UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the quarterly period ended June 30, 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 0-22982

 

SPEED COMMERCE, INC.

(Exact name of registrant as specified in its charter)

 

Minnesota	41-1704319
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

 

1303 E. Arapaho Road, Suite 200, Richardson, TX 75081

(Address of principal executive offices)

 

Registrant’s telephone number, including area code (866) 377-3331

 

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 ☐ No

 

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

 

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

 

Large accelerated filer ☐

Accelerated filer ☑

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller reporting company ☐

 

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

 

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

 

Class

Outstanding at August 7, 2015

Common Stock, No Par Value

79,066,492 shares

 

 

SPEED COMMERCE, INC.

 

Index

 

PART I. FINANCIAL INFORMATION	3
Item 1. Consolidated Financial Statements.	3
Consolidated Balance Sheets — June 30, 2015 and March 31, 2015	3
Consolidated Statements of Operations and Comprehensive Loss— Three Months ended June 30, 2015 and 2014	4
Consolidated Statements of Shareholders’ Equity – June 30, 2015	5
Consolidated Statements of Cash Flows — Three Months ended June 30, 2015 and 2014	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	21
Item 4. Controls and Procedures.	21
PART II. OTHER INFORMATION	22
Item 1. Legal Proceedings.	22
Item 1A. Risk Factors.	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	22
Item 3. Defaults Upon Senior Securities.	22
Item 4. Mine Safety Disclosures.	22
Item 5. Other Information.	22
Item 6. Exhibits.	23
SIGNATURES	24

 

 

PART I. FINANCIAL INFORMATION 

 

Item 1. Consolidated Financial Statements. 

SPEED COMMERCE, INC.

Consolidated Balance Sheets

(In thousands, except share amounts)

 

 

 

See accompanying notes to consolidated financial statements.

 

 

SPEED COMMERCE, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands)

(Unaudited)

 

 

See accompanying notes to consolidated financial statements.

 

 

SPEED COMMERCE, INC.

Consolidated Statements of Shareholders’ Equity

(in thousands, except share amounts)

 

 

 

See accompanying notes to consolidated financial statements.

 

 

SPEED COMMERCE, INC.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

  

See accompanying notes to consolidated financial statements.

 

 

SPEED COMMERCE, INC.

Notes to Consolidated Financial Statements

 

 

 

SPEED COMMERCE, INC.

Notes to Consolidated Financial Statements

  

 

 

 

 

SPEED COMMERCE, INC.

Notes to Consolidated Financial Statements

  

 

 

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

 

We are a leading provider of end-to-end e-commerce and fulfillment services to retailers and manufacturers. We provide web platform development and hosting, order management, fulfillment, logistics and contact center services which provide clients with easy to implement, cost-effective, transaction-based services and information management tools. We manage over 1.8 million square feet of fulfillment center space in Pennsylvania, Ohio, Missouri and Texas. Our facilities utilize advanced automation technology such as high-efficiency unit sortation, pick-to-pack conveyors and radio frequency (“RF”) scanning. We also operate four customer contact centers to enhance our clients’ brand experience. Our corporate headquarters and web development and technology operations are based in Dallas, Texas with the Fifth Gear operating administration located in Indianapolis, Indiana.

 

We offer an end-to-end outsourcing solution to our clients allowing them to have a single point of contact and integration for their E-commerce business and logistics management. We offer a flexible suite of services that allow us to customize our solutions and services to the needs of each client. The services to be provided and service levels for each client are defined by the terms of the written contract with each client. While we maintain client inventory at our fulfillment centers, we rarely own any of the inventory. Our earned revenue is based upon transaction fees earned from the services performed in accordance with the contract provisions. Recurring contract service elements are charged based upon the number of transactions processed and recognized as the services are performed. Upfront costs to onboard clients, including web site development, are deferred and recognized over the expected life of the relationship with the client.

 

Recent Events

 

In April 2015, we announced that our Board of Directors has initiated a process to explore and consider possible strategic alternatives for enhancing shareholder value. These alternatives could include, but are not limited to, a recapitalization or a sale or merger of the Company. The Board of Directors is overseeing this process and Stifel, Nicolaus & Company has been retained as financial and strategic advisor to the Company.

