UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2015
Or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _________________ to _________________

 

Commission File Number: 000-27083

 

MAM SOFTWARE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	84-1108035
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)

 

Maple Park, Maple Court, Tankersley, Barnsley, UK S75 3DP

(Address of principal executive offices)(Zip code)

 

011 44 124 431 1794

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

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  þ     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  þ    No  ¨

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨  Accelerated filer ¨  Non-accelerated filer (Do not check if a smaller reporting company) ¨  Smaller reporting company þ

 

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

 

The registrant had 14,288,847 shares of its common stock outstanding as of May 4, 2015.

 

 

TABLE OF CONTENTS

 

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	-1-
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	-8-
Item 4.	Controls and Procedures	-8-
PART II. OTHER INFORMATION		-9-
Item 1.	Legal Proceedings	-9-
Item 1A.	Risk Factors	-9-
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	-9-
Item 3.	Defaults Upon Senior Securities	-10-
Item 4.	Mine Safety Disclosures	-10-
Item 5.	Other Information	-10-
Item 6.	Exhibits	-10-
SIGNATURES		-11-

   

 

PART I—FINANCIAL INFORMATION

 

Unless the context indicates or requires otherwise, (i) the term “MAM” refers to MAM Software Group, Inc. and its principal operating subsidiaries; (ii) the term “MAM Ltd.” refers to MAM Software Limited; (iii) the term “MAM US” refers to MAM Software, Inc. and (iv) the terms “we,” “our,” “ours,” “us” and the “Company” refer collectively to MAM Software Group, Inc.

 

Item 1. Financial Statements

 

Index to Financial Statements

 

Condensed Consolidated Balance Sheets	F-2
Condensed Consolidated Statements of Comprehensive Income (Unaudited)	F-3
Condensed Consolidated Statements of Cash Flows (Unaudited)	F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)	F-6

 

  

MAM SOFTWARE GROUP, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

		March 31, 2015				June 30, 2014
		(unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	5,555			$	7,008
Accounts receivable, net of allowance of $250 and $473			3,854				3,857
Inventories			365				211
Prepaid expenses and other current assets			1,743				1,505
Total Current Assets			11,517				12,581
Property and Equipment, Net			726				692
Other Assets
Goodwill			8,821				9,767
Amortizable intangible assets, net			-				118
Software development costs, net			2,518				1,553
Other long-term assets			34				34
TOTAL ASSETS		$	23,616			$	24,745
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	1,229			$	1,464
Accrued expenses and other liabilities			2,104				2,283
Payroll and other taxes			908				1,224
Current portion of deferred revenues			923				833
Sales tax payable			722				893
Income tax payable			393				285
Total Current Liabilities			6,279				6,982
Long-Term Liabilities
Deferred revenues, net of current portion			71				242
Deferred income taxes			31				53
Other			153				193
Total Liabilities			6,534				7,470
Commitments and Contingencies
Stockholders' Equity
Preferred stock: Par value $0.0001 per share; 2,000,000 shares authorized, none issued and outstanding			-				-
Common stock: Par value $0.0001 per share; 18,000,000 shares authorized, 15,015,219 shares issued and 14,297,493 shares outstanding at March 31, 2015 and 15,077,830 shares issued and 14,404,149 shares outstanding at June 30, 2014			2				2
Additional paid-in capital			31,136				31,426
Accumulated other comprehensive loss			(1,991	)			(65	)
Accumulated deficit			(10,087	)			(12,342	)
Treasury stock at cost, 717,726 shares at March 31, 2015 and 673,681 shares at June 30, 2014			(1,978	)			(1,746	)
Total Stockholders' Equity			17,082				17,275
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	23,616			$	24,745

 

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

 

   

MAM SOFTWARE GROUP, INC.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands, except share and per share data)

 

		For the Three Months  Ended								For the Nine Months  Ended
		March 31,								March 31,
		2015				2014				2015				2014
Revenues		$	7,659			$	7,868			$	23,737			$	22,791
Cost of revenues			3,342				3,484				9,856				9,955
Gross profit			4,317				4,384				13,881				12,836
Operating expenses
Research and development			973				985				2,854				2,719
Sales and marketing			1,003				1,055				3,318				3,292
General and administrative			1,255				1,237				4,325				3,797
Depreciation and amortization			120				251				478				766
Total operating expenses			3,351				3,528				10,975				10,574
Operating income			966				856				2,906				2,262
Interest expense, net			(4	)			(4	)			(9	)			(37	)
Income before provision for income taxes			962				852				2,897				2,225
Provision for income taxes			241				193				642				481
Net income		$	721			$	659			$	2,255			$	1,744
Earnings per share attributed to common stockholders:
Basic		$	0.05			$	0.05			$	0.17			$	0.14
Diluted		$	0.05			$	0.05			$	0.17			$	0.13
Weighted average shares outstanding:
Basic			13,430,568				13,177,644				13,398,748				12,900,154
Diluted			13,525,148				13,318,457				13,493,328				12,992,589
Net income		$	721			$	659			$	2,255			$	1,744
Foreign currency translation (loss) income			(673	)			89				(1,926	)			924
Total comprehensive income		$	48			$	748			$	329			$	2,668

 

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

 

 

MAM SOFTWARE GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

		For the Nine Months Ended
		March 31,				March 31,
		2015				2014
Cash flows from operating activities:
Net income		$	2,255			$	1,744
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense			119				150
Depreciation and amortization			478				766
Amortization of debt discount and debt issuance costs			-				1
Fair value of stock issued for services			503				517
Deferred income taxes			(21	)			(47	)
Changes in assets and liabilities:
Accounts receivable			(502	)			(1,004	)
Inventories			(194	)			(51	)
Prepaid expenses and other assets			(337	)			356
Accounts payable			(117	)			(166	)
Payroll and other taxes			(227	)			(120	)
Deferred revenue			22				211
Accrued expenses and other liabilities			(652	)			23
Sales tax payable			(62	)			21
Net cash provided by operating activities			1,265				2,401
Cash flows from investing activities:
Purchase of property and equipment			(292	)			(142	)
Capitalized software development costs			(1,227	)			(408	)
Net cash used in investing activities			(1,519	)			(550	)
Cash flows from financing activities:
Payments for treasury stock			(232	)			-
Proceeds from the exercise of stock options			-				43
Payments on long-term debt			-				(325	)
Net cash used in financing activities			(232	)			(282	)
Effect of exchange rate changes			(967	)			246
Net change in cash and cash equivalents			(1,453	)			1,815
Cash and cash equivalents, beginning of period			7,008				4,061
Cash and cash equivalents, end of period		$	5,555			$	5,876

   

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

  

 

MAM SOFTWARE GROUP, INC.

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)

(In thousands)

 

		For the Nine Months Ended
		March 31,				March 31,
		2015				2014
Supplemental disclosures of cash flow information :
Cash paid during the period for:
Interest		$	-			$	26
Income taxes		$	484			$	586
Supplemental disclosures of non-cash investing and financing activities:
Issuance of common stock in settlement of accrued liabilities		$	-			$	16
Treasury stock retired		$	793			$	-

 

The Accompanying Notes Are an Integral Part of these Condensed Consolidated Financial Statements

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

NOTE 1. BASIS OF PRESENTATION

 

The condensed consolidated financial statements included herein have been prepared by MAM Software Group, Inc. (“MAM” or the “Company”), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information normally included in the condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included.

 

Operating results for the three and nine months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2014, which was filed with the SEC on September 23, 2014. The Company has evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes thereto, other than as disclosed in the accompanying notes.

 

NOTE 2. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

MAM Software Group, Inc. is a leading provider of business and supply chain management solutions primarily to the automotive parts manufacturers, retailers, tire and service chains, independent installers and wholesale distributors in the automotive aftermarket. The Company conducts its business through wholly owned subsidiaries with operations in Europe and North America. MAM Software Ltd. (“MAM Ltd.”) is based in Tankersley, Barnsley, United Kingdom and MAM Software, Inc. (“MAM US”) has offices in the United States in Allentown, Pennsylvania.

 

Principles of Consolidation

 

The condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

 

Concentrations of Credit Risk

 

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.

 

Cash and Cash Equivalents

 

In the U.S., the Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000.  At times deposits held with financial institutions in the U.S. may exceed the $250,000 limit.

