares

 

 

 

 

 

 


Explanatory Note

Subsequent to the issuance of inContact, Inc.’s (“we”, the “Company” or “inContact”) 2014 Quarterly Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2014, we identified errors related to the calculation and assessment of state sales tax for certain of our products and services and the appropriate accounting for the related state sales tax obligations. We also reflected an adjustment to correct an immaterial error in the accounting for the fair value allocation of the May 6, 2014 acquisition purchase price allocation of CallCopy, Inc., a Delaware corporation doing business as Uptivity (“Uptivity”) to the preliminary tangible and identifiable intangible assets. We determined that the errors were not material to any period presented, but concluded that the related control deficiency that allowed the sales tax error to occur and not be detected on a timely basis amounted to a material weakness in our internal controls over financial reporting.

As a result, we are filing this amendment (Amendment) to our Quarterly Report on Form 10-Q for the period ended June 30, 2014 (Original Form 10-Q) filed with the Securities and Exchange Commission (“SEC”) on August 8, 2014 (Original Filing Date) to reflect changes in our assessment of internal controls over financial reporting and disclosure controls and procedures.  We have restated our financial statements and related disclosures to correct the immaterial errors in each period presented.  

Concurrently with the filing of this Amendment, the Company is filing an amendment to its Annual Report on form 10-K and Quarterly Report on Form 10-Q for the three months ended March 31, 2014.

Revisions to the Original Form 10-Q include the following:

Effects of Restatement and Revision

See Part I, Item 1, “Financial Statements”—Note 2—“Restatement of Financial Statements.” Management believes the effects of these errors are not material to its previously issued Condensed Consolidated Financial Statements. In addition, corresponding changes have been made to the following other items to reflect the restatement described above:

(A)

Amendments to Part I, Item I - Financial Statements, to reflect the restatement of our financial results.

(B)

Amendments to Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, to reflect the restatement of our financial results.

(C)

Amendments to Part I, Item 4 - Controls and Procedures, to (i) describe changes in our disclosure controls and procedures and our internal controls over financial reporting to address a material weakness and (ii) modify management’s opinion on the effectiveness of our internal controls over financial reporting as of June 30, 2014.

(D)

Amendments to Part II, Item 1A - Risk Factors, to add an additional risk factor regarding the potential adverse impact the material weakness could have on our business, results of operations, financial condition and liquidity.

(E)

Part II, Item 6 – Exhibits and Financial Statement Schedule, including exhibits 31.1 and 31.2

Except as described in this Explanatory Note, the Condensed Consolidated Financial Statements and financial statement footnote disclosures in the original Form10-Q are unchanged. In particular, except for the events described above, this Amendment has not been updated to reflect any events that have occurred after the original Form 10-Q was filed or to modify or update disclosures affected by other subsequent events, except where required by GAAP. Accordingly, forward-looking statements included in this Amendment represent management’s views as of the Original Filing Date and should not be assumed to be accurate as of any date thereafter. This Amendment should be read in conjunction with the Company’s other filings with the SEC, together with any amendments to those filings.

 

 

 


 

TABLE OF CONTENTS

ITEM NUMBER AND CAPTION

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

Page

Item 1.

 

Financial Statements

 

 

Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (unaudited)

 

4

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)

 

5

Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2014 (unaudited)

 

6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

Item 2.

 

 

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

 

22

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

Item 4.

 

 

Controls and Procedures

 

31

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

 

 

Legal Proceedings

 

32

 

Item 1A.

 

 

Risk Factors

 

32

 

Item 2.

 

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

34

 

Item 5.

 

 

Other Information

 

34

Item 6.

 

 

Exhibits

 

35

 

Signatures

 

37

 

 

 

3


 

INCONTACT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS—(Unaudited)

(in thousands, except per share data)

 

 

June 30,
2014

 

  

December 31,
2013

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

32,097

 

 

$

49,148

 

Restricted cash

 

81

 

 

 

81

 

Accounts and other receivables, net of allowance for uncollectible accounts of $2,390 and $2,203, respectively

 

23,591

 

 

 

18,682

 

Other current assets

 

5,862

 

 

 

4,360

 

Total current assets

 

61,631

 

 

 

72,271

 

Property and equipment, net

 

30,324

 

 

 

23,716

 

Intangible assets, net

 

27,374

 

 

 

3,971

 

Goodwill

 

39,433

 

 

 

6,563

 

Other assets

 

1,746

 

 

 

1,540

 

Total assets

$

160,508

 

 

$

108,061

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Trade accounts payable

$

13,953

 

 

$

9,696

 

Accrued liabilities

 

13,517

 

 

 

8,772

 

Accrued commissions

 

3,071

 

 

 

2,072

 

Current portion of deferred revenue

 

4,767

 

 

 

2,440

 

Current portion of debt and capital lease obligations

 

3,770

 

 

 

3,461

 

Total current liabilities

 

39,078

 

 

 

26,441

 

Long-term portion of debt and capital lease obligations

 

4,784

 

 

 

4,580

 

Deferred rent

 

62

 

 

 

487

 

Deferred tax liability

 

794

 

 

 

232

 

Deferred revenue

 

5,158

 

 

 

3,981

 

Total liabilities

 

49,876

 

 

 

35,721

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 100,000 shares authorized; 60,809 and 55,346 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively

 

6

 

 

 

6

 

Additional paid-in capital

 

204,046

 

 

 

167,422

 

Accumulated deficit

 

(93,420

)

 

 

(95,088

)

Total stockholders’ equity

 

110,632

 

 

 

72,340

 

Total liabilities and stockholders’ equity

$

160,508

 

 

$

108,061

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


 

INCONTACT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME (LOSS) (Unaudited)

(in thousands, except per share data)

 

 

Three months
ended June 30,

 

 

Six months
ended June 30,

 

 

2014

 

  

2013

 

 

 

2014

 

 

 

2013

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

$

24,198

 

 

$

16,185

 

 

$

44,207

 

 

$

32,357

 

Network connectivity

 

16,913

 

 

 

14,898

 

 

 

33,958

 

 

 

30,371

 

Total net revenue

 

41,111

 

 

 

31,083

 

 

 

78,165

 

 

 

62,728

 

Costs of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

10,233

 

 

 

6,344

 

 

 

18,468

 

 

 

12,779

 

Network connectivity

 

10,855

 

 

 

9,610

 

 

 

21,693

 

 

 

19,643

 

Total costs of revenue

 

21,088

 

 

 

15,954

 

 

 

40,161

 

 

 

32,422

 

Gross profit

 

20,023

 

 

 

15,129

 

 

 

38,004

 

 

 

30,306

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

13,005

 

 

 

9,008

 

 

 

23,061

 

 

 

17,430

 

Research and development

 

5,478

 

 

 

2,964

 

 

 

9,238

 

 

 

5,735

 

General and administrative

 

7,417

 

 

 

5,065

 

 

 

13,025

 

 

 

10,374

 

Total operating expenses

 

25,900

 

 

 

17,037

 

 

 

45,324

 

 

 

33,539

 

Loss from operations

 

(5,877

)

 

 

(1,908

)

 

 

(7,320

)

 

 

(3,233

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(84

)

 

 

(90

)

 

 

(195

)

 

 

(150

)

Other income (expense)

 

2

 

 

 

 

 

 

(149

)

 

 

(25

)

Total other expense

 

(82

)

 

 

(90

)

 

 

(344

)

 

 

(175

)

Loss before income taxes

 

(5,959

)

 

 

(1,998

)

 

 

(7,664

)

 

 

(3,408

)

Income tax benefit (expense)

 

9,387

 

 

 

(32

)

 

 

9,368

 

 

 

(49

)

Net income (loss) and comprehensive income (loss)

$

3,428

 

 

$

(2,030

)

 

$

1,704

 

 

$

(3,457

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.06

 

 

$

(0.04

)

 

$

0.03

 

 

$

(0.06

)

Diluted

$

0.06

 

 

$

(0.04

)

 

$

0.03

 

 

$

(0.06

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

58,753

 

 

 

54,196

 

 

 

57,441

 

 

 

53,897

 

Diluted

 

61,448

 

 

 

54,196

 

 

 

59,865

 

 

 

53,897

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

INCONTACT, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY—(Unaudited)

(in thousands)

 

 

Common Stock

 

  

Additional
Paid-in
Capital

 

  

Treasury Stock

 

  

Accumulated
Deficit

 

 

Total

 

 

Shares

 

  

Amount

 

  

  

Shares

 

  

Amount

 

  

 

Balance at December 31, 2013

 

55,346

 

 

$

6

 

 

$

167,422

 

 

 

 

 

$

 

 

$

(95,088

)

 

$

72,340

 

Common stock issued for options exercised

 

411 

 

 

 

 

 

 

1,375

 

 

 

 

 

 

 

 

 

 

 

 

1,375

 

Common stock issued under the employee stock purchase plan

 

45

 

 

 

 

 

 

345

 

 

 

2

 

 

 

 

 

 

 

 

 

345

 

Common stock received for settlement of taxes and forfeited restricted stock

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

(36

)

 

 

 

 

 

(36

)

Issuance of common stock

 

3,822

 

 

 

 

 

 

31,951

 

 

 

 

 

 

 

 

 

 

 

 

31,951

 

Issuance of restricted stock

 

1,185

 

 

 

 

 

 

 

 

 

52

 

 

 

36

 

 

 

(36

)

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

2,953

 

 

 

 

 

 

 

 

 

 

 

 

2,953

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,704

 

 

 

1,704

 

Balance at June 30, 2014

 

60,809

 

 

$

6

 

 

$

204,046

 

 

 

 

 

$

 

 

$

(93,420

)

 

$

110,632

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

6


 

INCONTACT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 

  

Six months ended June 30,

 

 

2014

 

  

2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

1,704

 

 

$

(3,457

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation of property and equipment

 

3,399

 

 

 

2,929

 

Amortization of software development costs

 

2,823

 

 

 

2,312

 

Amortization of intangible assets

 

1,044

 

 

 

105

 

Amortization of note financing costs

 

14

 

 

 

9

 

Interest accretion

 

2

 

 

 

3

 

Stock-based compensation

 

2,953

 

 

 

1,511

 

Loss on disposal of property and equipment

 

544

 

 

 

87

 

Deferred income taxes

 

(9,368

)

 

 

 

Changes in operating assets and liabilities, net of business acquisitions:

 

 

 

 

 

 

 

Accounts and other receivables, net

 

(4,167

)

 

 

(2,816

)

Other current assets

 

(141

)

 

 

(148

)

Other non-current assets

 

(73

)

 

 

(339

)

Trade accounts payable

 

2,110

 

 

 

741

 

Accrued liabilities

 

187

 

 

 

152

 

Accrued commissions

 

252

 

 

 

420

 

Deferred rent

 

(66

)

 

 

28

 

Deferred revenue

 

1,636

 

 

 

2,379

 

Net cash provided by operating activities

 

2,853

 

 

 

3,916

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Payments made for deposits

 

(31

)

 

 

(11

)

Acquisition of assets

 

 

 

 

(2,296

)

Acquisition of a business, net of cash acquired

 

(10,164

)

 

 

 

Capitalized software development costs

 

(5,004

)

 

 

(2,880

)

Purchases of property and equipment

 

(5,162

)

 

 

(3,017

)

Net cash used in investing activities

 

(20,361

)

 

 

(8,204

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of options

 

1,375

 

 

 

4,849

 

Proceeds from sale of stock under employee stock purchase plan

 

345

 

 

 

194

 

Borrowings under term loan

 

1,000

 

 

 

4,000

 

Payment of debt financing fees

 

 

 

 

(43

)

Principal payments under debt and capital lease obligations

 

(2,227

)

 

 

(1,479

)

Purchase of treasury stock

 

(36

)

 

 

 

Payments under the revolving credit agreement

 

 

 

 

(1,000

)

Net cash provided by financing activities

 

457

 

 

 

6,521

 

Net increase (decrease) in cash and cash equivalents

 

(17,051

)

 

 

2,233

 

Cash and cash equivalents at beginning of period

 

49,148

 

 

 

48,836

 

Cash and cash equivalents at end of period

$

32,097

 

 

$

51,069

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

Payments due for property and equipment included in trade accounts payable

$

2,340

 

 

$

116

 

Property and equipment financed through capital leases

$

1,702

 

 

$

 

Common stock received for settlement of accounts receivable

$

 

 

$

2,731

 

Issuance of common stock for acquisition of a business

$

31,951

 

 

$

 

Consideration for acquisition of business included in accrued liabilities likely to be paid in cash based on the final calculation of net closing current assets

$

3,080

 

 

$

 

Acquisitions of assets included in accounts payable

$

 

 

$

450

 

See accompanying notes to condensed consolidated financial statements.

 

7


 

INCONTACT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

inContact, Inc. (“inContact,” “we,” “us,” “our,” or the “Company”) is incorporated in the state of Delaware. We provide cloud contact center software solutions through our inContact® portfolio, an advanced contact handling and performance management software application. Our services provide a variety of connectivity options for carrying inbound calls to our inContact portfolio or linking agents to our inContact applications. We provide customers the ability to monitor agent effectiveness through our user survey tools and the ability to efficiently monitor their agent needs. We are also an aggregator and provider of network connectivity services (formerly telecommunications). We contract with a number of third party providers for the right to resell the various network connectivity services and products they provide, and then offer all of these services to our customers. These services and products allow customers to buy only the network connectivity services they need, combine those services in a customized enhanced contact center package, receive one bill for those services, and call a single point of contact if a service problem or billing issue arises.

Basis of Presentation

These unaudited condensed consolidated financial statements of inContact and its subsidiaries have been prepared in accordance with accounting principles generally accepted  in the United States and the rules and regulations of the SEC. Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, so long as the statements are not misleading. In the opinion of management, these financial statements and accompanying notes contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto contained in the Annual Report on Form 10-K/A for the year ended December 31, 2013, filed with the SEC on November 14, 2014. The results of operations for the three and six month periods ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014. Our significant accounting policies are set forth in Note 1 to the Consolidated Financial Statements in the 2013 Annual Report on Form 10-K/A and changes, if any, are included below.