 

On April 16, 2015, we sold 13,035,713 shares of our common stock, Series A Warrants to purchase up to 7,776,784 shares of our common stock and Series B Warrants to purchase up to 2,000,000 shares of our common stock. Each share of our common stock was sold together with 0.597 of a Series A Warrant to purchase one share of our common stock at an exercise price of $0.56 per share and 0.153 of a Series B Warrant to purchase one share of our common stock at an exercise price of $0.56 per share. We received net proceeds of $6.8 million. The Series A Warrants are exercisable on the one-year anniversary of the date of issuance and will expire on the fifth anniversary of the date they first become exercisable. The Series B Warrants are exercisable beginning one year and one day from the date of issuance and will expire on the fifth anniversary of the date they first become exercisable. The shares of common stock, the Series A Warrants and the Series B Warrants are immediately separable.

 

As a result of the offering, the Series C warrants’ exercise price was reduced to $2.68 per common share and the conversion price of the Series D preferred stock was reduced to $1.19 per common share.

 

In connection of equity issuance, certain members of our executive management team and board of directors cancelled a total of 2,327,606 granted options. As a result, we recorded a non-cash $0.3 million reduction of stock compensation expense within general and adminsitrative expense in the statement of operations.

 

On June 30, 2015, shareholders approved an amendment to Speed Commerce, Inc.’s Amended and Restated Articles of Incorporation increasing the number of authorized shares of common stock issuable from 100,000,000 to 200,000,000.

 

Working Capital and Capital Resources

 

Throughout fiscal 2015 and 2016 we have invested in a variety of growth initiatives for our e-commerce business, several e-commerce web sites for new clients, and expansion of our Ohio fulfillment center. We finance our operations through cash and cash equivalents, funds generated through operations, accounts payable and credit facility. The timing of required payments can significantly impact our working capital levels.

 

Our on-going liquidity is primarily affected by three factors: (i) interest and principal payments on our credit facility and other debt, (ii) cash flow from operations and (iii) our capital expenditures. In an effort to maintain our liquidity, we have delayed capital expenditures, reduced costs and fund the dividends for the convertible preferred stock through additional shares of preferred stock. We will continue to seek additional opportunities to reduce cash costs and/or complete a financing to provide additional liquidity.

 

 

On May 11, 2015, the Company entered into a Consent and Second Amendment to Amended and Restated Credit and Guaranty Agreement with Garrison. Pursuant to the Amendment, among other things, (i) permission to add back certain balance sheet write-offs to Adjusted EBITDA (as defined) for the calculation of financial covenants, (ii) subject to lender approval the ability to add back certain restructuring, transaction fees and expenses and one-time charges not exceed $2.5 million to the calculation of financial covenants, (iii) the interest rate on the facility increased to LIBOR +11%, with a 1% LIBOR floor, (iv) the Company will pay an amendment fee equal to 200 basis points, (v) the Company agreed to provide Garrison with certain additional forecasts and updates regarding the Company’s liquidity and financial condition, and (vi) the Company is required to maintain a minimum of $1 million of unrestricted cash at all times. The interest rate on the Second Amended and Restated Credit Facility at June 30, 2015 was 12%.

 

On June 30, 2015, the Company entered into the Third Amendment to Amended and Restated Credit and Guaranty Agreement with various lenders and Garrison Loan Agency Services, LLC acting as agent. The agreement was amended to modify certain terms with respect to the timing of certain payments under the Credit Agreement. 

 

On July 2, 2015, the Company entered into a Fourth Amendment to the Credit Agreement. The Credit Agreement was amended to: (i) remove a financial covenant requiring that the Company have a minimum amount of excess liquidity; and (ii) reduce the amount of certain interest payments scheduled to be made with respect to the quarterly periods ending on June 30, 2015 and September 30, 2015, with the amount of such reduction being added to the principal amount of the loans provided under the Credit Agreement.