 

In the U.K., the Company maintains cash balances at financial institutions that are insured by the Financial Services Compensation Scheme up to 85,000GBP.  At times deposits held with financial institutions in the U.K. may exceed the 85,000GBP limit.

 

The Company maintains its cash accounts at financial institutions which it believes to be credit worthy. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Customers

 

The Company performs periodic evaluations of its customers and maintains allowances for potential credit losses as deemed necessary. The Company generally does not require collateral to secure its accounts receivable. Credit risk is managed by discontinuing sales to customers who are delinquent. The Company estimates credit losses and returns based on management’s evaluation of historical experience and current industry trends. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

 

No customer accounted for more than 10% of the Company’s accounts receivable at March 31, 2015 and June 30, 2014. No customer accounted for more than 10% of the Company’s revenues for the three and nine months ended March 31, 2015 and 2014.

 

Segment Reporting

 

The Company operates in one reportable segment. The Company evaluates financial performance on a company-wide basis. The Company’s chief operating decision-maker is the chief executive officer, who evaluates the Company as a single segment.

 

Geographic Concentrations

 

The Company conducts business in the U.S., Canada and the U.K. For customers headquartered in their respective countries, the Company derived 23% of its revenues from the U.S., 1% from Canada and 76% from its U.K. operations during the three months ended March 31, 2015, compared to 27% of its revenues from the U.S., 1% from Canada and 72% from its U.K. operations during the three months ended March 31, 2014.

 

The Company derived 25% of its revenues from the U.S., 1% from Canada and 74% from its U.K. operations during the nine months ended March 31, 2015 compared to 27% of its revenues from the U.S., 1% from Canada and 72% from its U.K. operations during the nine months ended March 31, 2014.

 

At March 31, 2015, the Company maintained 82% of its net property and equipment in the U.K. and the remaining 18% in the U.S. At June 30, 2014, the Company maintained 75% of its net property and equipment in the U.K. and the remaining 25% in the U.S.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company’s management include, but are not limited to, the collectability of accounts receivable, the realizability of inventories, the recoverability of goodwill and other long-lived assets, valuation of deferred tax assets and liabilities and the estimated fair value of stock options, warrants and shares issued for non-cash consideration. Actual results could materially differ from those estimates. 

 

  

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Fair Value of Financial Instruments

 

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three categories:

 

•   Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

 

•   Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities, or (iii) information derived from or corroborated by observable market data.

 

•   Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

 

Determining which category an asset or liability falls within the hierarchy may require significant judgment. The Company evaluates its hierarchy disclosures each quarter.

 

Inventories

 

Inventories are stated at the lower of cost or current estimated market value. Cost is determined using the first-in, first-out method. Inventories consist primarily of hardware that will be sold to customers. The Company periodically reviews its inventories and records a provision for excess and obsolete inventories based primarily on the Company’s estimated forecast of product demand and production requirements. Once established, write-downs of inventories are considered permanent adjustments to the cost basis of the obsolete or excess inventories.

 

Property and Equipment

 

Property and equipment are stated at cost, and are being depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the related lease terms. Equipment under capital lease obligations is depreciated over the shorter of the estimated useful lives of the related assets or the term of the lease. Maintenance and routine repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the condensed consolidated statements of comprehensive income. Depreciation and amortization expense was $59,000 and $59,000 for the three months ended March 31, 2015 and 2014, respectively, and was $182,000 and $175,000 for the nine months ended March 31, 2015 and 2014, respectively.

 

Software Development Costs

 

Costs incurred to develop computer software products to be sold or otherwise marketed are charged to expense until technological feasibility of the product has been established. Once technological feasibility has been established, computer software development costs (consisting primarily of internal labor costs) are capitalized and reported at the lower of amortized cost or estimated realizable value. Purchased software development cost is recorded at its estimated fair market value. When a product is ready for general release, its capitalized costs are amortized on a product-by-product basis. The annual amortization is the greater of the amounts of: the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product; and, the straight-line method over the remaining estimated economic life (a period of three years) of the product including the period being reported on. If the future market viability of a software product is less than anticipated, impairment of the related unamortized development costs could occur, which could significantly impact the Company’s results of operations. Amortization expense was $61,000 and $60,000 for the three months ended March 31, 2015 and 2014, respectively, and $184,000 and $179,000 for the nine months ended March 31, 2015 and 2014, respectively.

 

  

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

  

Amortizable Intangible Assets

 

Amortizable intangible assets consist of completed software technology, customer relationships and automotive data services and are recorded at cost. Completed software technology and customer relationships are amortized using the straight-line method over their estimated useful lives of eight to ten years, and automotive data services are amortized using the straight-line method over their estimated useful lives of 20 years. Amortization expense on amortizable intangible assets was $0 and $132,000 for the three months ended March 31, 2015 and 2014, respectively, and $112,000 and $412,000 for the nine months ended March 31, 2015 and 2014, respectively.

 

Goodwill

 

Goodwill is not amortized but rather is tested at least annually for impairment.

 

Goodwill is subject to impairment reviews by applying a fair-value-based test at the reporting unit level, which generally represents operations one level below the segments reported by the Company. As of March 31, 2015, the Company does not believe there is an impairment of its goodwill. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue which could result in impairment of goodwill in the future.

 

For the nine months ended March 31, 2015, goodwill activity was as follows:

 

Balance, July 1, 2014		$	9,767,000
Effect of exchange rate changes			(946,000	)
Balance, March 31, 2015		$	8,821,000

 

Long-Lived Assets

 

The Company’s management assesses the recoverability of long-lived assets (other than goodwill discussed above) upon the occurrence of a triggering event by determining whether the carrying value of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows over its remaining life. The amount of long-lived asset impairment, if any, is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management. At March 31, 2015, management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue, which could result in impairment of long-lived assets in the future.

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Issuance of Equity Instruments to Non-Employees

 

All issuances of the Company’s equity instruments to non-employees are measured at fair value based upon either the fair value of the equity instruments issued or the fair value of consideration received, whichever is more readily determinable. The majority of stock issuance for non-cash consideration received pertains to services rendered by consultants and others and has been valued at the fair value of the equity instruments on the dates issued.

 

The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. Assets acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes.

 

Stock-Based Compensation

 

For valuing stock options awards, the Company has elected to use the Black-Scholes Merton option pricing valuation model (“Black-Scholes”). For the expected term, the Company uses a simple average of the vesting period and the contractual term of the option. Volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate during the expected term of the option. For volatility the Company considers its own volatility as applicable for valuing its options and warrants. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The risk-free interest rate is based on the relevant U.S. Treasury Bill Rate at the time of each grant. The dividend yield represents the dividend rate expected to be paid over the option’s expected term; the Company currently has no plans to pay dividends.

 

On June 12, 2008, the Company’s shareholders approved the Company’s 2007 Long-Term Stock Incentive Plan (“LTIP”). Stock awarded under the LTIP are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10-25-5. Since the awards were unilateral grants, the recipients do not have the ability to negotiate the key terms and the conditions of the grant, and the key terms and conditions were communicated to the individual recipients within a relatively short period of time. Therefore the grant and measurement dates are May 13, 2008, July 1, 2008, July 1, 2009, July 1, 2010, July 1, 2011, July 1, 2012, April 1, 2013 and July 1, 2014 for each respective stock award. The maximum aggregate number of shares of common stock that may be issued under the LTIP, including stock awards and stock appreciation rights, is limited to 15% of the shares of common stock outstanding on the first trading day of any fiscal year. The Company issued restricted shares of common stock to management and board members in fiscal 2015 and 2014.

 

Revenue Recognition

 

Software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product component has occurred, the fee is fixed and determinable, and collectability is probable. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria are met. The Company accounts for delivered elements in accordance with the selling price when arrangements include multiple product components or other elements and vendor-specific objective evidence exists for the value of all undelivered elements. Revenues on undelivered elements are recognized once delivery is complete.

 

  

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

In those instances in which arrangements include significant customization, contractual milestones, acceptance criteria or other contingencies (which represents the majority of the Company’s arrangements), the Company accounts for the arrangements using contract accounting, as follows:

 

1)

When customer acceptance can be estimated, but reliable estimated costs to complete cannot be determined, expenditures are capitalized as work-in process and deferred until completion of the contract at which time the costs and revenues are recognized.