Revenue Recognition

Revenue is recognized when all of the following four criteria are met: (1) persuasive evidence of an arrangement exists, (2) the fee is fixed or determinable, (3) collection is reasonably assured, and (4) delivery has occurred or services have been rendered. Determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.

Our revenue is reported and recognized based on the type of services provided to the customer as follows:

Software Revenue.  Software revenue includes two main sources of revenue:

(1) Software delivery and support of our inContact portfolio products that are provided on a monthly subscription basis and associated professional services. Because our customers purchasing software and support services on a monthly recurring basis do not have the right to take possession of the software, we consider these arrangements to be service contracts and are not within the scope of Industry Topic 985, Software.  We generally bill monthly recurring subscription charges in arrears and recognize these charges in the period in which they are earned. In addition to the monthly recurring revenue, revenue is also received on a non-recurring basis for professional services or on a recurring basis related to improving a customer’s contact center efficiency and effectiveness as it relates to utilization of the inContact portfolio.

For subscription service contracts with multiple elements (hosted software, training, installation and long distance services), we follow the guidance provided in Accounting Standards Codification (“ASC”) 605-25, Revenue Recognition for Multiple Element Arrangements. In addition to the monthly recurring subscription revenue, we also derive revenue on a non-recurring basis for professional services included in implementing or improving a customer’s inContact portfolio experience. Because our professional services, such as training and implementation, are not considered to have standalone value, we defer revenue for upfront fees received for professional services in multiple element arrangements and recognize such fees as revenue over the estimated life of the customer. Fees for network connectivity services in multiple element arrangements within the inContact portfolio are based on usage and recognize revenue in the same manner as fees for telecommunication services discussed in the “Network Connectivity Services Revenue” below.

8


 

(2) Perpetual product and services revenues are primarily derived from the sale of software licenses of products within our inContact portfolio.  For software license arrangements that do not require significant modification or customization of the underlying software, revenue is recognized when all four criteria listed above are met.

Many of our customers purchase a combination of software, service, hardware, post contract customer support (“PCS”) and hosting.  For software and software related multiple element arrangements that fall within the scope of  the software revenue guidance in Topic 985, Software, we allocate revenue to the delivered elements of the arrangement using the residual method, whereby revenue is allocated to the undelivered elements based on vendor-specific objective evidence of fair value (“VSOE”) of the undelivered elements with the remaining arrangement fee allocated to the delivered elements and is recognized as revenue assuming all other revenue recognition criteria are met.  If we are unable to establish VSOE for the undelivered elements of the arrangement, including PCS, revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered.  PCS provided to our customers includes technical software support services and unspecified software upgrades to customers on a when-and-if available basis.  PCS revenue is recognized ratably over the term of the maintenance period, which is typically 15 months.  When PCS is included within a multiple element arrangement, we utilize the bell-shaped curve approach to establish VSOE for the PCS. Under the bell-shaped curve approach of establishing VSOE, we perform a VSOE compliance test on a quarterly basis to ensure that a substantial majority of our actual PCS renewals are within a sufficiently narrow range.

Product revenue derived from shipments to customers who purchase our products for resale and is generally recognized when such products are shipped (on a “sell-in” basis). We have historically experienced insignificant product returns from resellers, and our payment terms for these customers are similar to those granted to our end-users. If a reseller develops a pattern of payment delinquency, or seeks payment terms longer than generally accepted, we defer the revenue until the receipt of cash.  Our arrangements with resellers are periodically reviewed as our business and products change.

Software revenue also includes the quarterly minimum purchase commitments from a related party reseller (Note 13).

Network Connectivity Service Revenue.  Network Connectivity Services revenue is derived from network connectivity, such as dedicated transport, switched long distance and data services. These services are provided over our network or through third party network connectivity providers. Our network is the backbone of our subscription services portfolio and allows us to provide the all-in-one inContact solution. Revenue for the network connectivity usage is derived based on customer specific rate plans and the customer’s call usage and is recognized in the period the call is initiated. Customers are also billed monthly charges in arrears and revenue is recognized for such charges over the billing period. If the billing period spans more than one month, earned but unbilled revenues are recognized as revenue for incurred usage to date.

Recently Issued Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” The core principle behind ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering those goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction prices to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies the performance obligations. The guidance in the ASU supersedes existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2016 with early application not permitted. The ASU allows two methods of adoption; a full retrospective approach where three years of financial information are presented in accordance with the new standard, and a modified retrospective approach where the ASU is applied to the most current period presented in the financial statements. We are currently evaluating the impact of adopting the new revenue standard on our consolidated financial statements.

 

 

NOTE 2. RESTATEMENT OF FINANCIAL STATEMENTS

Subsequent to the issuance of the Company’s second quarter 2014 Condensed Consolidated Financial Statements, we determined that errors existed in the Company’s previously issued Condensed Consolidated Financial Statements. As a result, the accompanying Condensed Consolidated Financial Statements have been restated to correct for such errors, as described below.

Management’s decision to restate the aforementioned financial statements was made as a result of the identification of errors related to the calculation and assessment of state sales tax for certain of our products and services and the appropriate accounting for the related state sales tax obligations which cannot now be collected from customers due to the amount of time that has lapsed. Additionally, the Company identified an immaterial error related to the accounting for the fair value allocation of the May 6, 2014 acquisition purchase price of CallCopy, Inc., a Delaware corporation doing business as Uptivity to the preliminary tangible and identifiable intangible assets. See Note 6 for the revised purchase price allocation adjustment as of May 6, 2014.

9


 

The principal effect of the restatement adjustments for both the sales tax and purchase price allocation errors is to decrease net income by $1.0 million and $1.4 million (including increasing General and administrative expense by $341,000 and $681,000) for the three and six months ended June 30, 2014, respectively. The restatement adjustment for the sales tax error also increased accrued liabilities by $681,000 for the period ended June 30, 2014.  The restatement adjustments related to the purchase price allocation error are to decrease Accounts and other receivables by $2.8 million, increase Intangible assets by $1.3 million, increase Goodwill by $1.3 million, increase Current portion of deferred revenue by $558,000, decrease Other current assets by $53,000 and decrease Deferred tax liability by $89,000 for the period ended June 30, 2014.  

The restatement adjustments for the sales tax error increased net loss by $254,000 and $518,000 (including increasing General and administrative expense by the same amount) for the three and six months ended June 30, 2013, respectively, and increase accrued liabilities by the corresponding amount.

The impact of the restatement adjustments on specific line items on the Company’s previously issued Condensed Consolidated Balance Sheet as of June 30, 2014, its Condensed Consolidated Statements of Operations, Comprehensive Loss and Cash Flows for the three and six months ended June 30, 2014 and 2013 and its Consolidated Statement of Stockholders Equity for the six months ended are presented below (in thousands, except per share amounts):

 

 

Condensed Consolidated Balance Sheet as of June 30, 2014

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

Accounts and other receivables

$

 

26,424

 

 

$

 

(2,833

)

 

$

 

23,591

 

Other current assets

 

 

5,915

 

 

 

 

(53

)

 

 

 

5,862

 

Total current assets

 

 

64,517

 

 

 

 

(2,886

)

 

 

 

61,631

 

Intangible assets

 

 

26,103

 

 

 

 

1,271

 

 

 

 

27,374

 

Goodwill

 

 

38,118

 

 

 

 

1,315

 

 

 

 

39,433

 

Total assets

 

 

160,808

 

 

 

 

(300

)

 

 

 

160,508

 

Accrued liabilities

 

 

10,541

 

 

 

 

2,976

 

 

 

 

13,517

 

Current portion of deferred revenue

 

 

4,209

 

 

 

 

558

 

 

 

 

4,767

 

Total current liabilities

 

 

35,544

 

 

 

 

3,534

 

 

 

 

39,078

 

Deferred tax liability

 

 

883

 

 

 

 

(89

)

 

 

 

794

 

Total liabilities

 

 

46,431

 

 

 

 

3,445

 

 

 

 

49,876

 

Accumulated deficit

 

 

(89,675

)

 

 

 

(3,745

)

 

 

 

(93,420

)

Total stockholders’ equity

 

 

114,377

 

 

 

 

(3,745

)

 

 

 

110,632

 

Total liabilities and stockholders’ equity

 

 

160,808

 

 

 

 

(300

)

 

 

 

160,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Operations and
Comprehensive Income

three months ended June 30 2014

 

 

As Previously
Reported

 

 

Adjustments

 

 

As Restated

 

General and administrative

$

 

7,076

 

 

$

 

341

 

 

$

 

7,417

 

Total operating expenses

 

 

25,559

 

 

 

 

341

 

 

 

 

25,900

 

Loss from operations

 

 

(5,536

)

 

 

 

(341

)

 

 

 

(5,877

)

Loss before income taxes

 

 

(5,618

)

 

 

 

(341

)

 

 

 

(5,959

)

Income tax benefit

 

 

10,080

 

 

 

 

(693

)

 

 

 

9,387

 

Net income (loss) and comprehensive income

   (loss)

 

 

4,462

 

 

 

 

(1,034

)

 

 

 

3,428

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

$

 

0.08

 

 

$

 

(0.02

)

 

$

 

0.06

 

   Diluted

$

 

0.07

 

 

$

 

(0.01

)

 

$

 

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10


 

 

 

Condensed Consolidated Statement of Operations and
Comprehensive Loss

three months ended June 30 2013

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

General and administrative

$

 

4,811

 

 

$

 

254

 

 

$

 

5,065

 

Total operating expenses

 

 

16,783

 

 

 

 

254

 

 

 

 

17,037

 

Loss from operations

 

 

(1,654

)

 

 

 

(254

)

 

 

 

(1,908

)

Loss before income taxes

 

 

(1,744

)

 

 

 

(254

)

 

 

 

(1,998

)

Net loss and comprehensive loss

 

 

(1,776

)

 

 

 

(254

)

 

 

 

(2,030

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic and diluted

$

 

(0.03

)

 

$

 

(0.01

)

 

$

 

(0.04

)

   Diluted

$

 

(0.03

)

 

$

 

(0.01

)

 

$

 

(0.04

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Operations and
Comprehensive Income

six months ended June 30 2014

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

General and administrative

$

 

12,344

 

 

$

 

681

 

 

$

 

13,025

 

Total operating expenses

 

 

44,643

 

 

 

 

681

 

 

 

 

45,324

 

Loss from operations

 

 

(6,639

)

 

 

 

(681

)

 

 

 

(7,320

)

Loss before income taxes

 

 

(6,983

)

 

 

 

(681

)

 

 

 

(7,664

)

Income tax benefit

 

 

10,053

 

 

 

 

(685

)

 

 

 

9,368

 

Net income and comprehensive income

 

 

3,070

 

 

 

 

(1,366

)

 

 

 

1,704

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

$

 

0.05

 

 

$

 

(0.02

)

 

$

 

0.03

 

   Diluted

$

 

0.05

 

 

$

 

(0.02

)

 

$

 

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Operations and
Comprehensive Loss

six months ended June 30 2013

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

General and administrative

$

 

9,856

 

 

$

 

518

 

 

$

 

10,374

 

Total operating expenses

 

 

33,021

 

 

 

 

518

 

 

 

 

33,539

 

Loss from operations

 

 

(2,715

)

 

 

 

(518

)

 

 

 

(3,233

)

Loss before income taxes

 

 

(2,890

)

 

 

 

(518

)

 

 

 

(3,408

)

Net loss and comprehensive loss

 

 

(2,939

)

 

 

 

(518

)

 

 

 

(3,457

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

$

 

(0.05

)

 

$

 

(0.01

)

 

$

 

(0.06

)

   Diluted

$

 

(0.05

)

 

$

 

(0.01

)

 

$

 

(0.06

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows

for the six months ended June 30, 2014

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

Net income

$

 

3,070

 

 

$

 

(1,366

)

 

$

 

1,704

 

Deferred income taxes

 

 

(10,053

)

 

 

 

685

 

 

 

 

(9,368

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts and other receivables, net

 

 

(3,609

)

 

 

 

(558

)

 

 

 

(4,167

)

Other current assets

 

 

(31

)

 

 

 

(110

)

 

 

 

(141

)

Accrued liabilities

 

 

(604

)

 

 

 

791

 

 

 

 

187

 

Deferred revenue

 

 

1,078

 

 

 

 

558

 

 

 

 

1,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11


 

 

 

Consolidated Statement of Cash Flows

for the six months ended June 30, 2013

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

Net loss

$

 

(2,939

)

 

$

 

(518

)

 

$

 

(3,457

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

(366

)

 

 

 

518

 

 

 

 

152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Stockholders Equity

for the six months ended  June 30, 2014

 

 

As Previously Reported

 

 

Adjustments

 

 

As Restated

 

Net income (loss)

$

 

3,070

 

 

$

 

(1,366

)

 

$

 

1,704

 

 

The Company believes that the effects of these errors are not material to the previously issued Condensed Consolidated Financial Statements.

 

 

NOTE 3. ASSET ACQUISITION

In March 2013, we acquired technology for $1.9 million in cash, which we used to add mobile and social features in our existing applications. In April and June 2013, development earnout measures were achieved resulting in additional payments totaling $800,000. The value of the assets acquired was recorded as in process technology and is included in internal use software. In December 2013, we determined that $545,000 of the acquired technology would not be utilized in the foreseeable future and therefore was disposed.