 

On July 22, 2015, the Company entered into the Fifth Amendment to provide up to an additional $5 million of term loans of which $2 million were funded to the Company. The Company may request that the remaining $3 million to be funded between August 20, 2015 and December 23, 2015.

 

Forward-Looking Statements / Risk Factors

 

We make written and oral statements from time to time regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the SEC, including this Quarterly Report on Form 10-Q, news releases, written or oral presentations made by officers or other representatives made by us to analysts, shareholders, investors, news organizations and others and discussions with management and other representatives. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties and you should not place undue reliance on these statements. No assurance can be given that the results reflected in any forward-looking statement will be achieved. Any forward-looking statement made by or on behalf of us speaks only as of the date on which such statement is made. Our forward-looking statements are based on assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by or on behalf of us.

  

In addition to other matters identified or described by us from time to time in filings with the SEC, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any forward-looking statement that may be made by or on behalf of us.

 

 

Some of these important factors, but not necessarily all important factors, include the following:

 

●		our service fee revenue and gross margin is dependent upon our clients’ business and transaction volumes and our costs;
●		we may incur significant expenditures to expand our business which may reduce our ability to achieve or maintain profitability;
●		technological developments, particularly software as a service application, electronic transfer and downloading could adversely impact sales, margins and results of operations;
●		our restructuring and integration efforts, may have unpredictable outcomes, including the possibility of us incurring additional restructuring charges;
●		the seasonality and variability in our business could adversely affect our results of operations;
●		the divestiture of our distribution business could result in post-transaction payments and adjustments;
●		our ability to meet our significant working capital requirements or if working capital requirements change significantly;
●		our ability to identify or complete any potential strategic transaction;
●		certain of our contracts are terminable at will or contain penalty provisions;
●		we may incur financial penalties if we fail to meet contractual service levels under client service agreements;
●		the expected benefits of our acquisitions may not be realized, and the indemnification obligations owed to us in connection with that transaction may be insufficiently supported;
●		future acquisitions or divestitures could disrupt business, including the potential failure of successfully integrating future-acquired companies;
●		our ability to use net operating loss carryforwards to reduce future tax payments may be limited; and
●		our e-commerce business has inherent cybersecurity risks that may disrupt our business.

 

A detailed statement of risks and uncertainties is contained in our reports to the SEC, including, in particular, our Annual Report on Form 10-K for the year ended March 31, 2015 and other public filings and disclosures. Investors and shareholders are urged to read these documents carefully.

 

Critical Accounting Policies

 

We consider our critical accounting policies to be those related to revenue recognition, allowance for doubtful accounts, goodwill and intangible assets, impairment of long-lived assets, share-based compensation, income taxes, and contingencies and litigation. There have been no material changes to these critical accounting policies as discussed in greater detail under this heading in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended March 31, 2015.

 

Results of Operations

 

The following table sets forth for the periods indicated the percentage of net sales represented by certain items included in our Consolidated Statements of Operations and Comprehensive Loss.

 

		Three Months Ended June 30,
		2015								2014
Net revenue		$	34,371				100.0	%		$	22,060				100.0	%
Cost of revenue			25,654				74.6				17,341				78.6
Gross profit			8,717				25.4				4,719				21.4
Operating Expenses:
Selling and marketing			606				1.8				1,002				4.5
General and administrative			5,122				14.9				3,808				17.3
Information technology			1,475				4.3				844				3.8
Depreciation and amortization			3,151				9.2				1,769				8.0
Total operating expenses			10,354				30.2				7,423				33.6
Loss from operations			(1,637	)			(4.8	)			(2,704	)			(12.2	)
Interest expense, net			(2,562	)			(7.5	)			(541	)			(2.5	)
Other income (expense)			2,959				8.6				(125	)			(0.6	)
Loss from continuing operations, before income tax			(1,240	)			(3.7	)			(3,370	)			(15.3	)
Income tax expense from continuing operations			(208	)			(0.6	)			(54	)			(0.2	)
Net loss from continuing operations			(1,448	)			(4.3	)			(3,424	)			(15.5	)
Discontinued operations:
Loss from discontinued operations, net of tax			(175	)			(0.5	)			(7,359	)			(33.4	)
Net loss		$	(1,623	)			(4.8	)%		$	(10,783	)			(48.9	)%

 

 

Results from Continuing Operations

 

Three Months Ended June 30, 2015 compared to Three Months Ended June 30, 2014

 

Net Revenue

 

Net revenue was $34.4 million for the three months ended June 30, 2015 compared to $22.1 million for the three months ended June 30, 2014, an increase of $12.3 million, or 55.7%. The increase was primarily attributable to our Fifth Gear acquisition, offset by a decrease in freight service revenue and the departure of a significant client.