 

2)

When customer acceptance cannot be estimated based on historical evidence, costs are expensed as incurred and revenue is recognized at the completion of the contract when customer acceptance is obtained.

 

The Company records amounts collected from customers in excess of recognizable revenue as deferred revenue in the accompanying condensed consolidated balance sheets.

 

Revenues for maintenance agreements, software support, on-line services and information products are recognized ratably over the term of the service agreement.

 

Advertising Expense

 

The Company expenses advertising costs as incurred. For the three months ended March 31, 2015 and 2014, advertising expense totaled $82,000 and $117,000, respectively. For the nine months ended March 31, 2015 and 2014, advertising expense totaled $349,000 and $439,000, respectively.

 

Foreign Currency

 

Management has determined that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the U.K. subsidiaries are translated into U.S. dollars at the quarter-end exchange rates. Income and expenses are translated at an average exchange rate for the period and the resulting translation gain adjustments are accumulated as a separate component of stockholders’ equity. Foreign currency translation income (loss) totaled $(673,000) and $89,000 for the three months ended March 31, 2015 and 2014, respectively, and $(1,926,000) and $924,000 for the nine months ended March 31, 2015 and 2014, respectively.

 

Foreign currency gains and losses from transactions denominated in other than respective local currencies are included in income. The Company had no foreign currency transaction gains (losses) for all periods presented.

 

Comprehensive Income

 

Comprehensive income includes all changes in equity (net assets) during a period from non-owner sources. For the three and nine months ended March 31, 2015 and 2014, the components of comprehensive income consist of changes in foreign currency translation gains (losses).

 

  

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

  (Unaudited)

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. Deferred taxation is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company's condensed consolidated balance sheets at March 31, 2015 and June 30, 2014, and has not recognized interest and/or penalties in the condensed consolidated statements of comprehensive income for the three and nine months ended March 31, 2015 and 2014.

 

Basic and Diluted Earnings (Loss) Per Share

 

Basic earnings (loss) per share (“BEPS”) is computed by dividing the net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share (“DEPS”) is computed giving effect to all dilutive potential common shares outstanding during the year. Dilutive potential common shares consist of incremental shares issuable upon the exercise of stock options and warrants using the “treasury stock” method. The computation of DEPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. For the three and nine months ended March 31, 2015 there were 94,580 and 94,580 common share equivalents included in the computation of DEPS. For the three and nine months ended March 31, 2015, 866,252 shares of common stock vest based on the market price of the Company’s common stock and were excluded from the computation of DEPS because the shares have not vested (see below). For the three and nine months ended March 31, 2014, there were 140,813 and 92,435 common share equivalents included in the computation of DEPS. For the three and nine months ended March 31, 2014, 1,698,505 shares of common stock vest based on the market price of the Company’s common stock. A total of 1,175,910 were excluded from the computation of DEPS because the shares have not vested (see below).

 

On December 31, 2014, 4,630 common stock purchase warrants expired.

 

In connection with the employment agreements with the Company’s Chief Executive Officer and Chief Financial Officer (see Note 4), on April 27, 2012, the Board of Directors approved the issuance of 1,165,359 shares of restricted stock. The shares vest based on the market price of the Company’s common stock. The Company issued these shares to the executives and they are being held by an escrow agent and will be released to the executives when they vest.  On September 18, 2014, the Company released from escrow 174,804 shares of common stock to the executives which vested, as our Compensation Committee determined that the second threshold had been met pursuant to the Company’s LTIP and the executive’s employment agreements. The Company withheld 66,347 shares of common stock which were used to pay income taxes and those shares of common stock were retired by the Company.

 

On April 10, 2014, the Company released from escrow 466,144 shares of common stock to its Chief Executive Officer and the Chief Financial Officer which vested, as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the employment agreements of the Chief Executive Officer and the Chief Financial Officer. The Company withheld 151,806 shares of common stock which were used to pay income taxes and those shares were retired by the Company.

 

The Company excludes the remaining 524,411 of these escrow shares from the basic and diluted earnings per share calculations as the market price of the Company’s common stock did not trade at or above the target stock prices per the employment agreements during the reporting period.

 

 

 MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

  (Unaudited)

 

In connection with the employment agreement with an officer of a Company subsidiary (see Note 4), on March 1, 2013, the Board of Directors approved the issuance of 282,254 shares of restricted stock. The shares vest based on the market price of the Company’s common stock. The Company issued these shares to the officer and they are being held by an escrow agent and will be released to the officer when they vest. On August 28, 2014, the Company released from escrow 84,676 shares of common stock to the officer which vested as our Compensation Committee determined that the second threshold had been met pursuant to the Company’s LTIP and the officer’s employment agreements. The Company withheld 44,455 shares of common stock which were used to pay income taxes and those shares were retired by the Company.

 

On April 10, 2014, the Company released from escrow 56,451 shares of common stock to the officer which vested as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officer’s employment agreements. The Company withheld 15,586 shares of common stock which were used to pay income taxes and those shares were retired by the Company.

 

The Company excludes the remaining 141,127 of these escrow shares from the basic and diluted earnings per share calculations as the market price of the Company’s common stock did not trade at or above the target stock prices per the employment agreements during the reporting period.

 

In connection with the employment agreement with the Company’s Chief Technology Officer (see Note 4), on July 1, 2013, the Board of Directors approved the issuance of 250,892 shares of restricted stock. The shares vest based on the market price of the Company’s common stock. The Company issued these shares to the executive and they are being held by an escrow agent and will be released to the executive when they vest. On September 18, 2014, the Company released from escrow 50,178 shares of common stock to the officer which vested as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officer’s employment agreement. The Company withheld 23,584 shares which were used to pay income taxes and those shares were retired by the Company.

 

The Company excludes the remaining 200,714 of these escrow shares from the basic and diluted earnings per share calculations as the market price of the Company’s common stock did not trade at or above the target stock prices per the employment agreement during the reporting period.

 

The following tables present the computation of the basic and diluted earnings per share of the three and nine months ended March 31, 2015 and 2014, respectively:

 

Three Months Ended March 31,		2015				2014
Numerator:
Net income		$	721,000			$	659,000
Denominator:
Basic weighted-average shares outstanding			13,430,568				13,177,644
Effect of dilutive securities			94,580				140,813
Diluted weighted-average diluted shares			13,525,148				13,318,457
Basic earnings per common share		$	0.05			$	0.05
Diluted earnings per common share		$	0.05			$	0.05

 

Nine Months Ended March 31,		2015				2014
Numerator:
Net income		$	2,255,000			$	1,744,000
Denominator:
Basic weighted-average shares outstanding			13,398,748				12,900,154
Effect of dilutive securities			94,580				92,435
Diluted weighted-average diluted shares			13,493,328				12,992,589
Basic earnings per common share		$	0.17			$	0.14
Diluted earnings per common share		$	0.17			$	0.13

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

Reclassification

 

Certain prior period amounts have been reclassified to conform to the current presentation.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled to when products are transferred to customers. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date for reporting periods beginning after December 15, 2016. The Company has not selected a transition method and is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern. Currently, there is no guidance in accounting principles generally accepted in the United States of America about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the reporting periods beginning after December 15, 2016 and early application is permitted. The Company is currently assessing the impact the adoption of ASU 2014-15 will have on its consolidated financial statements.

 

NOTE 3. COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, the Company may become subject to various legal claims and proceedings arising in the ordinary course of business. The ultimate disposition of such a proceeding if initiated could have a material adverse effect on the consolidated financial position or results of operations of the Company. There are currently no pending legal proceedings.

 

Indemnities and Guarantees

 

The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of Delaware. In connection with its facility leases, the Company has indemnified its lessors for certain claims arising from the use of the facilities. In connection with its customers’ contracts, the Company indemnifies the customer that the software provided does not violate any U.S. patent. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed consolidated balance sheets.

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

NOTE 4. STOCKHOLDERS’ EQUITY

 

Common Stock

 

During the quarter ended September 30, 2011, the Company approved the issuance of 88,398 shares of common stock to the non-management members of the Board of Directors under the Company’s 2007 LTIP in respect of quarterly compensation. The shares vest over a three-year period and are issued quarterly. The Company issued 5,346 shares of common stock valued at $9,000 during the nine months ended March 31, 2015.