 

 

NOTE 4. BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

Basic earnings per common share is computed by dividing the net income or loss applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed by dividing the net income or loss by the sum of the weighted-average number of common shares outstanding plus the weighted average common stock equivalents, which would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options and restricted stock. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method. The following table sets forth the calculation of basic and diluted net income per share (in thousands, except per share amounts):

 

 

Three months ended
June 30, 2014

 

  

Six months ended
June 30, 2014

 

Net income, as reported

$

3,428

 

 

$

1,704

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

58,753

 

 

 

57,441

 

Dilutive effect of employee stock options and restricted stock awards

 

2,695

 

 

 

2,424

 

Shares used to compute diluted net income per share

 

61,448

 

 

 

59,865

 

 

 

 

 

 

 

 

 

Basic net income per share

$

0.06

 

 

$

0.03

 

Diluted net income per share

$

0.06

 

 

$

0.03

 

As a result of incurring a net loss for the three and six months ended June 30, 2013, no potentially dilutive securities are included in the calculation of diluted earnings per share because such effect would be anti-dilutive. We had potentially dilutive securities representing approximately 3.9 million shares of common stock at June 30, 2013.

 

NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The accounting guidance for fair value measurements defines fair value, establishes a market-based framework or hierarchy for measuring fair value and expands disclosures about fair value measurements. The guidance is applicable whenever assets and liabilities are measured and included in the financial statements at fair value. The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value

12


 

measurements do not include transaction costs.  The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Fair Value of Other Financial Instruments

The carrying amounts reported in the accompanying Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts and other receivables, and trade accounts payable approximate fair value because of the immediate or short-term maturities of these financial instruments and are considered to be classified within Level 2 of the fair value hierarchy, except for cash and cash equivalents which is Level 1. The fair values of the promissory notes payable and term loans were computed using a discounted cash flow model using estimated market rates adjusted for our credit risk as of June 30, 2014 and 2013. We consider the input related to our credit risk to be within Level 3 of the fair value hierarchy due to the limited number of our debt holders and our inability to observe current market information. We estimated our current credit risk as of June 30, 2014 and 2013 based on recent transactions with our creditors. The carrying value and estimated fair value of our promissory notes payable and term loans are as follows (in thousands):

 

 

June 30, 2014

 

 

December 31, 2013

 

 

Carrying
Value

 

 

Estimated Fair

Value

 

 

Carrying
Value

 

 

Estimated Fair

Value

 

Promissory notes

$

278

 

 

$

278

 

 

$

694

 

 

$

694

 

Term loans

$

6,556

 

 

$

6,556

 

 

$

6,223

 

 

$

6,223

 

 

 

 

13


 

NOTE 6. ACQUISITIONS

Uptivity Acquisition

On May 6, 2014, we acquired 100% of the outstanding shares of CallCopy, Inc., a Delaware corporation doing business as Uptivity.  Uptivity provides a complete mid-market workforce optimization suite of software products and services to call centers comprised of speech and desktop analytics, agent coaching, call and desktop recording, as well as quality, performance, workforce management and satisfaction surveys.  inContact acquired Uptivity for an aggregate purchase price of $49.1 million of primarily cash and stock.  The purchase consideration was paid with cash in the amount of $12.1 million, estimated fair market value of vested stock options converted to cash of $1.9 million, 3,821,933 shares of the Company’s common stock valued at approximately $32.0 million and $3.1 million likely to be paid in cash based on the final calculation of net closing current assets. An additional 434,311 shares of restricted common stock were issued, but not included in the purchase consideration because the shares are subject to repurchase rights which will lapse as services are provided over a three year period. The acquisition of Uptivity was accounted for under the purchase method of accounting in accordance with ASC 805, Business Combinations. Under the purchase method of accounting, the total purchase price is allocated to the preliminary tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, as determined by management. The total purchase price was allocated using the information currently available. As a result, we may continue to adjust the preliminary estimated purchase price allocation after obtaining more information regarding asset valuations, liabilities assumed, and revision of preliminary estimates. Total allocation of the estimated purchase consideration is as follows (in thousands):

 

 

 

May 6,
2014

 

Assets acquired:

 

 

 

Cash

$

3,894

 

Accounts receivable

 

742

 

Other current assets

 

1,363

 

Property, plant and equipment and other assets

 

584

 

Intangible assets

 

24,448

 

Goodwill

 

32,870

 

Total assets acquired

 

63,901

 

 

 

 

 

Liabilities assumed:

 

 

 

Trade accounts payable

 

1,124

 

Accrued liabilities

 

1,934

 

Current portion of deferred revenue

 

1,516

 

Long-term portion of deferred revenue

 

353

 

Deferred tax liability

 

9,884

 

Total liabilities assumed

 

14,811

 

Net assets acquired

$

49,090

 

In connection with the acquisition, we incurred professional fees of $934,000, including transaction costs such as legal and valuation services, which were expensed as incurred. These costs are included within general and administrative expenses in the Condensed Consolidated Statements of Operations.  The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, represents future economic benefits expected to arise from synergies from combining operations and assembled workforce acquired. All of the goodwill was assigned to the software segment. The entire amount allocated to goodwill is not expected to be deductible for tax purposes.

14


 

Intangible assets acquired resulting from the acquisition include customer relationships which are amortized on a double declining basis, technologies, which are amortized on a straight-line basis and in-process research and development which has an initial indefinite life and is expected to be amortized once technical feasibility is established. The fair values of the intangible assets were determined primarily using the income approach and the discount rates range from 17.0% to 20.6%. The following sets forth the intangible assets purchased as part of the Uptivity acquisition and their economic useful life at the date of acquisition (in thousands, except useful life):

 

 

Amount

 

 

Economic
Useful
Life (in years)

 

 

 

Customer relationships

$

11,460

 

 

 

8

 

Trade name and trademarks

 

1,942

 

 

 

5

 

Technology

 

7,686

 

 

 

7

 

In-process research and development

 

3,360

 

 

 

Indefinite

 

Total intangible assets

$

24,448

 

 

 

 

 

The Company recorded a deferred tax benefit of $9.4 million for the quarter ended June 30, 2014.  The tax benefit related to recording a deferred tax liability upon acquisition of Uptivity related to a reduction of carrying value of deferred revenue and acquisition of intangibles for which no tax benefit will be derived.  The reduction of carrying value resulted in a partial reversal of the deferred tax asset valuation allowance upon consolidation.

In the quarter ended June 30, 2014, our consolidated financial statements include approximately $2.9 million and $1.8 million of net revenue and net loss, respectively, related to the operations of Uptivity.  The following table presents our unaudited pro forma results of operations of the Company and Uptivity as if the companies had been combined as of January 1, 2013, and includes pro forma adjustments related to the fair value of deferred revenue, amortization of acquired intangible assets and share-based compensation expense. Direct and incremental transaction costs are excluded from the period ended June 30, 2014 pro forma condensed combined financial information presented below, and included in the period ended June 30, 2013 pro forma condensed combined financial information presented below. The tax benefit of $9.4 million that resulted from the acquisition is recorded in the period ended June 30, 2013 pro-forma period.

 

 

Three months ended
June 30, 2014

 

 

Six months ended
June 30, 2014

 

 

As Reported

 

 

Pro Forma

 

 

As Reported

 

 

Pro Forma

 

Net revenue

$

 41,111

 

 

$

42,982

 

 

$

 78,165

 

 

$

85,298

 

Net income (loss)

 

 3,428

 

 

 

(5,458

)

 

 

1,704

 

 

 

(8,485

)

 

 

Three months ended
June 30, 2013

 

 

Six months ended
June 30, 2013

 

 

As Reported

 

 

Pro Forma

 

 

As Reported

 

 

Pro Forma

 

Net revenue

$

31,083

 

 

$

34,964

 

 

$

62,728

 

 

$

69,628

 

Net income (loss)

 

(2,030

)

 

 

(4,274

)

 

 

(3,457

)

 

 

(101

)

The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved had Uptivity been acquired at the beginning of 2013 or of results that may be obtained in any future period.  

Transcend Acquisition

In December 2012, we entered into an agreement with Transcend Products LLC (“Transcend”) pertaining to the potential acquisition of Transcend to provide enhanced functionality for our existing service offerings. The option to purchase Transcend was exercised and the purchase closed in July 2013 for $2.7 million in cash and 376,459 shares of our common stock valued at $2.9 million, which was discounted from $3.0 million in the purchase agreement for the lack of marketability. Furthermore, if the acquisition generates certain levels of revenue during the two-year period beginning in August 2013, we will pay to Transcend an additional earnout payment of $1.0 million in cash or shares of our common stock. As of the date of acquisition, this contingent liability has been recorded in accrued liabilities at its fair market value of $145,000 and was included as part of the purchase consideration.  At June 30, 2014, the fair market value remained unchanged.

The purchase price allocations for our acquisition of Transcend Products were prepared by the Company’s management utilizing a valuation report, which was prepared in accordance with the provisions of ASC 805 Business Combination, and other tools available to the Company, including conversations with Transcend’s management and projections of revenues and expenses. The fair values of

15


 

the intangible assets were determined primarily using the income approach and the discount rates range from 13.4% to 16.4%. The total purchase consideration, which includes the contingent consideration liability above, was preliminarily allocated as follows (in thousands):

 

  

July 2,
2013

 

Property and equipment, net

$

29

 

Intangible assets, net

 

3,249

 

Goodwill

 

2,477

 

Total assets acquired

$

5,755

 

In connection with the acquisition, we incurred professional fees of $23,000, including transaction costs such as legal and valuation services, which were expensed as incurred. These costs are included within general and administrative expenses in the Condensed Consolidated Statements of Operations.

The premium paid over the fair value of the net assets acquired in the purchase, or goodwill, was primarily attributed to buyer synergies and assembled workforce. All of the goodwill was assigned to the software segment.

Intangible assets acquired resulting from the acquisition include customer relationships, patents and technology, which are amortized on a straight-line basis. The following sets forth the intangible assets purchased as part of the Transcend acquisition and their economic useful life at the date of acquisition (in thousands, except useful life):

 

 

Intangible
Assets

 

  

Economic Useful
Life (in years)

 

Customer relationships

$

168

 

 

 

3.5

 

Patents

 

2,168

 

 

 

10.0

 

Technology

 

913

 

 

 

5.0

 

Total intangible assets

$

3,249

 

 

 

 

 

 

 

NOTE 7. INTANGIBLE ASSETS

Intangible assets consisted of the following (in thousands):

 

 

June 30, 2014

 

  

December 31, 2013

 

 

Gross
Assets

 

  

Accumulated
Amortization

 

 

Intangible
Assets, net

 

  

Gross
Assets

 

  

Accumulated
Amortization

 

 

Intangible
Assets, net

 

Customer lists and relationships

$

28,122

 

 

$

(16,877

)

 

$

11,245

 

 

$

16,663

 

 

$

(16,354

)

 

$

309

 

Technology and patents

 

20,998

 

 

 

(10,766

)

 

 

10,232

 

 

 

13,312

 

 

 

(10,347

)

 

 

2,965

 

Trade names and trade marks

 

3,136

 

 

 

(653

)

 

 

2,483

 

 

 

1,194

 

 

 

(551

)

 

 

643

 

In-process research and development

 

3,360

 

 

 

 

 

 

3,360

 

 

 

 

 

 

 

 

 

 

Domain name

 

54

 

 

 

 

 

 

54

 

 

 

54

 

 

 

 

 

 

54

 

Total intangible assets

$

55,670

 

 

$

(28,296

)

 

$

27,374

 

 

$

31,223

 

 

$

(27,252

)

 

$

3,971

 

Amortization expense was $1.0 million and $105,000 during the six months ended June, 2014 and 2013, respectively

Based on the recorded intangibles at June 30, 2014, estimated amortization expense is expected to be $2.7 million during the remainder of 2014, $4.4 million in 2015, $3.8 million in 2016, $3.1 million in 2017, $3.0 million in 2018 and $7.0 million thereafter.

 

16


 

NOTE 8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

 

 

June 30,
2014

 

  

December 31,
2013

 

Accrued payroll and other compensation

$

4,034

 

 

$

3,687

 

Excess recovery reserve

 

798

 

 

 

1,157

 

Accrued state sales taxes

 

2,970

 

 

 

2,289

 

Accrued vendor charges

 

629

 

 

 

594

 

Acquisition related liabilities

 

3,225

 

 

 

145

 

Other

 

1,861

 

 

 

900

 

Total accrued liabilities

$

13,517

 

 

$

8,772

 

 

 

NOTE 9. DEBT AND CAPITAL LEASE OBLIGATIONS

Revolving Credit Agreement

On July 16, 2009, we entered into a revolving credit loan agreement (“Revolving Credit Agreement”) with Zions First National Bank (“Zions”), which was subsequently amended in June 2013. Under the terms of the Revolving Credit Agreement, Zions agreed to loan up to $15.0 million. The Revolving Credit Agreement is collateralized by substantially all the assets of inContact. The balance outstanding under the Revolving Credit Agreement cannot exceed the lesser of (a) $15.0 million or (b) the sum of 85% of eligible billed receivables, and 65% of eligible earned, but unbilled receivables as calculated on the 5th and 20th of each month. The interest rate on the Revolving Credit Agreement with Zions is 4.0% per annum above the ninety day LIBOR and the term is until July 2015.  There was $15.0 million of unused commitment at June 30, 2014, based on the maximum available advance amount calculated on the June 20, 2014 borrowing base certificate. Interest under the Revolving Credit Agreement is paid monthly in arrears, and any outstanding principal is due in July 2015.  There was no outstanding balance on our Revolving Credit Agreement at June 30, 2014 and December 31, 2013.

The Zions Revolving Credit Agreement contains certain covenants, which were established by amendment to the Revolving Credit Agreement in June 2013. As of June 30, 2014, the most significant covenants require that the aggregate value of cash, cash equivalents and marketable securities shall not be less than the outstanding balance on the Revolving Credit Agreement plus $2.5 million, and if at any time the aggregate value is less than the minimum liquidity position, a minimum quarterly EBITDA of $2.5 million, calculated as of the last day of each calendar quarter, is required. We are in compliance with the covenants at June 30, 2014.