 

Cost of Revenue

 

Cost of revenue was $25.7 million for the three months ended June 30, 2015 compared to $17.3 million for the three months ended June 30, 2014, an increase of $8.4 million, or 48.6%. The increase was primarily due to our Fifth Gear acquisition and higher operating costs in our Ohio fulfillment center.

 

Operating Expenses

  

Selling and marketing expenses were $0.6 million for the three months ended June 30, 2015 compared to $1.0 million for the three months ended June 30, 2014, a decrease of $0.4 million, or 40.0%. The decrease was primarily attributable to decrease in the marketing programs for the introduction of SARA, our pre-configured accelerator for Oracle Commerce for mid-size e-commerce retailers.

 

General and administrative expenses were $5.1 million for the three months ended June 30, 2015 compared to $3.8 million for the three months ended June 30, 2014, an increase of $1.3 million, or 34.2%. The increase was primarily due to incremental Fifth Gear’s expenses. General and administrative expenses consisted principally of executive, accounting and administrative personnel and related expenses, including professional fees.

 

Information technology expenses were $1.5 million for the three months ended June 30, 2015 compared to $0.8 million for the three months ended June 30, 2014, an increase of $0.7 million or 87.5%. The increase was primarily attributable to our Fifth Gear acquisition and personnel growth in IT infrastructure.

 

Depreciation and amortization expenses were $3.2 million for the three months ended June 30, 2015 compared to $1.8 million for the three months ended June 30, 2014, an increase of $1.4 million or 77.8%. The increase was primarily attributable to amortization of our intangible assets and newly acquired intangible assets from our Fifth Gear acquisition.

 

Interest expense, net 

 

Interest expense was $2.6 million for the three months ended June 30, 2015 compared to expense of $0.5 million for the three months ended June 30, 2014, an increase of $2.1 million or 420.0%. The increase principally reflected higher average debt balances as a result of the refinancing of the credit facility.

 

Consolidated Income Tax Expense or Benefit from Continuing Operations for All Periods

 

For the three months ended June 30, 2015, we recorded income tax expense from continuing operations of $208,000, compared to income tax expense from continuing operations of $54,000 for the three months ended June 30, 2014. The tax expense for the three months ended June 30, 2015 primarily related to the tax amortization of indefinite-lived goodwill for which a deferred tax liability must be recorded. We will continue to incur deferred tax expense in the future as tax amortization occurs. The effective income tax rate applied to continuing operations for the three months ended June 30, 2015 was a negative 16.2%, compared to a negative 1.6% for the three months ended June 30, 2014.

 

For the three months ended June 30, 2015, we recorded zero income tax expense from discontinued operations compared to income tax expense from discontinued operations of $3,000 for the three months ended June 30, 2014. The effective income tax rate applied to discontinued operations for the three months ended June 30, 2015 was a negative 0%, compared to a negative 0.1% for the three months ended June 30, 2014.

 

Deferred tax assets are evaluated by considering historical levels of income, estimates of future taxable income streams and the impact of tax planning strategies. A valuation allowance is recorded to reduce deferred tax assets when it is determined that it is more likely than not, based on the weight of available evidence, we would not be able to realize all or part of our deferred tax assets. An assessment is required of all available evidence, both positive and negative, to determine the amount of any required valuation allowance.

 

 

Market Risk

 

At June 30, 2015, we had $97.5 million of indebtedness subject to interest rate fluctuations. As such, a 100-basis point change in the current LIBOR rate would have a $975,000 impact on our annual interest expense.

