1.  Basis of Presentation

The condensed consolidated balance sheet as of December 31, 2015, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended December 31, 2015 and 2014, and the condensed consolidated statements of cash flows for the nine months ended December 31, 2015 and 2014 have been prepared by the Company and are unaudited. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) have been made to present fairly the financial position at December 31, 2015, and the results of operations and cash flows for the three and nine months ended December 31, 2015 and 2014, respectively. Interim results are not necessarily indicative of the results for a full fiscal year. The condensed consolidated balance sheet as of March 31, 2015 has been derived from the audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015, as supplemented by the consolidated financial statements of b-pack SAS, a French société par actions simplifiée (“b-pack”) and its subsidiaries, included in the Company’s Current Report on Form 8-K/A filed with the SEC on October 16, 2015.

On October 15, 2015, the Company amended our certificate of incorporation to change our name from Selectica, Inc. to Determine, Inc., which change became effective immediately. A conformed copy of our Certificate of Incorporation is filed as of October 19, 2015. Effective October 15, 2015, the Company also amended and restated our Bylaws to change our name from Selectica, Inc. to Determine, Inc., which change became effective immediately. The Company’s common stock will trade under the ticker symbol “DTRM” effective as of October 19, 2015.

2.   Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the accounts of the Company and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. It also includes non-controlling interest, which is the portion of equity in a subsidiary not attributable to a parent. The non-controlling interest of the Company and its subsidiaries are not considered to be permanent equity. Non-controlling interest’s share of subsidiary earnings is reflected as net income attributable to non-controlling interest in the condensed consolidated statements of operations and comprehensive loss.

Liquidity

The Company has incurred significant historical losses and negative cash flows from operations and has an accumulated deficit of $297 million at December 31, 2015. Until the Company can generate significant cash from operations, its ability to continue as a going concern is dependent upon obtaining additional financing. Management intends to raise additional funds through equity and/ or debt offerings until the Company has positive operating cash flows. There is no assurance that the Company will be successful in generating or raising funds, if necessary, to sustain its operations for twelve months or beyond. Should the Company be unable to generate funds or obtain future financing, the Company may have to curtail operations by delaying development programs or relinquishing employees, which may have a material adverse effect on the Company's financial position and results of operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Non-Controlling Interest

On July 31, 2015, the Company completed its acquisition of b-pack and its subsidiaries resulting in Determine SAS continuing as a wholly-owned subsidiary of the Company. Determine SAS is headquartered in Paris, France, and has the following subsidiaries: b-pack Software, in charge of the sales and marketing, b-pack Services, incorporated in Aix-en-Provence, France and b-pack, Inc. incorporated in Atlanta, Georgia that primarily operates as a sales office in the US. The condensed consolidated financial statements include the financial position and results of operations of b-pack Services in which the Company owns 82%, maintaining a controlling interest. A summary of b-pack Services is as follows as of and for the quarter ended December 31, 2015:

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of stock-based awards, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

 Change in Presentation of Financial Statements

During the first quarter ended June 30, 2014 in fiscal 2015, the Company changed the presentation of its condensed consolidated financial statements to include third party consulting costs related to our Selectica Configuration Solutions in cost of revenue. Previously, these costs were included in sales and marketing expenses. Reclassifications of $0.5 million from operating expenses to cost of revenue were made in fiscal 2015, to conform to the current year’s presentation.  This reclassification of the prior period amounts does not significantly change the previously reported operating loss or net loss.

 Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, and accounts receivable. The Company is exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the balance sheet. The Company’s cash balances periodically exceed the FDIC insured amounts.  Accounts receivable are derived from revenue earned from customers primarily located in the United States. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral. The Company maintains reserves for potential credit losses, and historically, such losses have not been significant.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash equivalents consist of money market funds, certificates of deposits, and commercial paper.  Fair values of cash equivalents approximated original cost due to the short period of time to maturity. The cost of securities sold is based on the specific identification method. The Company’s investment policy limits the amount of credit exposure to any one issuer of debt securities.

 Restricted Cash

The Company’s restricted cash consist of certificates of deposits for our credit card for our office in the UK.

Accounts Receivable, Net of Allowance for Doubtful Accounts

The Company evaluates the collectability of its accounts receivable based on a combination of factors. When the Company believes a collectability issue exists with respect to a specific receivable, the Company records an allowance to reduce that receivable to the amount that it believes to be collectible. In making the evaluations, the Company will consider the collection history with the customer, the customer’s credit rating, communications with the customer as to reasons for the delay in payment, disputes or claims filed by the customer, warranty claims, non-responsiveness of customers to collection calls, and feedback from the responsible sales contact. In addition, the Company will also consider general economic conditions, the age of the receivable and the quality of the collection efforts.

 Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives. The estimated useful lives for computer software and equipment is three years, furniture and fixtures is five years, and leasehold improvements is the shorter of the lease term or estimated useful life.