The Revolving Credit Agreement imposes certain restrictions on inContact’s ability, without the approval of Zions, to incur additional debt, make distributions to stockholders, or acquire other businesses or assets.

Promissory Note

During the three and six months ended June 30, 2014, we paid $209,000 and $417,000, respectively, of the promissory note payable (“Promissory Note”) to Zions. The Promissory Note balance was $278,000 at June 30, 2014.

Term Loan

In April 2012, we entered into a term loan agreement (“2012 Term Loan”) with Zions for $4.0 million, which matures in May 2016. We drew $4.0 million on the 2012 Term Loan in April 2013. Interest is paid monthly in arrears and the principal is paid in 36 equal monthly installments and commenced in September 2013. The interest rate under the Term Loan is 4.5% per annum above the ninety day LIBOR  rate, adjusted as of the date of any change in the ninety day LIBOR. The financial covenants are the same as the Revolving Credit Agreement.

In June 2013, we also entered into a term loan agreement (“2013 Term Loan”) with Zions for $4.0 million, which matures in June 2017.  We were allowed to draw on the 2013 Term Loan through June 2014 and the interest rate is 4.25% per annum above the ninety day LIBOR.  We drew $3.0 million and $1.0 million on the 2013 Term Loan in December 2013 and June 2014, respectively. The principal will be paid in 36 equal monthly installments commencing in August 2014 and we may prepay any portion of the 2013 Term Loan without penalty or premium.  The 2013 Term Loan is collateralized by the same assets as the Revolving Credit Agreement.  

During the three and six months ended June 30, 2014, we paid $334,000 and $667,000, respectively, of total term loan principal to Zions. The total balance of the term loans was $6.6 million at June 30, 2014.

17


 

Capital Leases

During the six months ended June 30, 2014, we paid $1.1 million of capital lease obligations. The balance of the capital lease obligations was $1.7 million at June 30, 2014.

 

NOTE 10. CAPITAL TRANSACTIONS

During the six months ended June 30, 2014, we received 54,000 shares of our common stock from cancelled restricted stock from separated employees and for the settlement of $36,000 in payroll taxes.

We received proceeds of $1.4 million from the exercise of 411,000 options during the six months ended June 30, 2014. We issued 45,000 shares of common stock and 2,000 shares of treasury stock for proceeds of $345,000 under the employee stock purchase plan during the six month period ended June 30, 2014.

 

NOTE 11. COMMITMENTS AND CONTINGENCIES

In May 2009, the Company was served in a lawsuit titled California College, Inc., et al., v. UCN, Inc., et al. In the lawsuit, California College alleges that (1) the Company made fraudulent and/or negligent misrepresentations in connection with the sale of its services with those of Insidesales.com, Inc., another defendant in the lawsuit, (2) that the Company breached its service contract with California College and an alleged oral contract between the parties by failing to deliver contracted services and product and failing to abide by implied covenants of good faith and fair dealing, and (3) the conduct of the Company interfered with prospective economic business relations of California College with respect to enrolling students.  Pursuant to a motion filed by Insidesales.com, California College filed an amended complaint that has been answered by Insidesales.com and the Company.  California College originally sought damages in excess of $20.0 million.  Furthermore, Insidesales.com and the Company filed cross-claims against one another, which they subsequently agreed to dismiss with prejudice.  In October 2011, California College reached a settlement with Insidesales.com pursuant to which the claims against Insidesales.com were dismissed.  In June of 2013, California College amended its damages claim to $14.4 million, of which approximately $5.0 million was alleged pre-judgment interest. On September 10, 2013, the court issued an order on the Company's Motion for Partial Summary Judgment.  The court determined that factual disputes exist as to several of the claims, but dismissed California College's cause of action for intentional interference with prospective economic relations and the claim for prejudgment interest.  Dismissing the claim for prejudgment interest effectively reduced the claim for damages to approximately $9.2 million.  inContact has denied all of the substantive allegations of the complaint and continues to defend the claims.  Management believes the claims against the Company are without merit.   The Company does not believe the probable loss is material.

On January 15, 2014, Microlog Corporation (“Microlog”) filed a patent infringement suit against the Company in the United States District Court for the District of Delaware.  The Complaint alleges that the Company has infringed a patent owned by Microlog.  The Company is defending this case vigorously and Management believes the allegations to be without merit.  However, no estimate of the loss or range of loss can be made.

On March 20, 2014, Pragmatus Telecom, LLC (“Pragmatus”) filed a patent infringement suit against inContact in the Federal District Court for the District of Delaware.  The Complaint alleges that inContact has infringed a patent owned by Pragmatus.  inContact is defending this case vigorously and Management believes the allegations to be without merit.  However, no estimate of the loss or range of loss can be made.

On May 2, 2014, Info Directions, Inc. (“IDI”) notified inContact of a Demand for Arbitration regarding a dispute related to the Software as a Service Agreement between IDI and inContact dated December 19, 2012 (“Agreement”) pursuant to which IDI was to provide inContact with billing systems software.  On April 8, 2014 InContact gave IDI notice of IDI breach of the Agreement.  inContact is defending this arbitration vigorously and Management believes the allegations to be without merit.  However, no estimate of the loss or range of loss can be made.

We are the subject of certain other legal matters considered incidental to our business activities. It is the opinion of management that the ultimate disposition of these matters will not have a material impact on our financial position, liquidity or results of operations.

 

 

18


 

NOTE 12. STOCK-BASED COMPENSATION

Stock-based compensation cost is measured at the grant date based on the fair value of the award granted and recognized as expense using the graded-vesting method over the period in which the award is expected to vest. Stock-based compensation expense recognized during a period is based on the value of the portion of stock-based awards that is ultimately expected to vest during the period. As stock-based compensation expense recognized in the results for the year is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

We record stock-based compensation expense (including stock options, restricted stock and employee stock purchase plan) to the same departments where cash compensation is recorded as follows (in thousands):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Costs of revenue

$

243

 

 

$

103

 

 

$

382

 

 

$

252

 

Selling and marketing

 

477

 

 

 

242

 

 

 

751

 

 

 

458

 

Research and development

 

485

 

 

 

139

 

 

 

754

 

 

 

270

 

General and administrative

 

700

 

 

 

252

 

 

 

1,066

 

 

 

531

 

Total stock-based compensation expense

$

1,905

 

 

$

736

 

 

$

2,953

 

 

$

1,511

 

We utilize the Black-Scholes model to determine the estimated fair value for grants of stock options. The Black-Scholes model requires the use of highly subjective and complex assumptions to determine the fair value of stock-based awards, including the option’s expected term, expected dividend yield, the risk-free interest rate and the price volatility of the underlying stock. The expected dividend yield is zero, based on our historical dividend rates and our intent to not declare dividends for the foreseeable future. Risk-free interest rates are based on U.S. treasury rates. Volatility is based on historical stock prices over a period equal to the estimated life of the option. Stock options are issued with exercise prices representing the current market price of our common stock on the date of grant.  Prior to December 31, 2013, stock options were generally subject to a three-year vesting period with a contractual term of five years. Stock options issued subsequent to December 31, 2013 are generally subject to a four-year vesting period with a contractual term of ten years.

The grant date fair value of the restricted stock award is determined using the closing market price of the Company’s common stock on the grant date, with the associated compensation expense amortized over the vesting period of the restricted stock awards, net of estimated forfeitures.

We estimate the fair value of options granted under our employee stock-based compensation arrangements at the date of grant using the following weighted-average expected assumptions:

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

Dividend yield

 

0

%

 

 

0

%

Volatility

 

63

%

 

 

53

%

Risk-free interest rate

 

1.96

%

 

 

0.69

%

Expected life (years)

 

5.6

 

 

 

4.1

 

During the six months ended June 30, 2014, we granted 1.0 million stock options with exercise prices ranging from $7.60 to $10.19 and a weighted-average fair value of $5.02 and 1.0 million restricted stock awards and units with a weighted-average fair value of $8.20.

As of June 30, 2014, there was $9.4 million of unrecognized compensation cost related to non-vested stock-based compensation awards granted under our stock-based compensation plans. The compensation cost is expected to be recognized over a weighted average period of 1.9 years.

 

 

NOTE 13. RELATED PARTY TRANSACTIONS

On February 13, 2013, we amended the Unify, Inc. (“Unify”) (formerly Siemens Enterprise Communications) reseller agreement which modified Unify’s minimum purchase commitments to be $4.5 million for 2012, $7.0 million for 2013 and extended the minimum purchase commitment obligation into 2014 in the amount of up to $5.0 million, which may be credited up to $1.0 million in 2014 in consideration for up to a $1.0 million investment by Unify in sales and marketing of our cloud contact center software solutions. Under the amendment Unify relinquished exclusivity in Europe, the Middle East and Asia (“EMEA”). Additionally, sales made by other resellers and inContact in EMEA will go toward satisfying Unify’s minimum purchase commitment obligation.

19


 

In February 2013, we agreed that through 2013, Unify could make payment of its obligations with shares of our common stock held by Unify’s parent company at a price per share, discounted 9.0% from the volume weighted average price, averaged over a specified period of five trading days prior to the payment date. $2.7 million in revenue earned from Unify during 2012 was paid by the delivery of 492,000 shares of our common stock by Unify in 2013. In May 2013, the parent company of Unify sold its remaining 6.4 million shares of our common stock in the open market. Accordingly, future payments by Unify under the reseller agreement will be in cash. In that regard, Unify paid to inContact a total of $3.5 million in May 2013, which was applied to outstanding amounts owed and the minimum commitment payment obligations of Unify under the reseller agreement through March 31, 2014. There was no unapplied balance of the $3.5 million payment at June 30, 2014.

Under this arrangement, we recognized software revenue of $1.7 million and $3.4 million during the three and six months ended June 30, 2014 and 2013, respectively, which included revenue from resold software services and amounts up to the quarterly minimum revenue purchase commitments. Under the arrangement, revenue from resold software services reduces the reseller’s obligation up to the amount of the quarterly minimum purchase commitments.

As of June 30, 2014, Unify continues to resell our software services and has met its obligations under the revised reseller agreement; however, actual revenue from resold software services will not meet the net minimum purchase commitment in the third quarter of 2014. Therefore, we anticipate a reduction in software revenue from that reseller in the second half of 2014 approximately equal to the reduction in the net minimum purchase commitment in the second half of 2014 from the first half of 2014.

Unrelated to the above transaction, we paid our Chairman of the Board of Directors (the “Chairman”) $7,000 per month during the six months ended June 30, 2014, and 2013 for consulting, marketing and other activities, and such amounts have been recognized in our financial statements as general and administrative expenses. Amounts payable to the Chairman for such services were $7,000 at June 30, 2014 and December 31, 2013.

We entered into a reseller agreement to sell software and services with a company that is owned by several employees and minority shareholders.  Revenue related to this agreement included in our Condensed Consolidated Statement of Operations was approximately $82,000 for the three and six months ended June 30, 2014 and related accounts receivable at June 30, 2014 was $77,000.

We lease a 31,500 square foot office facility in Columbus, Ohio, from Cabo Leasing LLC, which is owned by several employees and minority shareholders.  This is the principal location of the employees from the May 2014 acquisition of Uptivity.  The amount of rent for this facility included in our Condensed Consolidated Statement of Operations was approximately $90,000 for the three and six months ended June 30, 2014.

 

NOTE 14. SEGMENTS

We operate under two business segments: Software and Network connectivity. The Software segment includes all monthly recurring revenue related to the delivery of our software applications, plus the associated professional services and setup fees, and revenue related to quarterly minimum purchase commitments, from a related party reseller (Note 13). The Network connectivity segment includes all voice and data long distance services provided to customers.

Management evaluates segment performance based on financial operating data such as revenue, costs of revenue, and other operating expenses. Management does not evaluate and manage segment performance based on assets.

For segment reporting, we classify operating expenses as either “direct” or “indirect.” Direct expense refers to costs attributable solely to either selling and marketing efforts or research and development efforts. Indirect expense refers to costs that management considers to be overhead in running the business. In evaluating segment performance, management evaluates expenditures for both selling and marketing and research and development efforts at the segment level without the allocation of overhead expenses, such as rent, utilities and depreciation on property and equipment.