 

Seasonality and Inflation

 

Quarterly operating results are affected by the seasonality of our business. Specifically, our third quarter (October 1-December 31) typically accounts for our largest quarterly revenue figures and a substantial portion of our earnings. As a provider of services to retailers, our business is affected by the pattern of seasonality common to other suppliers of retailers, particularly during the holiday selling season. Poor economic or weather conditions during this period could negatively affect our operating results. Inflation is not expected to have a significant impact on our business, financial condition or results of operations since we can generally offset the impact of inflation through a combination of productivity gains and price increases.

 

Liquidity and Capital Resources

 

Cash Flow Analysis

 

Operating Activities

  

Cash flows used in operating activities during the three months ended June 30, 2015 were $5.5 million and were primarily impacted by the following:

 

	●	Non-cash charges of $0.4 million, including depreciation and amortization of $3.2 million, which increased due to amortization of our intangible assets and newly acquired intangible assets from our Fifth Gear acquisition, amortization of debt issuance cost of $63,000 and decrease income tax of $0.2 million, offset by a decrease in fair value of liabilities of $3.0 million;
	●	Accounts receivable increased $0.2 million, resulting from the timing of invoices to clients;
	●	Inventory increased $0.4 million, primarily resulting from the timing of purchases;
	●	Prepaid expenses increased $0.5 million, primarily from timing of annual insurance renewals;
	●	Accounts payable decreased $5.1 million, primarily as a result of timing of payments and purchases; and
	●	Accrued expenses increased by $2.2 million, primarily as a result of deferred revenues for up-front fees for new clients.

 

Cash flows provided by operating activities during the three months ended June 30, 2014 were $13.0 million and were primarily impacted by the following:

 

	●	Non-cash charges of $2.5 million, including depreciation and amortization of $1.9 million, share-based compensation of $0.4 million, and an increase in deferred income taxes of 0.2 million;
	●	Accounts receivable decreased $2.6 million, resulting from the improvement in client collections;
	●	Prepaid expenses increased $0.4 million, primarily from timing of annual insurance renewals;
	●	Other assets increased $3.6 million, primarily due to additional deferred project costs for in-process client development;
	●	Accounts payable decreased $3.0 million, primarily as a result of timing of payments and purchases; and
	●	Accrued expenses increased by $3.7 million, primarily as a result of deferred revenues for up-front fees for new clients.

 

Investing Activities

 

Cash flows used in investing activities for purchases of property, equipment and software totaled $0.9 million for the three months ended June 30, 2015 and cash flows used in investing activities totaled $2.4 million for the same period last year.

 

 

Financing Activities

 

Cash flows provided by financing activities totaled $5.0 million for the three months ended June 30, 2015. In first quarter of fiscal 2016, we received $6.8 million in net proceeds from our April 2016 equity offering, offset by a $1.3 million principal payment on our long-term debt and $0.5 million payments in other financing activities.

  

Cash flows used in financing activities totaled $10.6 million for the three months ended June 30, 2014. In first quarter of fiscal 2015, we received $9.9 million in net proceeds from the issuance of 3,333,333 shares of convertible preferred stock, Series C, and we had net payment to the revolving line of credit of $20.3 million. 

 

Discontinued Operations

 

Net cash flows used in discontinued operations were $0.2 million for the three months ended June 30, 2015 and consisted of $0.2 million of cash flows used in operating activities.

 

Net cash flows provided by discontinued operations were $14.8 million for the three months ended June 30, 2014 and consisted of $14.8 million of cash flows provided by operating activities, and $32,000 of cash flows used in investing activities.

 

Capital Resources

 

Credit Facility

 

On November 21, 2014, the Company entered into a five-year, $100 million Amended and Restated Credit and Guaranty Agreement with various lenders and Garrison Loan Agency Services, LLC acting as the agent (the "Credit Agreement"). The principal amount of the loans provided under the Credit Agreement are subject to repayment through an annual excess cash sweep and will be amortized at a rate of 2.5% annually through September 30, 2015, a rate of 3.0% annually through September 30, 2016, a rate of 3.5% annually through September 30, 2017, a rate of 5.0% annually through the remaining term of the credit facility.