 

During the quarter ended September 30, 2012, the Company approved the issuance of 98,654 shares of common stock to the non-management members of the Board of Directors under the Company’s 2007 LTIP in respect of quarterly compensation. The shares vest over a three-year period and are issued quarterly. The Company issued 18,975 shares of common stock valued at $42,000 during the nine months ended March 31, 2015.

 

During the quarter ended June 30, 2013, the Company approved the issuance of 66,169 shares of common stock to the non-management members of the Board of Directors under the Company’s 2007 LTIP in respect of quarterly compensation. The shares vest over a three-year period and are issued quarterly. The shares were valued at approximately $244,000, based on the closing market price of the Company’s common stock on the date of the grant, April 1, 2013. The Company issued 15,282 shares of common stock valued at $57,000 during the nine months ended March 31, 2015.

 

During the quarter ended June 30, 2014, the Company approved the issuance of 44,112 shares to the non-management members of the Board of Directors under the Company’s 2007 LTIP in respect of quarterly compensation. The shares vest over a three-year period and are issued quarterly. The shares were valued at approximately $244,000, based on the closing market price of the Company’s common stock on the date of the grant, April 1, 2013. The Company issued 6,790 shares of common stock valued at $37,000 during the nine months ended March 31, 2015.

 

On July 8, 2014, the Company issued 3,061 shares of common stock to certain directors, in lieu of cash compensation, which were valued at approximately $17,000 based on the closing market price of the Company’s common stock on the date of the grant.

 

On September 18, 2014, the Company released from escrow 174,804 shares of common stock to certain executives of the Company which vested pursuant to the terms of the April 20, 2012 grant as the market price threshold of the common stock had been achieved. The shares were issued pursuant to the Company’s LTIP and the executives employment agreements. The Company withheld 66,347 shares which were used to pay taxes and those shares were retired by the Company.

 

On September 18, 2014, the Company released from escrow 84,676 shares of common stock to an officer of a subsidiary of the Company which vested pursuant to the terms of the March 1, 2013 grant as the market price threshold of the common stock had been achieved. The shares were issued pursuant to the Company’s LTIP and the officer’s employment agreement. The Company withheld 44,455 shares which were used to pay taxes and those shares were retired by the Company.

 

On September 18, 2014, the Company released from escrow 50,178 shares of common stock to a certain executive of the Company which vested pursuant to the terms of the July 1, 2013 grant as the market price threshold of the common stock had been achieved. The shares were issued pursuant to the Company’s LTIP and the executive’s employment agreement. The Company withheld 23,584 shares which were used to pay taxes and those shares were retired by the Company.

 

 

  

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

On October 7, 2014, the Company issued, under the 2007 LTIP, 3,340 shares of common stock to certain directors, in lieu of cash compensation, which were valued at $17,000, based on the closing market price of the Company common stock on the date of grant.

 

On January 7, 2015, the Company issued, under the 2007 LTIP, 3,024 shares of common stock to certain directors, in lieu of cash compensation, which were valued at $17,000, based on the closing market price of the Company’s common stock on the date of issuance.

 

Treasury Stock

 

On September 18, 2014, the Company repurchased and retired 134,386 shares of common stock at a cost of approximately $793,000.

 

From July 1, 2014 until March 31, 2015, the Company repurchased 44,045 shares of common stock at a cost of $232,000. As of March 31, 2015, the Company has repurchased 1,907,197 shares at a cost of $4,294,000 and has a remaining approval to repurchase an additional $2,456,000 of treasury stock.

 

Stock-Based Compensation:

 

A summary of the Company's common stock option activity is presented below (shares in thousands)

 

		Options Outstanding
										Weighted-
										Average				Aggregate
		Number of				Weighted-				Remaining				Intrinsic
		Shares				Average				Contractual				Value
		(in				Exercise				Life				(in
		thousands)				Price				(in years)				thousands)
Options outstanding - July 1, 2014			121			$	1.23
Options granted			-				-
Options exercised			-				-
Options cancelled			-				-
Options outstanding - March 31, 2015			121			$	1.23				6.2			$	515
Options exercisable - March 31, 2015			121			$	1.23				6.2			$	515
Options exercisable and expected to vest - March 31, 2015			121			$	1.23				6.2			$	515

 

On April 27, 2012, the Board of Directors approved the issuance of 728,350 restricted shares of Company common stock pursuant to the Company’s 2007 LTIP. These shares were issued to Mr. Jamieson, our Chief Executive Officer, and the unvested shares are being held in escrow until they vest. On April 10, 2014, the Company released from escrow 291,340 shares of common stock to the officer which vested, as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officers’ employment agreements. The Company withheld 85,217 shares which were used to pay income taxes and those shares were retired by the Company.

 

On September 18, 2014, the Company released from escrow 109,253 shares of common stock to the officer which vested, as our Compensation Committee determined that the second threshold had been met pursuant to the Company’s LTIP and the officers’ employment agreement. The Company withheld 31,957 shares which were used to pay income taxes and those shares were retired by the Company.

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

The remaining unvested restricted shares will vest according to the following schedule:

 

-

15% when the market price of the Company’s common stock trades at or above $7 for the previous 30 day VWAP.

 

-

30% when the market price of the Company’s common stock trades at or above $8 for the previous 30 day VWAP.

 

The initial value of the common stock grant was approximately $244,000 and as of March 31, 2015, the total amount of stock based compensation has been expensed. The shares were valued using a Monte Carlo Simulation with a three year life, 124.8% volatility and a risk free interest rate of 0.39%. The Company recognized $11,000 and $21,000 of expense for the three months ended March 31, 2015 and 2014, respectively. The Company recognized $55,000 and $65,000 of expense for the nine months ended March 31, 2015 and 2014, respectively.

 

On April 27, 2012 the Board of Directors approved the issuance of restricted 437,009 shares of Company common stock pursuant to the Company’s 2007 LTIP. These shares were issued to Mr. Trapp and are being held in escrow until they vest. On April 10, 2014, the Company released from escrow 178,804 shares of common stock to the officer which vested, as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officers’ employment agreements. The Company withheld 66,589 shares which were used to pay income taxes and those shares were retired by the Company.

 

On September 18, 2014, the Company released from escrow 65,551 shares of common stock to the officer which vested, as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officers’ employment agreements. The Company withheld 34,390 shares which were used to pay income taxes and those shares were retired by the Company.

 

The remaining unvested restricted shares will vest according to the following schedule:

 

-

15% when the market price of the Company’s common stock trades at or above $7 for the previous 30 day VWAP.

  

-

30% when the market price of the Company’s common stock trades at or above $8 for the previous 30 day VWAP.

  

The initial value of the common stock grant was approximately $146,000 and as of March 31, 2015, the total amount of stock based compensation has been expensed. The shares were valued using a Monte Carlo Simulation with a three year life, 124.8% volatility and a risk free interest rate of 0.39%. The Company recognized $7,000 and $13,000 of expense for each of the three months ended March 31, 2015 and 2014, respectively. The Company recognized $33,000 and $39,000 of expense for each of the nine months ended March 31, 2015 and 2014, respectively.

  

On March 1, 2013, the Board of Directors approved the issuance of 282,254 restricted shares of Company common stock to a certain subsidiary officer pursuant to the Company’s 2007 LTIP. These shares were issued to the officer and are being held in escrow until they vest. On April 10, 2014, the Company released from escrow 56,451 shares of common stock to the officer which vested, as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officer’s employment agreement. The Company withheld 15,586 shares which were used to pay income taxes and those shares were retired by the Company. On September 18, 2014, the Company released from escrow 84,676 shares of common stock to the subsidiary officer which vested, as our compensation committee determined the second threshold had been met pursuant to the Company’s LTIP and the subsidiary officer’s employment agreement. The Company withheld 44,455 shares which were used to pay income taxes and those shares were retired by the Company.

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

The remaining unvested restricted shares will vest according to the following schedule:

 

-

15% when the market price of the Company’s common stock trades at or above $7 for the previous 30 day VWAP.

 

-

30% when the market price of the Company’s common stock trades at or above $8 for the previous 30 day VWAP.

 

The initial value of the common stock grant was approximately $109,000 and as of March 31, 2015, the total amount of stock based compensation has been expensed. The shares were valued using a Monte Carlo Simulation with a two year life, 39.6% volatility and a risk free interest rate of 0.25%. The Company recognized $1,000 and $14,000 of expense for the three months ended March 31, 2015 and 2014, respectively. The Company recognized $31,000 and $44,000 of expense for the nine months ended March 31, 2015 and 2014, respectively.