20


 

Operating segment revenues and profitability for the three and six months ended June 30, 2014 and 2013 were as follows (in thousands, except percentages):

 

 

Three Months Ended June 30, 2014

 

 

Three Months Ended June 30, 2013

 

 

Software

 

 

Network
Connectivity

 

 

Consolidated

 

 

Software

 

 

Network
Connectivity

 

 

Consolidated

 

Net revenue

$

24,198

 

 

$

16,913

 

 

$

41,111

 

 

$

16,185

 

 

$

14,898

 

 

$

31,083

 

Costs of revenue

 

10,233

 

 

 

10,855

 

 

 

21,088

 

 

 

6,344

 

 

 

9,610

 

 

 

15,954

 

Gross profit

 

13,965

 

 

 

6,058

 

 

 

20,023

 

 

 

9,841

 

 

 

5,288

 

 

 

15,129

 

Gross margin

 

58

%

 

 

36

%

 

 

49

%

 

 

61

%

 

 

35

%

 

 

49

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct selling and marketing

 

11,501

 

 

 

933

 

 

 

12,434

 

 

 

7,560

 

 

 

947

 

 

 

8,507

 

Direct research and development

 

5,149

 

 

 

 

 

 

5,149

 

 

 

2,714

 

 

 

 

 

 

2,714

 

Indirect

 

7,299

 

 

 

1,018

 

 

 

8,317

 

 

 

4,882

 

 

 

934

 

 

 

5,816

 

Total operating expenses

 

23,949

 

 

 

1,951

 

 

 

25,900

 

 

 

15,156

 

 

 

1,881

 

 

 

17,037

 

Income (loss) from operations

$

(9,984

)

 

$

4,107

 

 

$

(5,877

)

 

$

(5,315

)

 

$

3,407

 

 

$

(1,908

)

 

 

Six Months Ended June 30, 2014

 

 

Six Months Ended June 30, 2013

 

 

Software

 

 

Network
Connectivity

 

 

Consolidated

 

 

Software

 

 

Network
Connectivity

 

 

Consolidated

 

Net revenue

$

44,207

 

 

$

33,958

 

 

$

78,165

 

 

$

32,357

  

 

$

30,371

  

 

$

62,728

 

Costs of revenue

 

18,468

 

 

 

21,693

 

 

 

40,161

 

 

 

12,779

 

 

 

19,643

 

 

 

32,422

 

Gross profit

 

25,739

 

 

 

12,265

 

 

 

38,004

 

 

 

19,578

 

 

 

10,728

 

 

 

30,306

 

Gross margin

 

58

%

 

 

36

%

 

 

49

%

 

 

61

%

 

 

35

%

 

 

48

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct selling and marketing

 

20,315

 

 

 

1,689

 

 

 

22,004

 

 

 

14,523

  

 

 

1,938

  

 

 

16,461

 

Direct research and development

 

8,623

 

 

 

 

 

 

8,623

 

 

 

5,253

  

 

 

  

 

 

5,253

 

Indirect

 

12,774

 

 

 

1,923

 

 

 

14,697

 

 

 

9,802

  

 

 

2,023

  

 

 

11,825

 

Total operating expenses

 

41,712

 

 

 

3,612

 

 

 

45,324

 

 

 

29,578

 

 

 

3,961

 

 

 

33,539

 

Income (loss) from operations

$

(15,973

)

 

$

8,653

 

 

$

(7,320

)

 

$

(10,000

)  

 

$

6,767

  

 

$

(3,233

)

 

 

NOTE 15. SUBSEQUENT EVENT

In August 2014, we amended certain terms of the revolving credit loan agreement with Zions (“Amendment”). The Amendment extended the term from July 2015 to July 2016, added the Uptivity subsidiary as a guarantor of obligations arising under the loan agreement, pledged Uptivity’s assets to Zions as additional security, increased the financial covenant of minimum quarterly EBITDA from $2.5 million to $2.9 million, which is only applicable if net cash is less than $2.5 million, increased the amount of additional debt from $200,000 to $600,000 per debt for each of the calendar year ending December 31, 2014, 2015 and 2016 and $200,000 for each calendar year thereafter, and increased the outstanding principal amount of our additional debt due at any time from $500,000 to $1.2 million for each of the calendar years ending December 31, 2014, 2015 and 2016 and $500,000 for each calendar year thereafter.

In August 2014, we also entered into a term loan agreement (“2014 Term Loan”) with Zions for $5.0 million, which matures in August 2018.  We are allowed to draw on the 2014 Term Loan through August 2015 and the interest rate is 4.0% per annum above the ninety day LIBOR.  The principal will be paid in 36 equal monthly installments commencing in August 2015 and we may prepay any portion of the 2014 Term Loan without penalty or premium.  The 2014 Term Loan is collateralized by the same assets as the Revolving Credit Agreement.

 

21


 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited December 31, 2013 Consolidated Financial Statements and notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2013 Annual Report on Form 10-K/A, filed separately with the Securities and Exchange Commission.

The MD&A gives effect to the restatement of prior period Condensed Consolidated Financial Statements referred to in Note 2—“Restatement of Financial Statements” to the Condensed Consolidated Financial Statements contained in Part I, Item 1.

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, which address activities, actions, goals, prospects, or new developments that we expect or anticipate will or may occur in the future, including such things as expansion and growth of our operations and other such matters are forward-looking statements. Any one or a combination of factors could materially affect our operations and financial condition. These factors include competitive pressures, success or failure of marketing programs, changes in pricing and availability of services and products offered to customers, legal and regulatory initiatives affecting software or long distance service, and conditions in the capital markets. Forward-looking statements made by us are based on knowledge of our business and the environment in which we operate as of the date of this report. Because of the factors discussed in our 2013 Annual Report on Form 10-K/A under Item 1A “Risk Factors,” and factors disclosed in subsequent reports filed with the Securities and Exchange Commission, actual results may differ from those in the forward-looking statements.

OVERVIEW

inContact began in 1997 as a reseller of network connectivity services and has evolved to become a leading provider of cloud contact center software solutions. We help contact centers around the world create effective customer experiences through our powerful portfolio of cloud contact center contact routing, self-service and agent optimization software solutions. Our services and software solutions enable contact centers to operate more efficiently, optimize the cost and quality of every customer interaction, create new pathways to profit and ensure ongoing customer-centric business improvement and growth.

We began offering cloud solutions to the contact center market in 2005. Our dynamic technology platform provides our customers a pay-as-you-go solution without the costs and complexities of premise-based systems. Our proven cloud delivery model provides compelling total cost of ownership savings over premise-based technology by reducing upfront capital expenditures, eliminating the expense of system management and maintenance fees, while providing agility that enables businesses to scale their technology as they grow.

DEVELOPMENTS

On May 6, 2014, we acquired CallCopy, Inc., a Delaware corporation doing business as Uptivity (“Uptivity”).  Uptivity provides a complete mid-market workforce optimization suite of software products and services to call centers comprised of speech and desktop analytics, agent coaching, call and desktop recording, as well as quality, performance, workforce management and satisfaction surveys. There were no material relationships between inContact and any of the stockholders of Uptivity prior to the acquisition.

The purchase consideration was approximately $49.1 million, which was paid with cash in the amount of $12.1 million, estimated fair market value of vested stock options converted to cash of $1.9 million, $3.1 million to be paid in cash based on the final calculation of net closing current assets and 3,821,933 shares of the Company’s common stock valued at $32.0 million.  An additional 434,311 shares of restricted common stock were issued, but not included in the purchase consideration because the shares are subject to repurchase rights that will lapse over three years.

SOURCES OF REVENUE

Our revenue is reported and recognized based on the type of services provided to the customer as follows:

Software Revenue.  Software revenue includes two main sources of revenue:

(1) Software delivery and support of our inContact portfolio products that are provided on a monthly subscription basis and associated professional services. Because our customers purchasing software and support services on a monthly recurring basis do not have the right to take possession of the software, we consider these arrangements to be service contracts and are not within the scope of Industry Topic 985, Software.  We generally bill monthly recurring subscription charges in arrears and recognize these charges in the period in which they are earned. In addition to the monthly recurring revenue, revenue is also received on a non-recurring basis for professional services or on a recurring basis related to improving a customer’s contact center efficiency and effectiveness as it relates to utilization of the inContact portfolio.

22


 

For subscription service contracts with multiple elements (hosted software, training, installation and long distance services), we follow the guidance provided in Accounting Standards Codification (“ASC”) 605-25, Revenue Recognition for Multiple Element Arrangements. In addition to the monthly recurring subscription revenue, we also derive revenue on a non-recurring basis for professional services included in implementing or improving a customer’s inContact portfolio experience. Because our professional services, such as training and implementation, are not considered to have standalone value, we defer revenue for upfront fees received for professional services in multiple element arrangements and recognize such fees as revenue over the estimated life of the customer. Fees for network connectivity services in multiple element arrangements within the inContact portfolio on usage and recognize revenue in the same manner as fees for telecommunication services discussed in the “Network Connectivity Services Revenue” below.

(2) Perpetual product and services revenues are primarily derived from the sale of software licenses of products within our inContact portfolio.  For software license arrangements that do not require significant modification or customization of the underlying software, revenue is recognized when all four criteria listed above are met.

Many of our customers purchase a combination of software, service, hardware, post contract customer support (“PCS”) and hosting.  For software and software related multiple element arrangements that fall within the scope of  the software revenue guidance in Topic 985, Software, we allocate revenue to the delivered elements of the arrangement using the residual method, whereby revenue is allocated to the undelivered elements based on vendor-specific objective evidence of fair value (“VSOE”) of the undelivered elements with the remaining arrangement fee allocated to the delivered elements and is recognized as revenue assuming all other revenue recognition criteria are met.  If we are unable to establish VSOE for the undelivered elements of the arrangement, including PCS, revenue recognition is deferred for the entire arrangement until all elements of the arrangement are delivered.  

PCS provided to our customers includes technical software support services and unspecified software upgrades to customers on a when-and-if available basis.  PCS revenue is recognized ratably over the term of the maintenance period, which is typically 15 months.  When PCS is included within a multiple element arrangement, we utilize the bell-shaped curve approach to establish VSOE for the PCS. Under the bell-shaped curve approach of establishing VSOE, we perform a VSOE compliance test on a quarterly basis to ensure that a substantial majority of our actual PCS renewals are within a sufficiently narrow range.

Product revenue derived from shipments to customers who purchase our products for resale and is generally recognized when such products are shipped (on a “sell-in” basis). We have historically experienced insignificant product returns from resellers, and our payment terms for these customers are similar to those granted to our end-users. If a reseller develops a pattern of payment delinquency, or seeks payment terms longer than generally accepted, we defer the revenue until the receipt of cash.  Our arrangements with resellers are periodically reviewed as our business and products change.

Software revenue also includes the quarterly minimum purchase commitments from a related party reseller referred to in Part 1, Item 1 “Financial Statements” - Note 13 – Related Party Transactions.

Network Connectivity Service Revenue.  Network Connectivity Services revenue is derived from network connectivity, such as dedicated transport, switched long distance and data services. These services are provided over our network or through third party network connectivity providers. Our network is the backbone of our subscription services portfolio and allows us to provide the all-in-one inContact solution. Revenue for the network connectivity usage is derived based on customer specific rate plans and the customer’s call usage and is recognized in the period the call is initiated. Customers are also billed monthly charges in arrears and revenue is recognized for such charges over the billing period. If the billing period spans more than one month, earned but unbilled revenues are recognized as revenue for incurred usage to date.  

COSTS OF REVENUE AND OPERATING EXPENSES

Costs of Revenue

Costs of revenue consist primarily of payments to third party long distance service providers for resold network connectivity services to our customers. Costs of revenue also include labor costs (including stock-based compensation) and related expenses for our software services delivery, professional services and customer support organizations, equipment depreciation relating to our services, amortization of acquired intangible assets, amortization of capitalized internal use software development costs, and allocated overhead, such as rent, utilities and depreciation on property and equipment. As a result, overhead expenses are included in costs of revenue and each operating expense category. The cost associated with providing professional services is significantly higher as a percentage of revenue than the cost associated with delivering our software services due to the labor costs associated with providing professional services. We anticipate that we will incur additional costs for network connectivity service providers, hosting, support, labor costs and related expenses, to support delivery of our software solutions and services in the future.

23


 

Selling and Marketing

Selling and marketing expenses consist primarily of labor costs (including stock-based compensation) and related expenses for employees in sales and marketing, including commissions and bonuses, advertising, marketing events, corporate communications, expenses, travel costs and allocated overhead. Since our Software segment revenue is delivered and therefore recognized over time, we have experienced a delay between increasing sales and marketing expenses and the recognition of the corresponding revenue. We believe it is important to continue investing in selling and marketing to create brand awareness and lead generation opportunities, to increase market share and to support the resellers channels. Accordingly, we expect selling and marketing expenses to increase in absolute dollars as we continue to support growth initiatives.

Research and Development

Research and development expenses consist primarily of the non-capitalized portion of labor costs (including stock-based compensation) and related expenses for development personnel and costs related to the development of new products, enhancement of existing products, quality assurance, market research, testing, product management and allocated overhead. We expect research and development expenses to increase in absolute dollars in the future as we intend to release new features and functionality on a frequent basis, expand our content offerings, upgrade and extend our service offerings and develop new technologies.

General and Administrative

General and administrative expenses consist primarily of labor costs (including stock-based compensation) and related expenses for management, finance and accounting, legal, information systems and human resources personnel, professional fees, other corporate expenses and allocated overhead. We anticipate that we will incur additional employee salaries and related expenses, professional service fees and other corporate expenses related to the growth of our business and operations in the future. As such, we expect general and administrative expenses to increase in absolute dollars.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2014 and 2013

The following is a tabular presentation of our condensed consolidated operating results for the three months ended June 30, 2014 compared to our condensed consolidated operating results for the three months ended June 30, 2013 (in thousands, except percentages):

 

 

2014

 

 

2013

 

 

$ Change

 

 

% Change

 

Net revenue

$

41,111

 

 

$

31,083

 

 

$

10,028

 

 

 

32

%

Costs of revenue

 

21,088

 

 

 

15,954

 

 

 

5,134

 

 

 

32

%

Gross profit

 

20,023

 

 

 

15,129

 

 

 

4,894

 

 

 

 

 

Gross margin

 

49

%

 

 

49

%

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

13,005

 

 

 

9,008

 

 

 

3,997

 

 

 

44

%

Research and development

 

5,478

 

 

 

2,964

 

 

 

2,514

 

 

 

85

%

General and administrative

 

7,417

 

 

 

5,065

 

 

 

2,352

 

 

 

46

%

Total operating expenses

 

25,900

 

 

 

17,037

 

 

 

8,863

 

 

 

 

 

Loss from operations

 

(5,877

)

 

 

(1,908

)

 

 

(3,969

)

 

 

 

 

Other expense

 

(82

)

 

 

(90

)

 

 

8

 

 

 

 

 

Loss before income taxes

 

(5,959

)

 

 

(1,998

)

 

 

(3,961

)

 

 

 

 

Income tax benefit (expense)

 

9,387

 

 

 

(32

)

 

 

9,419

 

 

 

 

 

Net income (loss)

$

3,428

 

 

$

(2,030

)

 

$

5,458

 

 

 

 

 

Revenue

Total revenues increased $10.0 million or 32% to $41.1 million during the three months ended June 30, 2014 compared to revenues of $31.1 million during the same period in 2013. The increase relates to an increase of $8.0 million in Software segment revenue due to continued focus and investment in selling and marketing efforts of our inContact portfolio of cloud contact center solutions through our direct sales and referral and reseller partner arrangements.  The increase is also the result of the addition of revenue generated from the sale of Uptivity products and services since the acquisition in May 2014. Network connectivity segment revenue increased $2.0 million as the increase of Network connectivity revenue associated with our inContact portfolio customers exceeded the attrition of our Network connectivity only customers.