 

On May 11, 2015, the Company entered into a Consent and Second Amendment to the Credit Agreement. Pursuant to the Amendment, among other things, (i) permission to add back certain balance sheet write-offs to Adjusted EBITDA (as defined) for the calculation of financial covenants, (ii) subject to lender approval the ability to add back certain restructuring, transaction fees and expenses and one-time charges not exceed $2.5 million to the calculation of financial covenants, (iii) the interest rate on the facility increased to LIBOR +11%, with a 1% LIBOR floor, (iv) the Company will pay an amendment fee equal to 200 basis points, (v) the Company agreed to provide Garrison with certain additional forecasts and updates regarding the Company’s liquidity and financial condition, and (vi) the Company is required to maintain a minimum of $1 million of unrestricted cash at all times. The interest rate on Second Amended and Restated Credit Facility at June 30, 2015 was 12%.

 

On June 30, 2015, the Company entered into the Third Amendment to the Credit Agreement. The Credit Agreement was amended to modify certain terms with respect to the timing of certain payments. 

 

On July 2, 2015, the Company entered into a Fourth Amendment to the Credit Agreement. The Credit Agreement was amended to: (i) remove a financial covenant requiring that the Company have a minimum amount of excess liquidity; and (ii) reduce the amount of certain interest payments scheduled to be made with respect to the quarterly periods ending on June 30, 2015 and September 30, 2015, with the amount of such reduction being added to the principal amount of the loans provided under the Credit Agreement.

 

On July 22, 2015, the Company entered into the Fifth Amendment to the Credit Agreement to provide up to an additional $5 million of term loans of which $2 million were funded to the Company. The Company may request that the remaining $3 million to be funded between August 20, 2015 and December 23, 2015.

 

Liquidity

 

We finance our operations through cash and cash equivalents, funds generated through operations and our Term Loan. During the last twelve months, we have not had any significant changes in the terms extended to customers or provided by vendors which would have a material impact on the reported financial statements.

 

We have invested in variety of growth initiatives for our e-commerce business including the acquisition of Fifth Gear in November 2014, several e-commerce web sites for new clients, and expansion of our Ohio fulfillment center. We finance our operations through cash and cash equivalents, funds generated through operations, accounts payable and credit facility. The timing of required payments can significantly impact our working capital levels.

 

As of March 31, 2015, we recorded impairment of goodwill and intangible assets of $18.8 million as result of decline in market value and other factors. In addition we recognized charges of $11.8 million for client projects that had become unprofitable as contractual site requirements required significantly more customization programming than anticipated

 

In April 2015, we announced that our Board of Directors has initiated a process to explore and consider possible strategic alternatives for enhancing shareholder value. These alternatives could include, but are not limited to, a recapitalization or a sale or merger of the Company. The Board of Directors is overseeing this process and Stifel, Nicolaus & Company has been retained as financial and strategic advisor to the Company.

 

 

In April 2015, we entered into agreements with investors for a registered direct offering of 13,035,713 shares of our common stock and warrants to purchase up to 9,776,784 shares of our common stock at a combined public offering price of $0.56 per share and related warrants for total gross proceeds of $7.3 million. The warrants have an exercise price of $0.56 per share.

 

In May 2015, as described above, we amended our Credit Agreement which modified certain covenant calculations, imposed additional reporting requirements, requires us to maintain $ 1 million in available cash and cash equivalents at all times and increased the interest rate for the credit facility from LIBOR plus 7.5% to LIBOR plus 11%.

 

We continually monitor our actual and forecasted cash flows, our liquidity and our capital resources. We plan for potential fluctuations in accounts receivable and payment of obligations to creditors and unbudgeted business activities that may arise during the year as a result of changing business conditions or new opportunities. In addition to working capital needs for the general and administrative costs of our ongoing operations, we have cash requirements for among other things: (1) on-boarding expenditures for new clients including web site deployment and fulfillment center capacity investment; (2) equipment needs for our operations; (3) legal disputes and contingencies; and (4) asset or company acquisitions.