 

On July 1, 2013, the Board of Directors approved the issuance of 250,892 restricted shares of Company common stock pursuant to the Company’s 2007 LTIP. These shares were issued to Mr. Broad, our Chief Technology Officer, and are being held in escrow until they vest. On September 18, 2014, the Company released from escrow 50,178 shares of common stock to the officer which vested, as our Compensation Committee determined that the initial threshold had been met pursuant to the Company’s LTIP and the officers’ employment agreements. The Company withheld 23,584 shares which were used to pay income taxes and those shares were retired by the Company.

 

The remaining unvested restricted shares will vest according to the following schedule:

 

-

30% when the market price of the Company’s common stock trades at or above $7 for the previous 30 day VWAP.

 

-

30% when the market price of the Company’s common stock trades at or above $8 for the previous 30 day VWAP.

 

-

20% when the market price of the Company’s common stock trades at or above $9 for the previous 30 day VWAP.

 

The initial value of the common stock grant was approximately $265,000, which will be amortized over the life of the employment agreement. As of March 31, 2015, the amount of unamortized stock based compensation that has not been expensed related to the unvested common stock grant is approximately $6,000. The shares were valued using a Monte Carlo Simulation with a two year life, 124.8% volatility and a risk free interest rate of 0.39%. The Company recognized $26,000 and $39,000 of expense for the three months ended March 31, 2015 and 2014, respectively. The Company recognized $104,000 and $117,000 of expense for the nine months ended March 31, 2015 and 2014, respectively.

 

If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense or calculate and record additional expense. Future stock-based compensation expense and unearned stock based compensation will increase to the extent that the Company grants additional common stock options or other stock-based awards.

 

 

MAM SOFTWARE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

Employee Stock Purchase Plan

 

On September 21, 2011, the Company approved the MAM Software Group, Inc. Employee Stock Purchase Plan (“ESPP” or the “Plan”). On December 16, 2011 the Company’s shareholders approved the ESPP. Under the ESPP the Company will grant eligible employees the right to purchase common stock through payroll deductions at a price equal to the lesser of 85% of the fair market value of a share of common stock on the Exercise Date of the current Offering Period or 85% of the fair market value of our common stock on the Grant Date of the Offering Period. No employee will be granted an option to purchase more than $2,400 of fair market value common stock in a calendar year. The Plan is intended to be an “employee stock purchase plan” as defined in Section 423 of the Internal Revenue Code, as amended. The Plan covers a maximum of 100,000 shares of common stock which will be offered to employees until January 2, 2022 or until the Plan is terminated by the Board of Directors.

   

During the nine months ended March 31, 2015, the Company issued 15,957 shares of common stock to employees including an officer, under the ESPP in lieu of cash compensation, which were valued at approximately $85,000 based on the closing market price of the Company’s common stock on July 1, 2014 and December 31, 2014.

 

NOTE 6. SUBSEQUENT EVENTS

 

On April 1, 2015, the Company issued 14,814 shares of common stock valued at $52,000 to the non-management members of the Board of Directors under the 2007 LTIP based on the closing market price of the Company’s common stock on the date of grant.

 

From April 1, 2015 to May 4, 2015 the Company repurchased 23,460 treasury shares at a cost of approximately $129,000.

 

On April 7, 2015, the Company retired 2,766 shares valued at approximately $9,300.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements for the fiscal year ended June 30, 2014, and the notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed separately with the U.S. Securities and Exchange Commission. This discussion and analysis contains forward-looking statements based upon current beliefs, plans, expectations, intentions and projections that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014, and any updates to those risk factors filed from time to time in our Quarterly Reports on Form 10-Q, including those set forth under Part II, Item 1A.of this Quarterly Report on Form 10-Q.

 

Company Overview

 

MAM Software Group, Inc. (“MAM,” the “Company,” “we,” “our,” or “us”) is a leading provider of integrated information management solutions and services and a leading provider of cloud-based software solutions for primarily the automotive aftermarket sector. The Company conducts its businesses through wholly owned subsidiaries with operations in Europe and North America. MAM Software Ltd. (“MAM Ltd.”) is based in Tankersley, Barnsley, United Kingdom and MAM Software, Inc. (“MAM US”) has offices in the United States in Allentown, Pennsylvania.

 

The Company is a leading global provider of on-premise and cloud-based business management solution for the auto parts, tires and other vertical distribution industries with similar dynamics. We have a broad line of software solutions and services to address the information technology (IT) needs of virtually every significant sector of the automotive aftermarket in the United Kingdom and North America and in the process of beginning to leverage this position into new industry verticals and new geographies around the world. At present, most of our customers in the U.K. have our software installed on-premise. For customers who prefer not to physically acquire the software and hardware, most of our software applications can be delivered as Software as a Service (SaaS), which utilizes the cloud. We provide professional IT services to our customers, including software and hardware installation, data conversion, training, and, at times, product modifications. We also provide continuing customer support services to ensure product performance and reliability, which provides us with long-term customer relationships and a significant base of recurring maintenance revenue.

 

Our Markets

 

MAM Software Group, Inc. provides software, information and related services to businesses engaged in the automotive aftermarket in the U.S., Canada, U.K. and Ireland. The automotive aftermarket consists of businesses associated with the life cycle of a motor vehicle from when the original manufacturer’s warranty expires to when the vehicle is scrapped. Products sold by businesses engaged in this market include the parts, tires and auto services required to maintain and improve the performance or appeal of a vehicle throughout its useful life. The Company aims to meet the business needs of customers who are involved in the maintenance and repair of automobiles and light trucks in three key segments of the automotive aftermarket, namely parts, tires and auto service.    

 

The Company’s customer base consists of wholesale parts and tire distributors, retailers, franchisees, cooperatives, auto service chains and single location auto service businesses with high customer service expectations and complex commercial relationships.

 

In the U.K. and Ireland, the Company also provides management solutions to business involved in the wholesale of construction materials. These vertical markets include plumbing, building, lumber, and electrical wholesale distribution companies.

 

 

 

Market Dynamics & Opportunities

 

We believe that the largest single issue facing the automotive aftermarket at this time are lingering effects in the aftermath of the global economic downturn from the last decade. Notwithstanding general economic improvement over the past three to four years, automobile owners are continuing to retain their existing automobiles far longer than they may have previously planned. This phenomenon is forcing owners to seek out more economic ways of maintaining their vehicles, and we believe this ongoing trend continues to offer an opportunity for the Company to market its product and service offerings. For instance, the need for consumers to maintain their vehicles longer requires service suppliers to offer a wide range of services at highly competitive prices. We believe that this can be achieved only by those businesses that are able to efficiently manage their businesses and find methods to reduce costs without affecting service levels, which may best be done through investments in ‘up to date’ management information systems, specifically those designed for the automotive market. However, we have recently noticed that some businesses wishing to invest in new management systems are also finding their access to credit reduced. The continuing challenges for smaller businesses to gain access to credit on favorable terms may have a detrimental effect on our revenues if customers are unable to identify adequate resources necessary to fund purchases. As a means to addressing the lack of availability of credit for customers or potential customers, we have introduced Autopart Online which is a ‘rental’ or Software as a Service (SaaS) version of Autopart. Autopart Online does not require the customer to purchase hardware and software licenses upfront, they simply ‘rent’ the infrastructure and purchase the professional services required to implement the system. We believe that by removing the capital investment associated with Autopart, we will see an increase in interest in our Autopart Online solution.

 

Our Products and Services

 

The Company’s business management systems, information products and online services permit our customers to manage their critical day-to-day business operations through automated point-of-sale, information (content) products, inventory management, purchasing, general accounting and customer relationship management.

 

We provide professional IT services to our customers, including software and hardware installation, data conversion, training, and, at times, product modifications. We also provide continuing customer support services to ensure product performance and reliability, which provides us with long-term customer relationships and a significant base of recurring maintenance revenue.

 

Our Technologies

 

Our solutions are available as both 'on-premise' applications (sold via the traditional perpetual licensing model) and ‘cloud’ solutions that are delivered as a service over the Internet on a subscription basis.