24


 

We recognized $1.7 million of software revenue during the three months ended June 30, 2014 and during the same period in 2013, under our reseller agreement with Unify, which principally represents revenue from Unify’s minimum purchase commitments. Under the arrangement, revenue from resold software services reduces Unify’s obligation up to the amount of the quarterly minimum purchase commitments. These minimum purchase commitments were negotiated, in part to mitigate the risks associated with the investment in infrastructure to support our expanded reseller sales and marketing efforts initiated in 2011 and expire in the third quarter of 2014. As of June 30, 2014, Unify continues to resell our software services and has met its obligations under the revised reseller agreement; however, actual revenue from resold software services will not meet the net minimum purchase commitment in the third quarter of 2014. Therefore, we anticipate a reduction in software revenue from that reseller in the second half of 2014 approximately equal to the reduction in the net minimum purchase commitment in the second half of 2014 from the first half of 2014.

Costs of revenue and gross margin

Costs of revenue increased $5.1 million or 32% to $21.1 million during the three months ended June 30, 2014 compared to $16.0 million for the same period in 2013. Gross margin remained consistent at 49% for the three months ended June 30, 2014 compared to the same period in 2013. Gross margin was decreased by increased costs attributable to greater professional service personnel costs incurred to service larger mid-market and enterprise customers and to support resellers, international infrastructure investments and increased amortization of intangible assets from business acquisitions. The decrease was offset by lower network connectivity costs due to increased efficiencies in call routing related to a continued investment in technology, increased margins from Uptivity’s software products and lower negotiated direct costs.

Selling and marketing

Selling and marketing expenses increased $4.0 million or 44% to $13.0 million during the three months ended June 30, 2014 from $9.0 million for the same period in 2013. This increase is primarily a result of headcount additions, including from the Uptivity acquisition, for direct and channel sales employees, increased commissions as a result of increased revenue and headcount, and to a lesser extent, higher levels of investment in marketing efforts to create increased awareness of our services as well as increased lead generation efforts for our Software segment.

Research and development

Research and development expense increased $2.5 million or 85% to $5.5 million during the three months ended June 30, 2014 from $3.0 million during the same period in 2013. The increase relates to our efforts to expand our content offerings, upgrade and extend our service offerings and develop new technologies primarily through headcount additions, including from the Uptivity acquisition.

General and administrative

General and administrative expense increased $2.4 million or 46% to $7.4 million during the three months ended June 30, 2014 compared to $5.1 million during the same period in 2013. The increase is primarily due to increased costs incurred to support our domestic and international business expansion, including the addition of Uptivity employees and acquisition related costs.

Other expense

Other expense decreased $8,000 to $82,000 during the three months ended June 30, 2014 from $90,000 for the same period in 2013.

Income taxes

Benefit (provision) for income taxes for the three months ended June 30, 2014 was $9.4 million compared to ($32,000) for the same period in 2013. The tax benefit in the second quarter of 2014 was due to recording a deferred tax liability upon acquisition of Uptivity related to a reduction of carrying value of deferred revenue and acquisition of intangibles for which no tax benefit will be derived.  The reduction of carrying value and acquired intangibles resulted in a partial reversal of the valuation allowance upon consolidation.

25


 

Six Months Ended June 30, 2014 and 2013

The following is a tabular presentation of our condensed consolidated operating results for the six months ended June 30, 2014 compared to our condensed consolidated operating results for the six months ended June 30, 2013 (in thousands, except percentages):

 

 

2014

 

 

2013

 

 

$ Change

 

 

% Change

 

Net revenue

$

78,165

 

 

$

62,728

 

 

$

15,437

 

 

 

25

%

Costs of revenue

 

40,161

 

 

 

32,422

 

 

 

7,739

 

 

 

24

%

Gross profit

 

38,004

 

 

 

30,306

 

 

 

7,689

 

 

 

 

 

Gross margin

 

49

%

 

 

48

%

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

23,061

 

 

 

17,430

 

 

 

5,631

 

 

 

32

%

Research and development

 

9,238

 

 

 

5,735

 

 

 

3,503

 

 

 

61

%

General and administrative

 

13,025

 

 

 

10,374

 

 

 

2,651

 

 

 

26

%

Total operating expenses

 

45,324

 

 

 

33,539

 

 

 

11,785

 

 

 

 

 

Loss from operations

 

(7,320

)

 

 

(3,233

)

 

 

(4,087

)

 

 

 

 

Other expense

 

(344

)

 

 

(175

)

 

 

(169

)

 

 

 

 

Loss before income taxes

 

(7,664

)

 

 

(3,408

)

 

 

(4,256

)

 

 

 

 

Income tax expense

 

9,368

 

 

 

(49

)

 

 

9,417

 

 

 

 

 

Net income (loss)

$

1,704

 

 

$

(3,457

)

 

$

5,161

 

 

 

 

 

Revenue

Total revenues increased $15.4 million or 25% to $78.2 million during the six months ended June 30, 2014 compared to revenues of $62.7 million during the same period in 2013. The increase relates to an increase of $11.9 million in Software segment revenue due to continued focus and investment in selling and marketing efforts of our inContact portfolio of cloud contact center solutions through our direct sales and referral and reseller partner arrangements.  The increase is also the result of the addition of revenue generated from the sale of Uptivity products and services since the acquisition in May 2014. Network connectivity segment revenue increased $3.6 million as the increase of Network connectivity revenue associated with our inContact portfolio customers exceeded the attrition of our Network connectivity only customers.

We recognized $3.4 million of software revenue during the six months ended June 30, 2014 and during the same period in 2013, under our reseller agreement with Unify, which principally represents revenue from Unify’s minimum purchase commitments. Under the arrangement, revenue from resold software services reduces Unify’s obligation up to the amount of the quarterly minimum purchase commitments. These minimum purchase commitments were negotiated, in part to mitigate the risks associated with the investment in infrastructure to support our expanded reseller sales and marketing efforts initiated in 2011 and expire in the third quarter of 2014. As of June 30, 2014, Unify continues to resell our software services and has met its obligations under the revised reseller agreement; however, actual revenue from resold software services will not meet the net minimum purchase commitment in the third quarter of 2014. Therefore, we anticipate a reduction in software revenue from that reseller in the second half of 2014 approximately equal to the reduction in the net minimum purchase commitment in the second half of 2014 from the first half of 2014.

Costs of revenue and gross margin

Costs of revenue increased $7.7 million or 24% to $40.2 million during the six months ended June 30, 2014 compared to $32.4 million for the same period in 2013. Gross margin increased one percentage point to 49% for the three months ended June 30, 2014 compared to 48% for the same period in 2013. This increase was a result of lower network connectivity costs due to increased efficiencies in call routing related to a continued investment in technology, increased margins from Uptivity’s software products and lower negotiated direct costs.

Selling and marketing

Selling and marketing expenses increased $5.6 million or 32% to $23.1 million during the six months ended June 30, 2014 from $17.4 million for the same period in 2013. This increase is primarily a result of headcount additions, including from the Uptivity acquisition, for direct and channel sales employees, increased commissions as a result of increased revenue and headcount, and to a lesser extent, higher levels of investment in marketing efforts to create increased awareness of our services as well as increased lead generation efforts for our Software segment.

26


 

Research and development

Research and development expense increased $3.5 million or 61% to $9.2 million during the six months ended June 30, 2014 from $5.7 million during the same period in 2013. The increase relates to our efforts to expand our content offerings, upgrade and extend our service offerings and develop new technologies primarily through headcount additions, including additional headcount from the Uptivity acquisition.

General and administrative

General and administrative expense increased $2.7 million or 26% to $13.0 million during the six months ended June 30, 2014 compared to $10.4 million during the same period in 2013. The increase is primarily due to increased costs incurred to support our domestic and international business expansion, including Uptivity acquisition related costs.

Other expense

Other expense increased $169,000 to $344,000 during the six months ended June 30, 2014 from $175,000 for the same period in 2013. The difference is primarily due to an increase in the amount of interest expense in the first half of 2014 compared to the same period in 2013 related to a higher average balance on our term loans.

Income taxes

Benefit (provision) for income taxes for the three months ended June 30, 2014 was $9.4 million compared to ($49,000) for the same period in 2013. The income tax benefit in the six months ended June 30, 2014 was due to recording a deferred tax liability upon acquisition of Uptivity related to a reduction of carrying value of deferred revenue and acquisition of intangibles for which no tax benefit will be derived.  The reduction of carrying value and acquired intangibles resulted in a partial reversal of the valuation allowance upon consolidation.

SEGMENT REPORTING

We operate under two business segments: Software and Network connectivity. The Software segment includes all monthly recurring revenue related to the delivery of our software solutions plus the associated professional services and setup fees and revenue related to quarterly minimum purchase commitments from Unify through July 2014. The Network connectivity segment includes all voice and data long distance services provided to customers.

Management evaluates segment performance based on operating data (revenue, costs of revenue, and other operating expenses). Management does not evaluate and manage segment performance based on assets.

For segment reporting, we classify operating expenses as either “direct” or “indirect.” Direct expense refers to costs attributable solely to either selling and marketing efforts or research and development efforts. Indirect expense refers to costs that management considers to be overhead in running the business. Management evaluates expenditures for both selling and marketing and research and development efforts at the segment level without the allocation of overhead expenses, such as compensation, rent, utilities and depreciation on property and equipment.

Software Segment Results

The following is a tabular presentation and comparison of our Software segment unaudited condensed consolidated operating results for the three and six months ended June 30, 2014 and 2013 (in thousands, except percentages):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

$ Change

 

 

% Change

 

 

2014

 

 

2013

 

 

$ Change

 

 

% Change

 

Net revenue

$

24,198

 

 

$

16,185

 

 

$

8,013

 

 

 

50

%

 

$

44,207

 

 

$

32,357

 

 

$

11,850

 

 

 

37

%

Costs of revenue

 

10,233

 

 

 

6,344

 

 

 

3,889

 

 

 

61

%

 

 

18,468

 

 

 

12,779

 

 

 

5,689

 

 

 

45

%

Gross profit

 

13,965

 

 

 

9,841

 

 

 

4,124

 

 

 

 

 

 

 

25,739

 

 

 

19,578

 

 

 

6,161

 

 

 

 

 

Gross margin

 

58

%

 

 

61

%

 

 

 

 

 

 

 

 

 

 

58

%

 

 

61

%

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct selling and marketing

 

11,501

 

 

 

7,560

 

 

 

3,941

 

 

 

52

%

 

 

20,315

 

 

 

14,523

 

 

 

5,792

 

 

 

40

%

Direct research and development

 

5,149

 

 

 

2,714

 

 

 

2,435

 

 

 

90

%

 

 

8,623

 

 

 

5,253

 

 

 

3,370

 

 

 

64

%

Indirect

 

7,299

 

 

 

4,882

 

 

 

2,417

 

 

 

50

%

 

 

12,774

 

 

 

9,802

 

 

 

2,972

 

 

 

30

%

Loss from operations

$

(9,984

)

 

$

(5,315

)

 

 

(4,669

)

 

 

 

 

 

$

(15,973

)

 

$

(10,000

)

 

 

(5,973

)

 

 

 

 

27


 

Three Months Ended June 30, 2014 and 2013

The Software segment revenue increased by $8.0 million or 50% to $24.2 million during the three months ended June 30, 2014 from $16.2 million for the same period in 2013. The increase relates primarily to revenue generated from our inContact portfolio of cloud contact center solutions and is due to our continued focus and investment in sales and marketing through our direct sales and referral and reseller partner arrangements.  The increase is also the result of the addition of revenue generated from the sale of Uptivity products and services since the acquisition in May 2014.

We recognized $1.7 million of software revenue during the three months ended June 30, 2014 and during the same period in 2013, under our reseller agreement with Unify, which principally represents revenue from Unify’s minimum purchase commitments. Under the arrangement, revenue from resold software services reduces Unify’s obligation up to the amount of the quarterly minimum purchase commitments. As of June 30, 2014, Unify continues to resell our software services and has met its obligations under the revised reseller agreement; however, actual revenue from resold software services will not meet the net minimum purchase commitment in the third quarter of 2014. Therefore, we anticipate a reduction in software revenue from that reseller in the second half of 2014 approximately equal to the reduction in the net minimum purchase commitment in the second half of 2014 from the first half of 2014.

Gross margin decreased three percentage points to 58% for the three months ended June 30, 2014 compared to 61% for the same period in 2013. This decrease is largely a result of increased costs attributable to greater professional service personnel costs incurred to service larger mid-market and enterprise customers and to support resellers, increased costs related to the sale of third part vendor software services and increased amortization of intangible assets from business acquisitions.

Direct selling and marketing expenses in the Software segment increased $3.9 million or 52% to $11.5 million during the three months ended June 30, 2014 compared to $7.6 million for the same period in 2013. This increase is a result of headcount additions, including additional headcount from the Uptivity acquisition, for direct and channel sales employees and employees focused on managing and enhancing our partner relationships and higher levels of investment in marketing efforts to create increased awareness of our inContact portfolio of cloud contact center solutions.

We also continue to develop the software applications and services provided in the Software segment by investing in research and development. During the three months ended June 30, 2014, we incurred $5.1 million in direct research and development costs, including direct research and development costs generated by Uptivity, compared to $2.7 million for the same period in 2013 and have capitalized an additional $2.7 million of costs incurred during the three months ended June 30, 2014 related to our internally developed software compared to $1.4 million for the same period in 2013.