Business Combinations

The Company accounts for acquisitions using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 - Business Combinations. Under the acquisition method of accounting, the total purchase consideration of an acquisition is allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships and acquired patents and developed technology; and discount rates. Management’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.  

Intangible Assets and Impairment of Long-Lived Assets

Intangible assets consist of customer relationships, trade names, and acquired technology. Intangible assets are recorded at fair value at the date of the acquisition and, for those assets having finite useful lives, are amortized using the straight-line method over their estimated useful lives, which generally range from two to five years. The Company periodically reviews its intangible and other long-lived assets as well as capitalized software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company then compares the carrying amounts of the assets with the future net undiscounted cash flows expected to be generated by such asset. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value determined using discounted estimates of future cash flows. There was no impairment charge recorded during the three and nine months ended December 31, 2015 and 2014.

Goodwill

Goodwill represents the excess of the purchase consideration over the net tangible and an identifiable intangible asset acquired in a business combination and is allocated to reporting units expected to benefit from the business combination. The Company tests goodwill for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets may be impaired. The Company has elected to first assess certain qualitative factors to determine whether it is more likely than not that the fair value of its single reporting operating unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If the Company determines that it is more likely than not that the fair value is less than its carrying amount, then the two-step goodwill impairment test will be performed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step will be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. There was no impairment charge recorded during the three and nine months ended December 31, 2015 and 2014.

Customer Concentrations

A limited number of customers have historically accounted for a substantial portion of the Company’s revenues. The following table presents customers that accounted for more than 10% of revenue:

As of December 31, 2015, no customers accounted for at least 10% of net accounts receivable or revenue. As of March 31, 2015, Customer B accounted for 29% of net accounts receivable.

Revenue Recognition

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

Revenue recognition criteria. The Company recognizes revenue when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) fees are fixed or determinable and (4) collectability is reasonably assured. If the Company determines that any one of the four criteria is not met, the Company will defer recognition of revenue until all the criteria are met.

Multiple-Deliverable Arrangements. The Company enters into arrangements with multiple-deliverables that generally include subscription, support, and professional services. If a deliverable has standalone value, and delivery is probable and within the Company’s control, the Company accounts for the deliverable as a separate unit of accounting. Subscriptions to use our software solutions have standalone value as such services are often sold separately, primarily through renewals. Professional services have standalone value as such services are often sold separately, and are available from other vendors.

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

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

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

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

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

In certain arrangements with non-standard acceptance criteria, the Company defers the revenue until the acceptance criteria are satisfied. Reimbursements, including those related to travel and out-of-pocket expenses are included in non-recurring revenues, and an equivalent amount of reimbursable expenses is included in non-recurring cost of revenues.

Advertising Expense

The cost of advertising is expensed as incurred. Advertising expense for the three months and nine months ended December 31, 2015 were approximately $0.1 million and $0.5 million, respectively. Advertising expense for the three months and nine months ended December 31, 2014 were approximately $0.2 million and $0.5 million, respectively.

Foreign Currency

For the Company’s UK subsidiary, the functional currency is the U.S. dollar. Non-monetary assets and liabilities are translated into U.S. dollar equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period. Net gains and losses resulting from foreign exchange transactions are recorded in other income (expense), net in the condensed consolidated statements of operations. For French subsidiaries whose functional currency is the local currency, assets and liabilities are translated into U.S. dollar equivalents at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period. Resulting currency translation adjustments are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets.

Accumulated Other Comprehensive Loss

The accumulated other comprehensive loss balance consists of translation gains and losses related to our international subsidiaries with functional currencies other than the U.S. dollar, primarily the euro.

Capitalized Software Development Costs

The Company capitalizes costs for internal use incurred during the application development stage that are included in research and development expenses. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Capitalized software will be amortized once the product is ready for its intended use, using the straight-line method over the estimated useful lives of the assets, which is three years. Management continues to evaluate the capitalized software development costs across all products lines with the recent acquisition of b-pack.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for only those awards ultimately expected to vest on a straight-line basis over the requisite service period of the award, net of an estimated forfeiture rate. The Company estimates the fair value of stock options using a Black-Scholes-Merton valuation model, which requires the input of highly subjective assumptions, including the option’s expected term and stock price volatility. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, its stock-based compensation expense could be materially different in the future. 

Geographic Information:

International revenues are attributable to countries based on the location of the customers. For the three months and nine months ended December 31, 2015 and 2014, sales to international locations were derived primarily from France, Canada, India, New Zealand, Switzerland, Germany, Hong Kong, Ireland, Norway and the United Kingdom.

For the quarter ended December 31, 2015 and 2014, the Company held long-lived assets outside of the United States with a net book value of approximately $0.01 million and $0.2 million, respectively. These assets were located in Odessa, Ukraine.