 

Many of our business management applications are now available as Software as a Service (SaaS), where software and associated data is centrally hosted in the cloud. Depending on the complexity of the application, MAM SaaS solutions are deployed using 'cloud hosting' or 'web application' technology:

 

·

SaaS cloud hosting - single tenants accessing fully-managed virtual servers via thin client (terminal services) connections (e.g., Autopart Online); or

 

·

SaaS web application - multiple tenants accessing a dedicated website using a standard web browser (e.g., Autowork Online).

 

Our catalog information is also available in the cloud as Data as a Service (DaaS). We centrally host and maintain the data, which is accessed by users via a desktop application, web application or integrated into their B2C website. Many of our applications offer integration with third-party vendors as a service, commonly known as Integration Platform as a Service (iPaaS). These services include: technical repair information; vehicle registration data (VRM); auto parts catalog data; zip code lookup; Internet electronic data interchange (or “Internet EDI”); website integration services; and mobile app connectivity.

 

Our Revenues

 

Our revenue and income is derived primarily from the sale of software, data, services and support. In the U.K., we also earn a percentage of our revenue and income from the sale of hardware systems to clients. During the three and nine months ended March 31, 2015, we generated revenues of $7,659,000 and $23,737,000, respectively, with a net income of $721,000 and $2,255,000, respectively with 74% of the revenues for the nine months ended March 31, 2015 coming from the U.K. market.

 

 

The Company’s revenues are derived from the following:

 

	·	The sale of business management systems comprised of proprietary software applications, implementation and training;
	·	Providing subscription-based services, including software support and maintenance, and online services for a fee;
	·	Delivering our business management software as a service, commonly known as SaaS;
	·	Delivering our catalogue information as a service, commonly known as DaaS; and
	·	Enabling integration between systems and third-party vendors as a service, commonly known as iPaaS.

 

Our Strategies

 

To date, our management has identified five areas that it believes we need to focus on. The first area is the continued growth of revenues derived from delivering our business management SaaS. Currently, our Autowork Online, our ‘installer’ solution in the U.K. and Autopart Online, our parts store solution, are being delivered in this way. Both products have been developed by MAM Ltd., our U.K. subsidiary, under the ‘cloud’ computing model. This is where software solutions are made available to end-users via the Internet and does not require them to purchase the software directly but ‘rent’ it over a fixed period of time. Our management believes that this will be a rapidly growing market for the U.K. as businesses continue to look for ways of reducing capital expenditures while maintaining levels of service. Autowork Online was launched in the U.K. in 2010 and as of March 31, 2015, we had 2,584 subscribers of this service. The product has just been localized and released into the U.S. market. Autopart Online was launched in the U.S. in August 2011, and as of March 31, 2015, we had 1,560 end-users subscribing to this service.

 

The second area of focus is the sales and marketing strategy within the U.S. market. Our management believes that continued investment in this key area is required to help the development of the MAM brand.

 

The third area of focus relates to the launch of our information service, Autocat+ in the U.S. Autocat+ is an auto parts catalog that uses the DaaS distribution model. MAM Ltd. centrally hosts and maintains the data, which is accessed by users via MAM's business management software, a standalone desktop application, or web application. Data can also be 'consumed' via a web-based service for integration into business-to-consumer websites. Information in Autocat+ is maintained through an automatic verification and standardization process, with updates published daily.

 

In the U.K., there are approximately 10,100 end-users (warehouse distributors, parts stores and auto service providers) who use our information products, for which a monthly or annual subscription fee is charged. Our management believes that launching a U.S. version of Autocat+ will help sell our business management software solutions.

 

The fourth area is within the U.K. market as we are continually working to sustain the levels of growth in the U.K. business by focusing on certain vertical markets, which share common issues to that of the automotive market. We have developed a reputation of high levels of service and knowledge within the automotive market; and are now working on replicating this reputation in these additional vertical markets. Our management intends to carefully monitor this expansion as a result of the current state of the global economy.

 

The fifth area is the continued investment in research and development that will allow us to deliver innovative new solutions and modules in support of the previous four key areas. During the nine months ended March 31, 2015, we announced the release of our latest generation B2C e-tailing and B2B e-commerce solutions. Together with our marketplace tools, application integration solutions and in-store management systems, they form an omni-channel commerce suite that enables businesses to manage all online and offline operations from within a single environment.

 

Our Progress

 

At present, most of our customers in the U.K. have our software installed on-premise. However, market acceptance of cloud computing for mission-critical enterprise applications has become increasingly common in recent years since software can be delivered cost-effectively, reliably, and securely to businesses over the Internet without the need for these businesses to purchase supporting software and hardware for an on-premise system or the need to keep IT people on staff to monitor and upgrade such a system.

 

 

We introduced our first subscription-based service solution over the Internet in 2005 in the U.K., and we began marketing our first cloud system to customers in North America in 2013. Since that time, we have significantly expanded our cloud-based offerings and are offering customers that maintain on-premise installations significant incentives to move to our cloud-computing model. While transitioning our U.K. customers to a cloud computing model results in a decrease in our up-front revenue recognition, we believe that this is a necessary transition and is in the best interests of our customers and our own long-term business prospects as an increasing number of our customers in the U.K. are looking for solutions that are highly functional, easy to use, configurable, and fast.

 

Our cloud model is based on Microsoft .Net, HTML5 and SQL technologies that provide both open and secure platform with support for user experiences on both desktop and mobile devices. Our customers that have moved away from traditional on-premise software to our cloud-based service applications benefit by substantially reducing the complexity typical of on-premise software implementations, customizations, and upgrades. Through cloud computing, we supply and manage the hardware, infrastructure, ongoing maintenance, and backup services for our customers. We install the latest version of our software for our customers, thereby reducing their need to buy and maintain their own IT resources. As a part of our cloud-based model, we provide installation, training, and support services to our customers. In the North American market we have a smaller customer base and by offering a cloud-based solution, it will prove to be an important part of our strategic growth. We anticipate that this solution will positively impact the marketplace and ultimately increase our market share within North America.

 

We intend to continue to work at maximizing customer retention by supplying and developing products that streamline and simplify customer operations, thereby increasing their profit margin. We expect to continue to build our recurring revenue stream. We believe that we can continue to grow our customer base through additional sales personnel, targeted media and marketing campaigns and products that completely fit clients’ requirements. We also intend to service existing clients to higher levels and increasingly partner with them so that together we’ll both achieve our goals.

 

Our current plans still require us to hire additional sales and marketing staff, to expand within the U.S. market, to target new vertical markets effectively in the U.K. and to support expanded operations overall.

 

We believe our plan will strengthen our relationships with our existing customers and provide new income streams by targeting new vertical markets for our Autopart product. 

 

Impact of Currency Exchange Rate

 

Our net revenues derived from sales in currencies other than the U.S. dollar was 77% and 75% for the three and nine months ended March 31, 2015, respectively, as compared to 73% and 73% for the three and nine months ended March 31, 2014. As the U.S. dollar becomes stronger in relation to the Great Britain Pound (“GBP”), as it has recently done, our revenue and income, which is reported in U.S. dollars, is negatively impacted. Changes in the currency values occur regularly and in some instances may have a significant effect on our results of operations.

    

Income and expenses of MAM Ltd. are translated at the average exchange rate for the period. During the nine months ended March 31, 2015, the exchange rate for MAM Ltd.’s operating results was US$1.5903 per 1GBP, compared with US$1.6072 per 1GBP for the nine months ended March 31, 2014.

 

Assets and liabilities of MAM Ltd. are translated into U.S. dollars at the period-end exchange rates. The exchange rate used for translating MAM Ltd. was U.S. $1.4834 per 1GBP at March 31, 2015 and U.S. $1.7028 per 1GBP at June 30, 2014.

 

Currency translation gain and (loss) adjustments are accumulated as a separate component of stockholders’ equity, which totaled ($673,000) and $89,000 for the three months ended March 31, 2015 and 2014, respectively, and ($1,926,000) and $924,000 for the nine months ended March 31, 2015 and 2014, respectively.

 

As of March 31, 2015, we had a backlog of unfilled orders of business management systems of $1,676,000 compared to a backlog of $1,980,000 at March 31, 2014. We expect to fill approximately 65% of such backlog during the next six months.