Indirect expenses, which consist of overhead, such as allocated general and administrative expenses, rent, utilities and depreciation on property and equipment, increased $2.4 million or 50% to $7.3 million during the three months ended June 30, 2014 from $4.9 million for the same period in 2013 due to the general increase in direct expenses and more indirect costs being allocated to the Software segment with the continued shift in revenue and direct expense mix from the Network connectivity segment to the Software segment.

Six Months Ended June 30, 2014 and 2013

The Software segment revenue increased by $11.9 million or 37% to $44.2 million during the six months ended June 30, 2014 from $32.4 million for the same period in 2013. The increase relates primarily to revenue generated from our inContact portfolio of cloud contact center solutions and is due to our continued focus and investment in sales and marketing through our direct sales and referral and reseller partner arrangements.  The increase is also the result of the addition of revenue generated from the sale of Uptivity products and services since the acquisition in May 2014.

We recognized $3.4 million of software revenue during the six months ended June 30, 2014 and during the same period in 2013, under our reseller agreement with Unify, which principally represents revenue from Unify’s minimum purchase commitments. Under the arrangement, revenue from resold software services reduces Unify’s obligation up to the amount of the quarterly minimum purchase commitments. As of June 30, 2014, Unify continues to resell our software services and has met its obligations under the revised reseller agreement; however, actual revenue from resold software services will not meet the net minimum purchase commitment in the third quarter of 2014. Therefore, we anticipate a reduction in software revenue from that reseller in the second half of 2014 approximately equal to the reduction in the net minimum purchase commitment in the second half of 2014 from the first half of 2014.

Gross margin decreased three percentage points to 58% for the six months ended June 30, 2014 compared to 61% for the same period in 2013. This decrease is largely a result of increased costs attributable to greater professional service personnel costs incurred to service larger mid-market and enterprise customers and to support resellers, increased costs related to the sale of third party vendor software services and increased amortization of intangible assets from business acquisitions.

28


 

Direct selling and marketing expenses in the Software segment increased $5.8 million or 40% to $20.3 million during the six months ended June 30, 2014 compared to $14.5 million for the same period in 2013. This increase is a result of headcount additions, including additional headcount from the Uptivity acquisition, for direct and channel sales employees and employees focused on managing and enhancing our partner relationships and higher levels of investment in marketing efforts to create increased awareness of our inContact portfolio of cloud contact center solutions.

We also continue to develop the software applications and services provided in the Software segment by investing in research and development. During the six months ended June 30, 2014, we incurred $8.6 million in direct research and development costs, including direct research and development costs generated by Uptivity, compared to $5.3 million for the same period in 2013 and have capitalized an additional $5.0 million of costs incurred during the six months ended June 30, 2014 related to our internally developed software compared to $2.9 million for the same period in 2013.

Indirect expenses, which consist of overhead, such as allocated general and administrative expenses, rent, utilities and depreciation on property and equipment, increased $3.0 million or 30% to $12.8 million during the six months ended June 30, 2014 from $9.8 million for the same period in 2013 due to the general increase in indirect expenses and more indirect costs being allocated to the Software segment with the continued shift in revenue and direct expense mix from the Network connectivity segment to the Software segment.

Network Connectivity Segment Results

The following is a tabular presentation and comparison of our Network connectivity segment condensed consolidated operating results for the three months ended June 30, 2014 and 2013 (in thousands, except percentages):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2014

 

 

2013

 

 

$ Change

 

 

% Change

 

 

2014

 

 

2013

 

 

$ Change

 

 

% Change

 

Net revenue

$

16,913

 

 

$

14,898

 

 

$

2,015

 

 

 

14

%

 

$

33,958

 

 

$

30,371

 

 

$

3,587

 

 

 

12

%

Costs of revenue

 

10,855

 

 

 

9,610

 

 

 

1,245

 

 

 

13

%

 

 

21,693

 

 

 

19,643

 

 

 

2,050

 

 

 

10

%

Gross profit

 

6,058

 

 

 

5,288

 

 

 

770

 

 

 

 

 

 

 

12,265

 

 

 

10,728

 

 

 

1,537

 

 

 

 

 

Gross margin

 

36

%

 

 

35

%

 

 

 

 

 

 

 

 

 

 

36

%

 

 

35

%

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct selling and marketing

 

933

 

 

 

947

 

 

 

(14

)

 

 

(1

%)

 

 

1,689

 

 

 

1,938

 

 

 

(249

)

 

 

(13

%)

Indirect

 

1,018

 

 

 

934

 

 

 

84

 

 

 

9

%

 

 

1,923

 

 

 

2,023

 

 

 

(100

)

 

 

(5

%)

Income from operations

$

4,107

 

 

$

3,407

 

 

$

700

 

 

 

 

 

 

$

8,653

 

 

$

6,767

 

 

$

1,886

 

 

 

 

 

Three Months Ended June 30, 2014 and 2013

Network connectivity segment revenue increased $2.0 million or 14% to $17.0 million during the three months ended June 30, 2014 compared to $14.9 million for the same period in 2013 due to the increase of network connectivity revenue associated with our inContact portfolio customers exceeding the attrition of our Network connectivity only customers. Our costs of revenue increased 13% due to the increase in revenue and Network connectivity gross margin increased by 1% due to increased efficiencies in call routing related to our continued investment in technology and lower negotiated direct costs. Selling and marketing expenses decreased $14,000 or 1% during the three months ended June 30, 2014 as compared to the same period in 2013. Indirect expenses, which consist of overhead, such as allocated general and administrative expense, rent, utilities and depreciation on property and equipment increased $84,000 or 9% during the three months ended June 30, 2014 compared to the same period in 2013.

Six Months Ended June 30, 2014 and 2013

Network connectivity segment revenue increased $3.6 million or 12% to $34.0 million during the six months ended June 30, 2014 compared to $30.4 million for the same period in 2013 due to the increase of network connectivity revenue associated with our inContact portfolio customers exceeding the attrition of our Network connectivity only customers. Our costs of revenue increased 10% due to the increase in revenue and Network connectivity gross margin increased by 1% due to increased efficiencies in call routing related to a continued investment in technology and lower negotiated direct costs. Selling and marketing expenses decreased $249,000 or 13% during the six months ended June 30, 2014 as compared to the same period in 2013, which is largely a result of fewer Network connectivity partner sales incentives.  Indirect expenses, which consist of overhead, such as allocated general and administrative expense, rent, utilities and depreciation on property and equipment decreased $100,000 or 5% during the six months ended June 30, 2014 compared to the same period in 2013, which is largely a result of reduction in bad debt expense.

29


 

LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition

Our principal sources of liquidity are cash and cash equivalents and cash available from borrowings under our Revolving Credit Agreement, which expires in July 2015. At June 30, 2014, we had $32.1 million of cash and cash equivalents. In addition to our $32.1 million of cash and cash equivalents, we have access to additional available borrowings under our Revolving Credit Agreement with Zions, subject to meeting our covenant requirements. The available borrowings under the Revolving Credit Agreement at June 30, 2014 were $15.0 million, based on the maximum available advance amount calculated on the June 20, 2014 borrowing base certificate. Total cash and additional availability under the Revolving Credit Agreement was $47.1 million at June 30, 2014. The Revolving Credit Agreement is collateralized by substantially all our assets.

We experienced net income of 1.7 million during the six months ended June 30, 2014. Significant non-cash expenses and tax benefits affecting operations during the six months ended June 30, 2014 were $9.4 million partial reversal of the deferred tax asset valuation allowance as a result of the acquisition of Uptivity, $7.3 million of depreciation and amortization and $3.0 million of stock-based compensation.

The primary source of working capital was an increase in trade accounts payable and deferred revenue.  Trade accounts payable increased primarily due to timing of payments to network connectivity vendors and outside services vendors.  Deferred revenue increased primarily due to the billings generated by the acquisition of Uptivity.

Uses of working capital related to increases of accounts receivable related to increased revenue, including that generated by Uptivity.

Cash used of $20.4 million in investing activities related primarily to purchase of equipment, capitalized internally developed software costs and the acquisition of Uptivity.

Cash provided by financing activity of $457,000 related primarily to the exercise of stock options and borrowings under the term note off set by principle payments on debt and capital lease obligations.

We continue to take a proactive approach in managing our operating expenditures and cash flow from operations. We expect to rely on internally generated cash and our Revolving Credit Agreement to finance operations and capital requirements. We believe that existing cash and cash equivalents, cash from operations, available borrowings under our Revolving Credit Agreement will be sufficient to meet our cash requirements during the next twelve months.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of our significant accounting policies and estimates is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 of our Annual Report on Form 10-K/A for the year ended December 31, 2013. The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for income taxes and other contingencies as well as asset impairment and collectability of accounts receivable. We use historical and other information that we consider to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our financial statements.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our cash and cash equivalents are invested with high-quality issuers and limit the amount of credit exposure to any one issuer. Due to the short-term nature of the cash equivalents, we believe that we are not subject to any material interest rate risk as it relates to interest income.

Interest rates on our term loan and revolving credit agreement are variable so market fluctuations in interest rate may increase our interest expense.

 

30


 

ITEM 4.

CONTROLS AND PROCEDURES (As Revised)

In connection with the filing of the Original Form 10-Q, management, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the period covered by our Original Form 10-Q for the six months ended June 30, 2014. Based on such evaluation, management concluded that, as of the end of such period, our disclosure controls and procedures were effective.

Subsequent to that evaluation, in connection with the restatement discussed in Note 2 — Restatement of Financial Statements to our unaudited Condensed Consolidated Financial Statements, management re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2014 and concluded that, solely because of the material weakness identified in our internal control over financial reporting disclosed below, our disclosure controls and procedures were not effective as of June 30, 2014.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified a material weakness in internal control over financial reporting during the fourth quarter of 2014. The Company’s controls were not properly designed related to the calculation and assessment of state sales tax for certain of our products and services and the appropriate accounting for the related state sales tax obligations.

We are in the process of implementing a new billing system and a new tax vendor to ensure that tax rates are accurate and updated timely.  We are also implementing new controls related to training our billing team and testing the tax outputs of the billing system. Management believes these initiatives will remediate the material weakness in internal control over financial reporting described above. The Company will test the ongoing operating effectiveness of the new controls in future periods. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

As the identification of the above material weakness did not occur until the fourth quarter of 2014, there have been no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

31


 

PART II

ITEM 1.

LEGAL PROCEEDINGS

In May 2009, inContact was served in a lawsuit titled California College, Inc., et al., v. UCN, Inc., et al. In the lawsuit, California College alleges that (1) inContact made fraudulent and/or negligent misrepresentations in connection with the sale of its services with those of Insidesales.com, Inc., another defendant in the lawsuit, (2) that inContact breached its service contract with California College and an alleged oral contract between the parties by failing to deliver contracted services and product and failing to abide by implied covenants of good faith and fair dealing, and (3) the conduct of inContact interfered with prospective economic business relations of California College with respect to enrolling students.  Pursuant to a motion filed by Insidesales.com, California College filed an amended complaint that has been answered by Insidesales.com and inContact.  California College originally sought damages in excess of $20.0 million.  Furthermore, Insidesales.com and inContact filed cross-claims against one another, which they subsequently agreed to dismiss with prejudice.  In October 2011, California College reached a settlement with Insidesales.com pursuant to which the claims against Insidesales.com were dismissed.  In June of 2013, California College amended its damages claim to $14.4 million, of which approximately $5.0 million was alleged pre-judgment interest. On September 10, 2013, the court issued an order on inContact's Motion for Partial Summary Judgment.  The court determined that factual disputes exist as to several of the claims, but dismissed California College's cause of action for intentional interference with prospective economic relations and the claim for prejudgment interest.  Dismissing the claim for prejudgment interest effectively reduced the claim for damages to approximately $9.2 million.  inContact has denied all of the substantive allegations of the complaint and continues to defend the claims.  Management believes the claims against inContact are without merit.  The Company does not believe the probable loss is material.

On January 15, 2014, Microlog Corporation (“Microlog”) filed a patent infringement suit against inContact in the United States District Court for the District of Delaware, Case No. 1:99-mc-09999, alleging that we are infringing one or more claims made in U.S. Patent No. 7,092,509 (the “’509 Patent”), entitled “Contact Center System Capable of Handling Multiple Media Types of Contacts and Method for Using the Same.”  Microlog is seeking a declaratory judgment, injunctive relief, damages and an ongoing royalty, and costs, including attorney’s fees and expenses.  We are at the early stages of this lawsuit and presently intend to defend the claims vigorously.

On March 20, 2014, Pragmatus Telecom, LLC (“Pragmatus”) filed a patent infringement suit against inContact in the United States District Court for the District of Delaware, Case No. 14-360, alleging that we are infringing one or more claims made in U.S. Patent No. 6,311,231 (the “’231 Patent”), entitled “Method and System for Coordinating Data and Voice Communications Via Customer Contact Channel Changing System Using Voice over IP”; U.S. Patent No. 6,668,286 (the “’286 Patent”), entitled “Method and System for Coordinating Data and Voice Communications Via Customer Contact Channel Changing System Using Voice over IP”; U.S. Patent No. 7,159,043 (the “’043 Patent”), entitled “Method and System for Coordinating Data and Voice Communications Via Customer Contact Channel Changing System”; and U.S. Patent No. 8,438,314 (the “’314 Patent”), entitled “Method and System for Coordinating Data and Voice Communications Via Customer Contract Channel Changing System”. Pragmatus is seeking a declaratory judgment, injunctive relief, damages and costs, including attorney’s fees and expenses.  We are at the early stages of this lawsuit and presently intend to defend the claims vigorously.