Treasury Stock

There were no stock repurchases during the period ending as of December 31, 2015 and March 31, 2015.  

The Company had 96,000 shares of treasury stock as of December 31, 2015 and March 31, 2015.  

Recent Accounting Pronouncements

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. In addition, separate presentation on the face of the income statement or disclosure in the notes is required regarding the portion of the adjustment recorded in the current period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is to be applied prospectively for measurement period adjustments that occur after the effective date. ASU 2015-16 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2015, and early adoption is permitted. Since it is prospective, the impact of ASU 2015-16 on the Company’s financial condition and earnings will depend upon the nature of any measurement period adjustments identified in future periods.

In June 2015, the FASB issued Accounting Standards Update No. 2015-10, Technical Corrections and Improvements (“ASU 2015-10”). ASU 2015-10 amends a wide range of Accounting Standards Codification topics to make clarifying changes, correct unintended application of guidance, and make minor changes that are not expected to have a significant effect on current accounting practice or create a significant administrative cost on most entities. The Company does not anticipate that the adoption of ASU 2015-10 will have a material impact on its condensed consolidated financial statements and related disclosures.

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU 2015-05, Intangibles−Goodwill and Other−Internal-use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, providing guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. The standard update is effective for fiscal years beginning after December 15, 2015 and interim. We are currently evaluating the impact of adopting this update on our condensed consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is applicable to the Company for fiscal years beginning after December 15, 2015. Early adoption of ASU 2015-03 is permitted. The Company will adopt this guidance effective April 1, 2016. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements.”  ASU 2015-15 supplements the requirements of ASU 2015-03 by allowing an entity to defer and present debt issuance costs related to a line of credit arrangement as an asset and subsequently amortize the deferred costs ratably over the term of the line of credit arrangement. The Company has not determined in which period it will adopt the new guidance. Retrospective adoption is required. Long-term debt issuance costs will be reclassified from other assets to long-term debt upon adoption.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Subtopic 810): Amendments to the Consolidation Analysis, to improve consolidation guidance for legal entities and affect the consolidation evaluation for reporting organizations. The standard update is effective for fiscal years beginning after December 15, 2015 and interim periods within those years and early adoption is permitted. The standard allows for adoption retrospectively or with a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. We are currently evaluating the impact of adopting this update on our condensed consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) which amended the existing FASB Accounting Standards Codification. This standard establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The standard also provides guidance on the recognition of costs related to obtaining and fulfilling customer contracts. In April 2015, the FASB proposed a one-year deferral of the effective date for the new revenue reporting standard for entities reporting under U.S. GAAP. In accordance with the deferral, ASU 2014-09 will be effective for fiscal 2019, including interim periods within that reporting period. The Company is currently in the process of assessing the adoption methodology, which allows the amendment to be applied retrospectively to each prior period presented, or with the cumulative effect recognized as of the date of initial application. The Company is also evaluating the impact of the adoption of ASU 2014-09 on its condensed consolidated financial statements and has not determined whether the effect will be material to either its revenue results or its deferred commission balances. 

In August 2014, FASB issued Accounting Standards Update 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to early adopt this guidance and does not believe that the adoption of this guidance will have a material impact on its condensed consolidated financial statements.

 3. Acquisition 

b-pack SAS 

On July 31, 2015, the Company completed its acquisition of b-pack SAS, a French société par actions simplifiée (“b-pack”). As a result of the merger, the b-pack stockholders received an aggregate cash payment of $1.1 million and 1,841,244 shares of common stock of the Company, par value $0.0001, resulting in Determine SAS continuing as a wholly-owned subsidiary of the Company.

b-pack SAS, was founded December 5, 2005, and is a software-as-a-service (SaaS) company that offers a suite of cloud-based applications that help companies significantly reduce costs by optimizing, streamlining, and automating complex procurement processes with an integrated, end-to-end platform that facilitates and promotes an environment for responsible spending. Pre-merger, b-pack SAS was headquartered in Paris, France, and has the following subsidiaries: b-pack Software, b-pack Services, and b-pack, Inc. b-pack Software was 99.94% owned by b-pack SAS and was incorporated in Paris France. b-pack Software was in charge of the sales and marketing development of Europe. b-pack Services was 82% owned by b-pack SAS and was incorporated in Aix-en-Provence, France. The remaining 18% is held by non-controlling interest shareholder. b-pack Inc. was a wholly-owned subsidiary of by b-pack SAS. b-pack, Inc. was incorporated in Atlanta, Georgia and primarily operates as a sales office in the US. Pursuant to the Agreement and Plan of Merger, b-pack merged with and into Determine SAS and Determine SAS continued as the surviving entity. The Company's operations are subject to significant risks and uncertainties, including competitive, financial, developmental, operational, technological, regulatory, and other risks associated with an emerging business. 