 

 

Results of Operations

 

Our results of operations for the three and nine months ended March 31, 2015 compared with the three and nine months ended March 31, 2014 were as follows:

 

Revenues. Revenues were $7,659,000 and $23,737,000 for the three and nine months ended March 31, 2015, respectively, a decrease of 3% and an increase of 4%, respectively, compared with revenues of $7,868,000 and $22,791,000 for the three and nine months ended March 31, 2014, respectively. The strength of the U.S. dollar vs. GBP resulted in a $140,000 and a $263,000 reduction in revenues from our U.K. operations for the three and nine month ended March 31, 2015.

 

Revenues were $7,659,000 for the three months ended March 31, 2015 a decrease of $209,000 or 3% compared with revenues of $7,868,000 for the three months ended March 31, 2014. Revenues from our U.K. operations were 3,829,000GBP for the three months ended March 31, 2015; an increase of 376,000GBP or 11%, compared with revenues of 3,453,000GBP for the three months ended March 31, 2014. The U.S. dollar denominated revenue was $5,827,000 for the three months ended March 31, 2015 as compared to $5,706,000 for the three months ended March 31, 2014, an increase of $121,000 or 2%. The increase of $121,000 was net of reduction of $140,000 incurred as a result of the stronger U.S. dollar. For the three months ended March 31, 2015, U.K. recurring revenues increased 370,000GBP or 14.7% to 2,885,000GBP from 2,515,000GBP and system sales increased 6,000GBP or 1% to 944,000GBP from 938,000GBP as compared to the three months ended March 31, 2014. The increase in recurring revenues is primarily the result of increased sales of our Autowork Online, Autopart Online, and third party subscription based product lines. Revenues from our U.S. operations were $1,832,000, for the three months ended March 31, 2015, a decrease of $330,000 or 15% compared with revenues of $2,162,000 for the three months ended March 31, 2014. For the three months ended March 31, 2015, U.S. recurring revenue increased $52,000 or 4% to $1,469,000 from $1,417,000 and system sales decreased $383,000 or 51% to $363,000 from $746,000 compared with the three months ended March 31, 2014.

 

Revenues were $23,737,000 for the nine months ended March 31, 2015, an increase of $946,000 or 4%, compared with revenues of $22,791,000 for the nine months ended March 31, 2014. For the nine months ended March 31, 2015, recurring revenues increased $1,551,000 or 10% to $17,652,000 from $16,101,000 and system sales decreased $605,000 or 9% to $6,085,000 from $6,690,000 as compared to the nine months ended March 31, 2014. Revenues from our U.K. operations were 11,019,000GBP for the nine months ended March 31, 2015, an increase of 827,000GBP or 8%, compared with revenues of 10,192,000GBP for the nine months ended March 31, 2014. The U.S. dollar denominated revenue was $17,524,000 for the nine months ended March 31, 2015 as compared to $16,381,000 for the nine months ended March 31, 2014, which is an increase of $1,143,000 or 7%. The US dollar denominated revenue was negatively impacted by $263,000 because of the stronger U.S. dollar. For the nine months ended March 31, 2015, U.K. recurring revenues increased 948,000GBP or 13% to 8,319,000GBP from 7,371,000GBP and systems sales decreased 121,000GBP or 4% from 2,821,000GBP to 2,700,000GBP as compared to the nine months ended March 31, 2014. The increase in recurring revenues is primarily the result of increased sales of our Autowork Online, Autopart Online, and third party subscription based product lines. Revenues for our U.S. operations were $6,212,000 for the nine months ended March 31, 2015; a decrease of $198,000 or 3% compared with revenues of $6,410,000 for the nine months ended March 31, 2014. For the nine months ended March 31, 2015, U.S. recurring revenue increased $169,000 or 4% to $4,422,000 from $4,253,000 and system sales decreased $367,000 or 17% to $1,790,000 from $2,157,000 as compared with the nine months ended March 31, 2014.

    

Cost of Revenues. Total cost of revenues for the three and nine months ended March 31, 2015, were $3,342,000 and $9,856,000, respectively, compared with $3,484,000 and $9,955,000, for the three and nine months ended March 31, 2014, respectively. The decrease in cost of revenues for the three months ended March 31, 2015 was 4% or $142,000, when compared to the three months ended March 31, 2014. Our U.K. operations experienced an increase of 40,000GBP from 1,467,000GBP to 1,507,000GBP for three months ended March 31, 2015 when compared to the three months ended March 31, 2014. The U.S. dollar denominated decrease was $130,000, the result of the strength of the U.S. dollar. The U.S. operations experienced a decrease of $12,000 for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014.

 

The decrease in the cost of revenues for the nine months ended March 31, 2015 was $99,000 or 1% as compared to the nine months ended March 31, 2014. Our U.K. operations experienced an increase of 2,000GBP from 4,306,000GBP to 4,308,000GBP and resulted in a U.S. dollar denominated decrease of $70,000 or 1% for the nine months ended March 31, 2015 as compared to the nine months ended March 31, 2014, the result in the recent strength of the U.S. dollar. Our U.S. operations experienced a decrease of $29,000, compared to last year. The decrease costs are directly related to the decrease of $114,000 in professional service salaries and related expenses offset by a $70,000 increase in third party subscription costs we resell, for the nine months ended March 31, 2015 as compared to the nine months ended March 31, 2014.

 

 

Gross Profit. Gross profit decreased $67,000 or 1.5% to $4,317,000 for the three months ended March 31, 2015, from $4,384,000 for the three months ended March 31, 2014.   The strength of the U.S. dollar resulted in a $161,000 reduction in gross profit. Gross profit increased $1,045,000 or 8% to $13,881,000 for the nine months ended March 31, 2015, from $12,836,000 for the nine months ended March 31, 2014. The increase in gross profit was the result of increased recurring revenue when compared to last year, partially offset by a negative impact of the stronger U.S. dollar.

 

Operating Expenses. The following tables set forth, for the periods indicated, our operating expenses and the variance thereof:

 

		For the Three Months
		Ended March 31,
		2015				2014				Variance $				Variance %
Research and development		$	973,000			$	985,000			$	(12,000	)			-1.2	%
Sales and marketing			1,003,000				1,055,000				(52,000	)			-4.9	%
General and administrative			1,255,000				1,237,000				18,000				1.5	%
Depreciation and amortization			120,000				251,000				(131,000	)			-52.2	%
Total Operating Expenses		$	3,351,000			$	3,528,000			$	(177,000	)			-5.0	%

 

		For the Nine Months
		Ended March 31,
		2015				2014				Variance $				Variance %
Research and development		$	2,854,000			$	2,719,000			$	135,000				5.0	%
Sales and marketing			3,318,000				3,292,000				26,000				0.8	%
General and administrative			4,325,000				3,797,000				528,000				13.9	%
Depreciation and amortization			478,000				766,000				(288,000	)			-37.6	%
Total Operating Expenses		$	10,975,000			$	10,574,000			$	401,000				3.8	%

 

For the three months ended March 31, 2015, operating expenses decreased by $177,000, or 5% compared with the three months ended March 31, 2014. For the nine months ended March 31, 2015, operating expenses increased by $401,000 or 3.8% compared with the nine months ended March 31, 2014. This is due to the following:

 

Research and Development Expenses. Research and development expenses decreased by $12,000 or 1.2% for the three months ended March 31, 2015 and increased by $135,000 or 5% for the nine months ended March 31, 2015, compared to the three and nine months ended March 31, 2014. The increase for the nine months ended March 31, 2015 is primarily a result of an increase in the number of personnel working on customer development projects and development of new products, all being done in the U.K.

 

Sales and Marketing Expenses. Sales and marketing expenses decreased by $52,000 or 5% during the three months ended March 31, 2015 as compared with the three months ended March 31, 2014 and increased by $26,000 or 1% for the nine months ended March 31, 2015 as compared with the nine months ended March 31, 2014. This decrease is primarily due to lower rebranding efforts for the current trade show activities, advertising, and sales expenses, compared to last year. Sales and marketing expenses increased slightly for the nine months ended March 31, 2015 as there are now dedicated sales personnel for the tire market, trader and other vertical markets in the U.K. business unit.  