On May 2, 2014, Info Directions, Inc. (“IDI”) notified inContact of a Demand for Arbitration regarding a dispute related to the Software as a Service Agreement between IDI and inContact dated December 19, 2012 (“Agreement”) pursuant to which IDI was to provide inContact with billing systems software.  On April 8, 2014 InContact gave IDI notice of IDI breach of the Agreement.  inContact is defending this arbitration vigorously and Management believes the allegations to be without merit.  However, no estimate of the loss or range of loss can be made.

We are the subject of certain legal matters, which we consider incidental to our business activities. It is the opinion of management that the ultimate disposition of these other matters will not have a material impact on our financial position, liquidity or results of operations.

 

ITEM 1A.

RISK FACTORS

Our most recent Annual Report on Form 10-K/A, as well as other filings with the Securities and Exchange Commission, contain discussions of risks we believe to be significant with respect to our business, operations, financial condition, and other matters pertaining to our business and an investment in our common stock.  Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks presented in those filings and the additional risks described below.  The risks and uncertainties described below are not the only ones we face.  If any of these known or unknown risks or uncertainties actually occurs with material adverse effects, our business, financial condition and results of operations could be seriously harmed.  In that event, the market price for our common stock could decline.

32


 

If we are not able to integrate acquisitions successfully, our operating results and prospects could be harmed.

We have acquired new technology and operations in the past, including our most recent acquisitions of Uptivity in May 2014.  We will continue to look for opportunities to acquire technologies or operations that we believe will contribute to our growth and development.  The success of our future acquisition strategy will depend on our ability to identify, negotiate, complete and integrate acquisitions.  Acquisitions are inherently risky, and any acquisitions we complete may not be successful.  Any acquisitions we pursue would involve numerous risks, including the following:

·

difficulties in integrating and managing the operations and technologies of the companies we acquire;

·

diversion of our management’s attention from normal daily operations of our business;

·

our inability to maintain the customers, the key employees, the key business relationships and the reputations of the businesses we acquire;

·

our inability to generate sufficient revenue from acquisitions to offset our increased expenses associated with acquisitions;

·

our responsibility for the liabilities of the businesses we acquire, including, without limitation, liabilities arising out of their failure to maintain effective data security, data integrity, disaster recovery and privacy controls prior to the acquisition, or their infringement or alleged infringement of third party intellectual property, contract or data access rights prior to the acquisition;

·

difficulties in complying with new markets or regulatory standards to which we were not previously subject;

·

delays in our ability to implement internal standards, controls, procedures and policies in the businesses we acquire; and

·

adverse effects of acquisition activity on the key performance indicators we use to monitor our performance as a business.

Unanticipated events and circumstances may occur in future periods which may affect the realizability of our intangibles assets recognized through acquisitions.  The events and circumstances that we consider include significant under-performance relative to projected future operating results and significant changes in our overall business and/or product strategies.  These events and circumstances may cause us to revise our estimates and assumptions used in analyzing the value of our other intangible assets with indefinite lives, the revision could result in a non-cash impairment charge that could have a material impact on our financial results.

Our stock price could decline due to the dilutive effect of issuing securities for acquisitions or financing.

On July 11, 2014, we filed a registration statement with the Securities and Exchange Commission on Form S-3 to permit the former shareholders of Uptivity to resell up to 4,256,244 shares of our common stock in the market, subject to lock-up agreements that provide for the restrictions on sale to lapse over time in tranches beginning with the effective date of the registration statement on July 23, 2014, and ending 270 days later.  We also filed on July 11, a shelf registration statement on Form S-3 that allows us to offer and sell an indeterminate number of shares of our common stock, preferred stock, debt securities, and warrants from time to time, up to a maximum dollar amount of $125 million.  Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.  These sales could also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate, or to be able to use or equity for acquisitions at a price that we deem appropriate.

A material weakness in internal control over financial reporting could have a material adverse effect on our business, results of operations, financial condition and liquidity.

As discussed in Part I, Item 4 - Controls and Procedures, we have identified a material weakness in internal control over financial reporting during the fourth quarter of 2014. The Company’s controls were not properly designed related to the calculation and assessment of state sales tax for certain of our products and services and the appropriate accounting for the related state sales tax obligations.  A material weakness could result in a material misstatement of our annual or interim financial statements. A material misstatement would involve numerous risks, including the following:

We could be subject to civil litigation, including class action shareholder actions arising out of or relating to the restatements, which litigation, if decided against us, could require us to pay substantial judgments, settlements or other penalties;

Negative publicity relating to the restatements may adversely affect our business and the market price of our Common Stock;

Due to any negative publicity with respect to the restatements and the associated uncertainty in the equity markets, we may be unable to attract or retain the personnel necessary to achieve our business objectives;

33


 

Management’s focus on achieving our business objectives has been and may continue to be diverted to addressing (i) the restatements (ii) customers’, employees’, investors’ and regulators’ questions and concerns regarding the restatements (iii) any negative impact on the Company’s public image with our customers and in the financial market caused by the restatements and (iv) any subsequent litigation that may result from the restatements;

The SEC may review the restatements and require further amendment of our public filings; and

We have incurred and may continue to incur significant expenses associated with the restatements.

 

Each of these risks described above could have a material adverse effect on our business, results of operations, financial condition and liquidity.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchases of Securities

Stock repurchases for the three months ended June 30, 2014, were as follows (in thousands, except per share data):

 

Period

  

Total number of
shares purchased

 

  

Average price per
share

 

  

Total number of shares
purchased as part of a
publically announced
plan or program

 

  

Maximum number of
shares that may yet be
purchased under the
plan or program

 

April 1 – 30, 2014 (1)

 

 

1

 

 

$

 

 

 

 

 

 

 

May 1 – 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

June 1 – 30, 2014 (2)

 

 

1

 

 

 

8.73

 

 

 

 

 

 

 

Total shares repurchased

 

 

2

 

 

$

4.97

 

 

 

 

 

 

 

(1)

In April 2014, we received 1,000 shares of our common stock from employees as a result of the cancelation of a restricted stock award upon termination of employment.

(2)

June 2014, we received 1,000 shares of our common stock from an employee for the settlement of the employee’s payroll tax obligation of $12,000 associated with the lapsing of the selling restriction of a restricted stock award.

 

ITEM 5.

OTHER INFORMATION

As of August 4, 2014, inContact, as borrower, and Zions First National Bank, as Lender, entered into the Second Amendment (“Amendment”), to Amended and Restated Loan Agreement between them dated April 30, 2012 (the Amended and Restated Loan Agreement, as amended including the Amendment, is referred to herein as the “Loan Agreement”).  As a result of the Amendment certain terms of the Loan Agreement are modified or amended as follows:

·

The aggregate amount of term loans increases by $5,000,000 to a total of $13,000,000.  The new term loan for $5,000,000 matures on August 4, 2018, and we are allowed to draw on that loan through August 4, 2015.  The interest rate is 4.0% per annum above the ninety day LIBOR.  Principal is paid in 36 equal monthly installments commencing on August 1, 2015, and we may prepay any portion of the Term Loan without penalty or premium.  The principal amount of the revolving loan available to us under the Loan Agreement remains unchanged at $15,000,000, but the maturity date is extended to July 1, 2016.  

·

As a result of the recent acquisition of Uptivity, this new subsidiary is guarantying payment of all obligations arising under the Loan Agreement, and all of the assets of Uptivity are being pledged to Zions as additional security.

·

Our liquidity financial covenant is modified so that the aggregate value of cash, cash equivalents, and marketable securities shall not be less than the outstanding balance of the revolving loan plus $2,500,000, and if at any time the aggregate value is less than this sum, then we must generate a minimum quarterly EBITDA of $2,900,000 (before the Amendment it was $2,500,000) measured as of the last day of each calendar quarter.

·

Also, our restriction on the debt covenant is changed so that so that our debt due (excluding obligations under the Loan Agreement) cannot exceed $600,000 per debt for each of the calendar years ending December 31, 2014, 2015, and 2016 (before the Amendment it was $200,000) and $200,000 for each calendar year thereafter, and the outstanding principal amount of our debt due (excluding obligations under the Loan Agreement) cannot exceed $1,200,000 at any time for each of the calendar years ending December 31, 2014, 2015, and 2016 (before the Amendment it was $500,000) and $500,000 for each calendar year thereafter.

 

 

34


 

ITEM 6.

EXHIBITS

 

Exhibit No.

  

Title of Document

 

    2.1

 

 

Agreement and Plan of Merger dated May 6, 2014, by and among: inContact, Inc., a Delaware corporation; INCC Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of the inContact; CallCopy, Inc., a Delaware corporation; and, the stockholders of CallCopy (1)

 

    4.1

 

 

2008 Equity Incentive Plan, as amended through June 11, 2014 (2)

 

  10.1

 

 

Form of Non-Competition and Non-Solicitation Agreement (3)

 

  10.2

 

 

Non-Solicitation Agreement with Edison Venture Fund VII, L.P. (4)

 

  10.3

 

 

Form of Repurchase Agreements (5)

 

  10.4

 

 

Form of Registration Rights Agreement (6)

 

  10.5

 

 

Form of Lock-up Agreement (7)

 

  10.6

 

 

Lock-up Agreement with Edison Venture Fund VII, L.P. (8)

 

  10.7

 

 

Form of Restricted Stock Unit Agreement (9)

 

  10.8

 

 

Second Amendment to Amended and Restated Loan Agreement, dated August 4, 2014 (10)

 

  10.9

 

 

Form of Promissory Term Loan Note to Zions First National Bank dated August 4, 2014 (10)

 

  10.10

 

 

Form of Pledge and Security Agreement, date August 4, 2014 (10)

 

  10.11

 

 

Form of Stock Transfer Power, date August 4, 2014 (10)

 

  10.12

 

 

Form of Security Agreement, date August 4, 2014 (10)

 

  10.13

 

 

Form of Second Note Modification Agreement and Allonge to Amended and Restated Promissory Note, date August 4, 2014 (10)

 

  10.14

 

 

Form of CallCopy Guarantee, date August 4, 2014 (10)

 

  31.1

 

 

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

 

  31.2

 

 

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

 

  32.1

 

 

Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

 

 

XBRL Instance Document

 

101.SCH

 

 

XBRL Taxonomy Extension Schema Document

 

101.CAL

 

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF

 

 

XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB

 

 

XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE

 

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

(1)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  The following is a list of the exhibits and schedules to the Agreement and Plan of Merger, which indicates whether the item is filed with the Form 8-K/A report or omitted. All omitted items will be provided supplementally to the Securities and Exchange Commission upon request.

35


 

 

Exhibit A

 

Certain Definitions

 

Included in Exh. 2.1

Exhibit B

 

Form of Certificate of Merger

 

Included in Exh. 2.1

Exhibit C-1& C-2

 

Forms of Non-Competition Agreement and Non-Solicitation Agreement

 

Exh.’s 10.1 and 10.2 hereto

Exhibit D

 

Form of Employment Agreement

 

Omitted

Exhibit E

 

Form of Repurchase Agreements

 

Exh. 10.3

Exhibit F

 

Form of Registration Rights Agreement

 

Exh. 10.4

Exhibit G

 

Form of Escrow Agreement

 

Omitted

Exhibit H-1 & H-2

 

Forms of Lock-up Agreement

 

Exh.’s 10.5 and 10.6 hereto

Exhibit I

 

Form of Legal Opinion

 

Omitted

Exhibit J

 

Form of Restricted Stock Unit Agreement

 

Exh. 10.7

Schedule A

 

Stockholders of CallCopy

 

Omitted

Schedule B

 

Holders of CallCopy Stock Options

 

Omitted

Schedule C

 

Estimated Closing Date Balance Sheet and Estimated Closing Adjusted Net Current Assets, With Method of Calculation

 

Omitted

 

 

CallCopy Disclosure Schedule

 

Omitted

(2)

This document was filed as an exhibit to the Registration Statement on Form S-8, File No. 333-197382, filed by inContact with the Securities and Exchange Commission on July 11, 2014, and is incorporated herein by this reference.

(3)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  This is the form of Non-Competition and Non-Solicitation Agreement inContact entered into with Raymond Bohac, Kenton Bowen, Jeffrey M. Canter, Aaron Cash, Richard Daley, Patrick Hall, Mark A. Studer, and Tarne Tassniyom.

(4)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  

(5)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  This is the form of Repurchase Agreement inContact entered into with Jeffrey M. Canter, Patrick Hall, Mark A. Studer, and Tarne Tassniyom.

(6)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference. This is the form of Registration Rights Agreement inContact entered into Raymond Bohac, Kenton Bowen, Jeffrey M. Canter, Aaron Cash, Richard Daley, Patrick Hall, Mark A. Studer, Tarne Tassniyom, and Edison Venture Fund VII, LP.

(7)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  This is the form of Lock-up Agreement inContact entered into with Raymond Bohac, Kenton Bowen, Jeffrey M. Canter, Aaron Cash, Richard Daley, Patrick Hall, Mark A. Studer, and Tarne Tassniyom.

(8)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  

(9)

This document was filed as an exhibit to the current report on Form 8-K/A filed by inContact with the Securities and Exchange Commission on July 9, 2014, and is incorporated herein by this reference.  This is the form of Restricted Stock Unit Agreement inContact awarded to former CallCopy option holders to replace their options.

(10)

These documents were filed as an exhibit to the quarterly report on Form 10-Q filed by inContact with the Securities and Exchange Commission on August 8, 2014, and is incorporated herein by this reference.  

 

 

 

 

36


 

SIGNATURES

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.

 

 

inContact, INC.

 

 

Date:  November 14, 2014

By:

/s/ Paul Jarman

 

 

Paul Jarman

 

 

Chief Executive Officer

 

 

 

Date:  November 14, 2014

By:

/s/ Gregory S. Ayers

 

 

Gregory S. Ayers

 

 

Chief Financial Officer

 

 

37