The Company recorded the assets acquired and liabilities assumed at their estimated fair value, with the difference between the fair value of the net assets acquired and the purchase consideration reflected as goodwill. The working capital has been finalized. The acquisition consideration is comprised of the following: 

The following table reflects the fair values of assets acquired and liabilities assumed as of the acquisition date (in thousands): 

The goodwill of $6.9 million is primarily attributed to the synergies expected to arise after the acquisition and fair value of assembled workforce. We record goodwill in connection with the acquisition of businesses when the purchase price exceeds the fair values of the assets acquired and liabilities assumed. Generally, the most significant intangible assets from the businesses that we acquire are the assembled workforces, which includes the human capital of the management, administrative, marketing and business development, engineering and technical employees of the acquired businesses. Since intangible assets for assembled workforces are part of goodwill in accordance with the accounting standards for business combinations, the substantial majority of the intangible assets for our business acquisitions are recognized as goodwill. No goodwill was deemed to be deductible for income tax purposes.  

Unaudited Pro Forma Financial Information 

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and b-pack, which was considered a “significant” acquisition (as defined in Regulation S-X) for the purposes of unaudited pro forma financial information disclosure, as though the companies were combined as of April 1, 2015. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from the b-pack acquisition including amortization charges from acquired intangible assets and stock-based compensation charges for unvested stock option awards, as though the Company and b-pack were combined as of April 1, 2015. The related tax effect was insignificant. 

The pro forma financial information, as presented below, is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition of b-pack had taken place as of the beginning of each period presented. The pro forma financial information does not reflect the impact of any reorganization or operating efficiencies resulting from combining the two companies.          

The historical financial information has been adjusted to give effect to the pro forma events that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated financial information reflects assuming the acquisition had occurred on April 1, 2015. Acquisition related expenses are included in general and administrative expenses.

4.   Goodwill and Other Intangible Assets 

The following is a summary of goodwill (in thousands): 

The following is a summary of purchased intangible assets (in thousands): 

Acquired developed technology, customer relationships, and trade name are being amortized on a straight-line basis and have weighted-average remaining useful lives of 3.90 years, 3.53 years, and 0.50 years, respectively, as of December 31, 2015. Amortization expense was $0.5 million and $0.3 million for the three months ended December 31, 2015 and 2014, respectively. Amortization expense was $1.4 million and $0.7 million for the nine months ended December 31, 2015 and 2014, respectively. 

As of December 31, 2015, amortization expense for intangible assets for each of the next five years is as follows: 

5. Property and Equipment, net

Property and equipment, net consist of the following:  

Depreciation expense was approximately $0.04 million and $0.1 million during the three months and nine months ended December 31, 2015, respectively. Depreciation expense was approximately $0.01 million and $0.2 million during the three months and nine months ended December 31, 2014, respectively. 

6.  Capitalized Software Development Costs

The Company capitalized $0.3 million and $1.1 million of research and development costs during the three months and nine months ended December 31, 2015, respectively.

Amortization expense was $0.1 million and $0.4 million for the three months and nine months ended December 31, 2015, respectively and is included in the product cost of revenue. Amortization expense was $0.1 million and $0.2 million for the three months and nine months ended December 31, 2014, respectively, and is included in the cost of revenue. The unamortized balance of capitalized software was $3.0 million as of December 31, 2015.

7.    Private Placement Fundings with Redeemable Convertible Preferred Stock and Warrants

On February 6, 2015, pursuant to the terms of a Purchase Agreement between the Company and certain institutional funds and other accredited investors, the Company sold and issued 118,829 shares of Series F Convertible Preferred Stock, par value $0.0001 per share (the “Series F Stock”) to such investors at a purchase price of $47.00 per whole share of Series F Stock (or $4.70 per one-tenth of a share of Series F Stock), for an aggregate gross purchase price of approximately $5.6 million (the “2015 Financing”). In addition to the issuance of the Series F Stock, the Company issued to each investor a warrant to purchase common stock, initially exercisable for an aggregate of 594,143 shares of common stock (the “February 2015 Warrants”). The exercise price of the 2015 Warrants is $6.00 per share. The 2015 Warrants have a five-year term and became exercisable on August 6, 2015. The estimated fair value of the warrants using the Black-Scholes-Merton valuation model at the issuance date is $777,500. The total proceeds raised in the 2015 Financing equal approximately $5.6 million. The Series F Stock converted into an aggregate of 1,188,291 shares of common stock on May 5, 2015 following stockholder approval.

In addition, on May 5, 2015, pursuant to the Subscription Agreement, dated as of February 6, 2015, by and among the Company and certain members of the Company’s management and Board of Directors, the Company sold and issued to the Management and Director Investors (i) 65,955 shares of common stock of the Company, par value $0.0001 per share (“Common Stock”), at a purchase price of $4.70 per common share, for a total purchase amount of approximately $310,000 and (ii) warrants to purchase common stock of the Company (the “May 2015 Warrants”), initially exercisable for an aggregate of 32,975 shares of common stock.