  

In April 2015, we announced that our Board of Directors has initiated a process to explore and consider possible strategic alternatives for enhancing shareholder value. These alternatives could include, but are not limited to, a recapitalization or a sale or merger of the Company. The Board of Directors is overseeing this process and Stifel, Nicolaus & Company has been retained as financial and strategic advisor to the Company. There can be no assurance as to if or when, we will finalize a strategic transaction.

 

We may review from time to time possible expansion and acquisition opportunities relating to our business. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable. We may seek to fund all or part of any such efforts with proceeds from debt and/or equity issuances. Debt or equity financing may not, however, be available to us at that time due to a variety of events, including, among others, credit rating agency downgrades of our debt, industry conditions, general economic conditions, market conditions and market perceptions of us and our industry.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Information with respect to disclosures about market risk is contained in the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk in this Form 10-Q.

 

Item 4. Controls and Procedures

 

(a) Controls and Procedures

 

We maintain disclosure controls and procedures (“Disclosure Controls”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in our Exchange Act reports, was 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.

 

As required by Rule 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our 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 that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the date of such evaluation.

 

(b) Change in Internal Controls over Financial Reporting

 

There were no changes in our internal control over financial reporting during the most recently completed quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

 

 

Part II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

See Litigation and Proceedings disclosed in Note 7 to our consolidated financial statements included herein.

  

Item 1A. Risk Factors 

 

Information regarding risk factors appears in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements / Risk Factors in Part 1 — Item 2 of this Form 10-Q and in Part 1 — Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015. There have been no other material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information

 

None.

 

 

Item 6. Exhibits

 

(a)

The following exhibits are included herein:

		Filed	Incorporated by reference
Exhibit		here		Period		Filing
number	Exhibit description	with	Form	ending	Exhibit	date
10.1	Form of Subscription Agreement, dated as of April 16, 2015, between the Company and the Holders of the Series A Warrants and Series B Warrants.		8-K		10.1	4/16/2015
10.2	Form of Series A Warrant to Purchase Common Stock of Speed Commerce, Inc., dated April 21, 2015.		8-K		4.1	4/16/2015
10.3	Form of Series B Warrant to Purchase Common Stock of Speed Commerce, Inc., dated April 21, 2015.		8-K		4.2	4/16/2015
10.4	Placement Agent Agreement between Speed Commerce, Inc. and Roth Capital Partners, LLC, dated April 16, 2015.		8-K		10.2	4/16/2015
10.5	Consent And Second Amendment To Amended And Restated Credit And Guaranty Agreement between Speed Commerce, Inc. and Garrison Loan Agency Services, LLC, as administrative agent, and other Lenders, dated May 11, 2015.		10-K		10.68	6/15/2015
10.6	Third Amendment To Amended And Restated Credit And Guaranty Agreement between Speed Commerce, Inc. and Garrison Loan Agency Services, LLC, as administrative agent, and other Lenders, dated June 30, 2015.		8-K		10.1	7/7/2015
10.7	Fourth Amendment To Amended And Restated Credit And Guaranty Agreement between Speed Commerce, Inc. and Garrison Loan Agency Services, LLC, as administrative agent, and other Lenders, dated July 2, 2015.		8-K		10.2	7/7/2015
10.8	Fifth Amendment To Amended And Restated Credit And Guaranty Agreement between Speed Commerce, Inc. and Garrison Loan Agency Services, LLC, as administrative agent, and other Lenders, dated July 2, 2015.		8-K		10.1	7/28/2015
31.1	Certification of the Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)	X
31.2	Certification of the Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)	X
32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)	X
32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)	X
101	The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2015, filed with the SEC on August 8, 2014, is formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets at June 30, 2014 and March 31, 2014; (ii) the Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2014 and 2013; (iii) the Consolidated Statements of Cash Flows for the three months ended June 30, 2014 and 2013; and (iv) the Notes to Consolidated Financial Statements (Unaudited)	X

 

 

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.

 

	Speed Commerce, Inc.
	(Registrant)
Date: August 10, 2015	/s/ Richard S Willis
	Richard S Willis
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: August 10, 2015	/s/ Terry J. Tuttle
	Terry J. Tuttle
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

 

 

 

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