    

General and Administrative Expenses. General and administrative expenses increased by $18,000 or 2% to $1,255,000 for the three months ended March 31, 2015 as compared to $1,237,000 for the three months ended March 31, 2014. The increased expenses were primarily the result of additional salaries and benefits for administrative staff in the U.K. offset by lower administrative expenses in U.S. business units, compared to the three months ended March 31, 2014. For the nine months ended March 31, 2015, general and administrative expenses increased by $528,000 or 14% to $4,325,000 as compared to $3,797,000 for the nine months ended March 31, 2014. The increased expenses were primarily the result of additional salaries and benefits for administration staff in the U.K. and related to payroll taxes for bonuses paid out in the U.S. business units.

 

Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased $131,000, or 52%, and $288,000, or 38%, for the three and nine months ended March 31, 2015, respectively, as compared to the three and nine months ended March 31, 2014, due to assets being fully depreciated.

 

 

Operating Income. Operating income was $966,000 for the three months ended March 31, 2015, an increase of $110,000 or 13% as compared to $856,000 for the three months ended March 31, 2014. Operating income was $2,906,000 for the nine months ended March 31, 2015, an increase of $644,000 or 29% as compared to $2,262,000 for the nine months ended March 31, 2014.

 

Interest expense. Interest expense was $4,000 for the three months ended March 31, 2015 and 2014, and decreased $28,000 or 76% to $9,000 from $37,000 for the nine months ended March 31, 2015 as compared to the nine months ended March 31, 2014. The decrease in interest expense is related to a reduction in our total interest bearing liabilities.

   

Income Taxes. Income taxes increased by $48,000 or 24.9% to $241,000 from $193,000 for the three months ended March 31, 2015, and increased by $161,000, or 33.5%, to $642,000 from $481,000 for the nine months ended March 31, 2015 as compared to three and nine months ended March 31, 2014, because of increased earnings.

 

Net Income. As a result of the above, we reported net income of $721,000 for the three months ended March 31, 2015, compared with net income of $659,000 for the three months ended March 31, 2014, and net income of $2,255,000 for the nine months ended March 31, 2015, compared with a net income of $1,744,000 for the nine months ended March 31, 2014. The strength of the U.S. dollar resulted in a $34,000 reduction in net income.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity are cash on hand and cash generated from operations. To date, most of our profits have been generated in Europe, but with the introduction of new products and efforts to streamline our U.S. operations, we expect to see a continued increase in overall revenues with a contribution from U.S. operations in the fourth quarter of fiscal 2015.

 

At March 31, 2015, we had cash and cash equivalents of $5,555,000. During the nine months ended March 31, 2015, we experienced positive operating cash flow, but our cash position decreased by approximately $1,453,000 as compared to the nine months ended March 31, 2014, after capital expenditures of $1,519,000 and $1,025,000 were utilized to repurchase treasury shares. We currently have no interest bearing liabilities.

 

We expect to see positive earnings and cash flow from both the U.S. and U.K. operations for the balance of fiscal 2015, with continued growth in revenues and operating income from the U.S. operation. We have identified a number of opportunities to widen our client base within the automotive industry and are actively pursuing those at this time. We also expect to see increases in revenue over the next quarter, specifically due to additional products that have been developed by the U.S. operation which are currently being released to customers, and the continued growth of our Autopart line of products in the U.S. market.

 

We believe our existing cash balance, and the cash expected to be generated from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our level of net sales, the timing and extent of expenditures to support our development activities and the continued market acceptance of our products.

 

We could be required, or we may choose, to seek additional funding through public or private equity or debt financing. In addition, in connection with any future acquisitions, we may require additional funding which may be provided in the form of additional debt or equity financing or a combination of both. These additional funds may not be available on terms acceptable to us, or at all.

 

Working Capital

 

Working capital at March 31, 2015, was $5,238,000, as compared to working capital of $5,599,000 at June 30, 2014. The working capital decrease resulted primarily from a $1,453,000 decrease in cash, a $154,000 increase in inventories, a $238,000 increase in prepaid expenses and other assets, a $235,000 decrease in accounts payable, a $179,000 decrease in accrued expenses, a decrease of $171,000 in sales tax payable, an increase of $108,000 in income tax payable, and a decrease of $316,000 in payroll and other taxes.

 

 

We intend to continue to work at maximizing customer retention by supplying and developing products that streamline and simplify customer operations, thereby increasing their profit margin. We expect to continue to build our recurring revenue stream. We believe that we can continue to grow our customer base through additional sales personnel, targeted media and marketing campaigns and products that completely fit clients’ requirements. We also intend to service existing clients to higher levels and increasingly partner with them so that together we and our customers will each both achieve our goals.

 

Our current plans still require us to hire additional sales and marketing staff, to expand within the U.S. market, to target new vertical markets effectively in the U.K. and to support expanded operations overall.

 

We believe our plan will strengthen our relationships with our existing customers and provide new income streams by targeting new vertical markets for our Autopart product.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Critical Accounting Policies

 

There were no changes to those policies disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

    

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 4. Controls and Procedures

 

Disclosure of Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Controls Over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.  From time to time, we may become involved legal proceedings, lawsuits, claims and regulations in the ordinary course of our business.

 

Item 1a. Risk Factors

 

There have been no changes that constitute a material change from the risk factors previously disclosed in our 2014 Annual Report on Form 10-K filed on September 23, 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Unregistered Sales of Equity Securities

 

None.

 

  

Purchases of Equity Securities

 

Share repurchase activity during the three and nine months ended March 31, 2015 was as follows:

 

Period		Total Number of Shares Purchased(1)				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(1)
July 1, 2014 – July 31, 2014			0			$	0				0			$	0
August 1, 2014 – August 31, 2014			0			$	0				0			$	0
September 1, 2014 – September 30, 2014			3,254			$	5.25				3,254			$	2,671,571
Total for Three Months Ended September 30, 2014			3,254								3,254			$	2,671,571
October 1, 2014 – October 31, 2014			19,542			$	5.11				19,542			$	2,571,707
November 1, 2014 – November 30, 2014			7,504			$	5.46				7,504			$	2,530,752
December 1, 2014 – December 31, 2014			5,213			$	5.48				5,213			$	2,502,189
Total for Six Months Ended December 31, 2014			35,513								35,513			$	2,502,189
Total for Three Months Ended December 31, 2014			32,259								32,259			$	2,502,189
January 1, 2015—January 31, 2015			0			$	0				0			$	2,502,189
February 1, 2015—February 28, 2015			800			$	5.53				800			$	2,497,764
March 1, 2015—March 31, 2015			7,732			$	5.45				7,732			$	2,455,599
Total for Three Months Ended March 31, 2015			8,532								8,532			$	2,455,599
Total for Nine Months Ended March 31, 2015			44,045								44,045			$	2,455,599

 

(1)

The shares repurchased in the nine months ended March 31, 2015, were under our stock repurchase program that was originally announced on November 8, 2011, with an authorized level of $250,000, which was increased by an additional $500,000 on December 19, 2011, an additional $2.0 million on March 5, 2012, and an additional $2.0 million on June 22, 2012. On September 28, 2012, our Board of Directors authorized an increase in the existing stock repurchase program for us to repurchase an additional $2.0 million (or $6.75 million in the aggregate since the beginning of the calendar year 2011) of our outstanding shares of common stock from time to time, depending on market conditions, share price, and other factors. Repurchases may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan previously established by us. The aforementioned program, as amended, does not have an expiration date.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

There have been no material changes to the procedures by which holders may recommend nominees to our Board of Directors.

 

Item 6. Exhibits

 

Exhibit  Number		Description
31.1		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.DEF		XBRL Definition Linkbase Document
101.LAB		XBRL Label Linkbase Document
101.PRE		XBRL Presentation Linkbase Document

  

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

 

 

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.

 

	MAM Software Group, Inc.
Date: May 6, 2015	By:	/s/ Michael G. Jamieson
		Michael G. Jamieson
		Chief Executive Officer
		(Principal Executive Officer)
Date: May 6, 2015	By:	/s/ Charles F. Trapp
		Charles F. Trapp
		Chief Financial Officer
		(Principal Financial Officer)

 

  

EXHIBIT INDEX

 

Exhibit  Number		Description
31.1		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Schema Document
101.CAL		XBRL Calculation Linkbase Document
101.DEF		XBRL Definition Linkbase Document
101.LAB		XBRL Label Linkbase Document
101.PRE		XBRL Presentation Linkbase Document

 

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.