The holders of Series F Stock had the right to vote together with the holders of the Company’s common stock as a single class on any matter on which the holders of common stock were entitled to vote, except that the holders of Series F Stock were not eligible to vote their shares of Series F Stock on the proposal submitted to the Company’s stockholders for approval of the issuance and sale of the securities in the 2015 Financing and the conversion of the Series F Stock. Holders of Series F Stock were entitled to cast a fraction of one vote for each share of common stock issuable to such holder on the record date for the determination of stockholders entitled to vote at a conversion rate the numerator of which was $47.00 and the denominator of which was the closing bid price per share of the common stock on February 5, 2015.

The Company has evaluated the February and May 2015 Warrants and has concluded that equity classification is appropriate as all such February and May 2015 Warrants are considered to be indexed to the Company’s equity and there are no settlement provisions that would result in classification as a debt instrument. Such warrants are included in the Company’s stockholders’ equity and are not subject to remeasurement.

On May 5, 2015, following approval by the Company’s stockholders, each whole share of Series F Stock converted automatically into ten shares of common stock at an initial conversion price of $4.70 per share of common stock, for a total of 1,188,291 shares of Common Stock issued upon such conversion. Because the Series F Stock was redeemable at the option of the holder (prior to the stockholders approving conversion on May 5, 2015 as discussed above), we have recorded it in temporary equity as of March 31, 2015 until conversion on May 5, 2015, when the redemption value of $5.9 million was reclassified to stockholders’ equity.

The Series F Stock was assessed under ASC 470, Debt, and the Company determined that the conversion to common stock qualifies as a BCF since it had a nondetachable conversion feature that was in-the-money at the commitment date. The BCF computation compares the carrying value of the preferred stock after the value of any derivatives has been allocated from the proceeds (in this case, the warrant value) to the transaction date value of the number of shares that the holder can convert into. The calculation resulted in a BCF of $0.4 million for Series F Stock being recorded in additional paid-in capital in the three months ended June 30, 2015.

The proceeds of the 2015 Financing were allocated to the common stock, the February 2015 Warrants, May 2015 Warrants and Series F Stock based on their estimated relative fair values. The proceeds of the Series F stock and warrants were based on their estimated relative fair values. 

8.  COFACE Loan

In December 2009, the Company signed a stated guaranteed insurance contract with the insurance company COFACE in order to protect the Company against the financial risks of its commercial development in the United States. As part of the contract, COFACE financed part of the expenses in the United States, with the amounts to be amortized in subsequent years. As of December 31, 2015, the amount still to be repaid was of $426,000.

9.  Equity

Equity Incentive Program

The Company’s equity incentive program is a broad-based, retention program comprised of stock options, restricted stock units and an employee stock purchase plan designed to align stockholder and employee interests. For a description of the Company’s equity plans, see the notes to consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2015.

The Company granted the following stock options and restricted units: 

Valuation Assumptions

For the three and nine months ended December 31, 2015 and December 31, 2014, the Company calculated the fair value of its employee stock options at the date of grant with the following weighted average assumptions: 

The following tables summarize activity under the equity incentive plans for the three months ended December 31, 2015: 

(1) John Nolan, Chief Financial Officer, was granted an option to purchase 100,000 shares of Determine common stock on November 16, 2015. The non-qualified option has an exercise price per share of $3.34, 10-year term and vests over a 48-month period, with 25% cliff vesting after one year, and the remaining option shares vesting in equal monthly installments over the following 36 months of continuous service to the company.

The weighted average remaining contractual term for exercisable options is 6.67 years. The intrinsic value is calculated as the difference between the market value as of December 31, 2015 and the exercise price of the shares. The market value of the Company’s common stock as of December 31, 2015 was $2.59 as reported by the NASDAQ Capital Market. The aggregate intrinsic value of stock options outstanding at December 31, 2015 and 2014 was $0 and $11,100, respectively. The aggregate intrinsic value of restricted stock units outstanding at December 31, 2015 and 2014 was $0.7 million and $2.3 million, respectively.  

The options outstanding and exercisable at December 31, 2015 were in the following exercise price ranges:

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

Upon the departure of our CEO in June 2015, previously recognized stock-based compensation expense in the amount of $7,326 was reversed due to the forfeiture of stock option grants. As of December 31, 2015, the unrecorded stock-based compensation balance related to stock options and restricted stock units outstanding excluding estimated forfeitures was $4.2 million and $1.5 million, respectively, and will be recognized over an estimated weighted average amortization period of 3.18 years for stock options and 2.10 years for restricted stock units. The amortization period is based on the expected remaining vesting term of the options and restricted stock units.

1999 Employee Stock Purchase Plan (“ESPP”)

The price paid for the Company’s common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the Company’s common stock at the beginning of each offering period or at the end of each offering period. The compensation expense in connection with the ESPP for the nine months ended December 31, 2015 and 2014 was $21,300 and $53,000, respectively. During the three months ended December 31, 2015 and 2014, there no shares issued under the ESPP.

2015 Equity Incentive Plan

The Company’s Board of Directors previously adopted the Determine, Inc. 2015 Equity Incentive Plan (the “2015 Plan”). The Company’s stockholders approved the 2015 Plan at the special meeting of the stockholders held on May 5, 2015.

Pursuant to the terms of the 2015 Plan, employees, directors and consultants of the Company, and any present or future parent or subsidiary corporation or other affiliated entity, may receive grants of stock options, restricted stock awards and/or restricted stock units of the Company and certain cash-based awards. Subject to permitted adjustments for certain corporate transactions, the 2015 Plan authorizes the issuance of up to 1,500,000 shares of Company common stock.

The 2015 Plan will be administered by the Compensation Committee of the Company’s Board of Directors, which is comprised of independent members of the Board of Directors. The Compensation Committee has full and exclusive power to make all decisions and determinations regarding (i) the selection of participants and the granting of awards; (ii) the terms and conditions relating to each award; (iii) adopting rules, regulations and guidelines for carrying out the 2015 Plan’s purposes; and (iv) interpreting the provisions of the 2015 Plan. 

10.  Computation of Basic and Diluted Net Loss per Share

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period.

The Company excludes securities from its diluted net loss per share computation when their effect would be antidilutive to net loss per share amounts. The following common stock equivalents were excluded from the net loss per share computation:

In fiscal 2015, under the 2001 Long-Term Equity Incentive Plan, the Company provided issuance of phantom stock rights to the Odessa consultants in Ukraine. To date, the Company has issued 11,350 shares under phantom stock rights for the exercise price of $6.76. The shares vest over one year starting from the grant date of April 1, 2014. The contractors will get 50 more shares at every anniversary of their employment. The Company reserves the right to modify this over time. The Company did not book any expense due to lower market price compared to the exercise price for the three and nine months ended December 31, 2015 and 2014.

11.  Operating Lease Commitments

On May 15, 2014, the Company entered into a First Amendment to Lease (the “Lease Amendment”) with SKBGS I, L.L.C. amending the Office Lease dated July 8, 2011, whereby the Company is leasing approximately 10,516 square feet of office space at a premises located at 2121 South El Camino Real, Suite 1000, San Mateo, California, where the Company maintains its headquarters. The Lease Amendment extends the lease term to cover a 25-month period expiring January 31, 2017 and carries a base rent of $2.85 per rentable square foot, escalating 3% each year.

In connection with the acquisition of Iasta, we assumed leases for offices in Carmel, Indiana and in London, United Kingdom. The lease in Indiana, dated January 7, 2008 and as amended June 5, 2009, is for approximately 9,948 square feet of office space, expires April 13, 2016 and carries a base rent of $1.80 per rentable square foot, escalating 9% in the last two years of the lease.

In connection with the acquisition of b-pack, we assumed leases for offices in Paris, France and in Aix-en-Provence, France. The lease in Paris, dated May 4, 2011 is for approximately 1,572 square feet of office space located at 92 rue d’Amsterdam, Paris. It expires June 30, 2020 (but can be terminated June 30, 2017) and carries a base rent of $3.21 per rentable square foot. The lease in Aix-en-Provence, dated July 31, 2015 is for approximately 4,327 square feet of office space located at 220 rue Denis Papin, Aix-en-Provence. It expires July 31, 2024 (but can be terminated July 31, 2018) and carries a base rent of $1.92 per rentable square foot.

In connection with the acquisition of b-pack, we also assumed a lease for offices in Atlanta, Georgia. The lease in Georgia, dated August 1, 2014, is for approximately 1,742 square feet of office space, expires July 31, 2016 and carries a base rent of $1.44 per rentable square foot. 

Rental expenses for the office space and equipment were approximately $0.2 million and $0.1 million for three months ended December 31, 2015 and 2014, respectively, as compared to approximately $0.6 million and $0.4 million for the nine months ended December 2015 and 2014, respectively. Minimum payments under our operating leases agreements are $0.2 million in fiscal 2016, $0.5 million in fiscal 2017, $0.1 million in fiscal 2018 and $0.03 million in fiscal 2019.

12.  Litigation and Contingencies

From time to time the Company is subject to certain routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of its business. The Company believes that the ultimate amount of liability, if any, for any pending claims of any type (either alone or combined) will not materially affect its financial position, results of operations or liquidity. 

In March 2015, a minority shareholder of b-pack Services SA, a French subsidiary of Determine, SAS, which was acquired when the Company acquired b-pack SAS , initiated litigation in the Nanterre Commercial Court against the founders of b-pack SAS claiming indemnification rights for his contribution to the business of b-pack Services SA, which is currently pending, and seeking monetary damages and other relief. In July 2015, the same minority shareholder also initiated litigation in the Paris Commercial Court against Determine, SAS to contest the merger between b-pack SAS and Selectica France SAS, which is also pending, and seeking monetary damages and other relief.  The Company believes that the lawsuits are without merit and intends to defend against them vigorously. The Company did not record any provision as of December 31, 2015.

In November 2015, the Company settled outstanding litigation based upon claims the Company alleged against some of its former employees and a competitor relating to the Company’s intellectual property.  The Company has included the first payment of $0.2 million in its operating loss on the basis of such amount representing the Company's lost operating income. Additionally, the Company has been including the litigation expenses related to this matter in loss from operations since the inception of the litigation.

Warranties and Indemnifications

The Company’s products are generally warranted to perform substantially in accordance with the functional specifications set forth in the associated product documentation for a period of 90 days. In the event there is a failure of such warranties, the Company generally is obligated to correct the product to conform to the product documentation or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or service. The Company has not provided for a warranty accrual as of the three months ended December 31, 2015 or 2014, respectively. To date, the Company has not refunded any amounts in relation to the warranty.

The Company generally agrees to indemnify its customers against legal claims that the Company’s software infringes certain third-party intellectual property rights. In the event of such a claim, the Company is obligated to defend its customer against the claim and to either settle the claim at the Company’s expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of the infringement, the Company agrees to modify or replace the infringing product, or, if those options are not reasonably possible, to refund the purchase price of the software. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers. As such, the Company has not provided for an indemnification accrual as of December 31, 2015 or 2014.

13. Credit Facility

On February 3, 2016, the Company entered into Amendment Number Five to Amended and Restated Business Financing Agreement, which amended the Business Financing Agreement entered into with Western Alliance Bank, as successor in interest to Bridge Bank, National Association (“Western Alliance Bank”) on July 25, 2014, as amended (as amended, the “Credit Facility”).  The Credit Facility provides a revolving receivables financing facility in an amount up to $5.0 million (the “Receivables Financing Facility”) and a revolving cash secured financing facility in an amount up to $7.0 million (the “Working Capital Facility”), for an aggregate revolving credit facility of up to $12.0 million.

The Receivables Financing Facility may be drawn in amounts up to $5.0 million in the aggregate, subject to a minimum borrowing base requirement equal to 80% of the Company’s eligible accounts receivable as determined under the Credit Facility. The Working Capital Facility may be drawn in such amounts as requested by the Company, not to exceed $7.0 million in the aggregate. The Credit Facility terminates on February 3, 2017, provided, however, that in the event of an early termination by the Company; a penalty of 1.0% of the total credit facility would be triggered.

All amounts borrowed under the Credit Facility are secured by a general security interest on the assets of the Company and are subject to a 2.00 Current Ratio of (i) cash and cash equivalents plus all eligible receivables in relation to (ii) the Company’s current liabilities excluding current deferred revenue.

Except as otherwise set forth in the Credit Facility, borrowings made under the Receivables Financing Facility will bear interest at a rate equal to the prime rate or 3.25%, whichever is greater, plus 0.25%, and borrowings made under the Working Capital Facility will bear interest at a rate equal to the financial institution’s certificate of deposit 30-day rate plus 200 basis points, with the total minimum monthly interest to be charged being $2,000.

As of December 31, 2015 and March 31, 2015, the Company owed $8.0 million and $7.4 million, respectively, under the Credit Facility, and no amounts were available for future borrowings.

In order to satisfy certain conditions for Western Alliance Bank to lend additional funds under the Credit Facility, on March 11, 2015, Lloyd I. Miller, III (“Mr. Miller”), and MILFAM each entered into a Limited Guaranty (the “2015 Guaranties”) with Western Alliance Bank to provide a limited, non-revocable guaranty of the Company’s Credit Facility in the amount of $1 million each, for a total guaranteed amount of $2 million. The term of the 2015 Guaranties is two years. Western Alliance Bank, in its sole discretion, may reduce, but not increase, the guaranteed amount under the 2015 Guaranties during the term. In connection with the 2015 Guaranties, on March 11, 2015, the Company entered into a Guaranty Fee Agreement (the “2015 Fee Agreement”) with Mr. Miller, the Company’s largest stockholder, and MILFAM II L.P., pursuant to which the Company agreed to pay Mr. Miller and MILFAM an aggregate commitment fee of $100,000 and a monthly fee equal to (i) 1% of the loan amount then guaranteed under the 2015 Guaranties for the first 12 months of the term and (ii) 1.5% of the loan amount then guaranteed under the 2015 Guaranties for the second 12 months of the term. The commitment fee and the aggregate amount of the monthly fees are payable in cash by the Company within five business days following the termination or expiration of the 2015 Guaranties. On February 3, 2016, the Company entered into an Amendment to Guaranty Fee Agreement with Mr. Miller and MILFAM, pursuant to which the accrual of the fees was amended such that the monthly fees thereunder began accruing on the date that the Company draw from the Credit Facility the amounts guaranteed by Mr. Miller and MILFAM.

Additionally, on February 3, 2016, Alliance Semiconductor Corporation (“ALSC”), an affiliate of Mr. Miller, entered into a Limited Guaranty (the “2016 Guaranty”) with Western Alliance Bank to provide a limited, non-revocable guaranty of the Company’s Credit Facility in the amount of $3 million. The term of the 2016 Guaranty is two years. Western Alliance Bank, in its sole discretion, may reduce, but not increase, the guaranteed amount under the 2016 Guaranty during the term. In connection with the 2016 Guaranty, on February 2, 2016, the Company entered into a Guaranty Fee Agreement with ALSC, whereby the Company agreed to pay ALSC an aggregate commitment fee of $100,000 and a monthly fee equal to 0.5% of the amount guaranteed under the 2016 Guaranty for the first 12 months of the term and 0.75% of the amount guaranteed under the 2016 Guaranty for the second 12 months of the term. Following the date that the Company draws from the Credit Facility the amount guaranteed under the 2016 Guaranty, the monthly fees shall increase to 1.0% during the first 12 months of the term and 1.5% during the second 12 months, respectively. The commitment fee and the aggregate amount of the monthly fees are payable in cash by the Company within five business days following the termination or expiration of the 2016 Guaranty.

The Company recorded $20,000 of fees associated with the 2015 Fee Agreement as part of other long-term liabilities as of December 31, 2015.

On December 16, 2015, the Company entered into a Junior Secured Convertible Note Purchase Agreement with Mr. Miller and three of his affiliates, pursuant to which the Company issued and sold junior secured convertible promissory notes in the aggregate principal amount of $2.5 million. The Notes are due on December 16, 2020 and accrue interest at an annual rate of 8% on the aggregate unconverted and outstanding principal amount, payable quarterly, beginning on December 31, 2015. The Company has the option to pay any amounts of interest due under the Notes by converting such interest into shares of common stock of the Company, at a conversion price of $3.75 per share (as may be adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or similar event occurring prior to such record date, or as may be adjusted as further described below), based upon an interest rate amount calculated at 10% per year. Upon any default under the notes, the notes will bear interest at the rate of 13% per year or, if less, the maximum rate allowable under the laws of the State of New York.

Subject to applicable NASDAQ listing rule limitations (including, if applicable, approval by the Company’s stockholders), the outstanding principal and interest under the notes may be converted into shares of common stock at the sole option of the investors at any time prior to the maturity date, at a conversion price of $3.75 per share (as may be adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or similar event occurring prior to such record date); provided, however, that if prior to the maturity date the Company offers and sells share of its common stock in a private placement primarily intended to raise capital at a price per share of $3.25 or less, then the conversion price for the notes will be reduced to such common stock offering price plus $0.50 per share. However, the total number of shares of Common Stock that may be issued to the Investors upon conversion of the Notes may not exceed 19.99% of the Company’s outstanding shares of common stock as of December 16, 2015.

The notes may be prepaid or called by the Company prior to the maturity date. If the closing bid price for the Company’s common stock equals or exceeds $10.00 per share (as may be adjusted for any subdivision by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or similar event occurring prior to such record date) for ten trading days in any fifteen trading-day period, the outstanding principal and interest under the Notes may be converted into shares of common stock at the sole option of the Company at the then-current conversion price.

14.  Income Taxes

The provision for income taxes is based upon income (loss) before income taxes as follows (in thousands):

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

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

The Company recorded a $1.2 million deferred tax liability at July 2015 which relates solely to the b-pack acquisition and is a one-time event.  

At December 31, 2015, there was no material increase in the liability for unrecognized tax benefits nor any accrued interest and penalties related to uncertain tax positions. 

In addition at December 31, 2015, the Company had approximately $1.3 million of unrecognized tax benefits which was netted against deferred tax assets with a full valuation allowance. If these amounts are recognized there will be no effect on the Company’s effective tax rate due to the full valuation allowance.

The Company’s Federal, state, and foreign tax returns may be subject to examination by the tax authorities for fiscal year ended from 1998 to 2014 due to net operating losses and tax carryforwards unutilized from such years.  

15.  Related Party Transactions

Determine SAS and b-pack Services rent their offices from SCI Donapierre, the company controlled by two of the Company’s shareholders. For three months and nine months ended December 31, 2015, Determine SAS made rental payments of $43,000 and $73,000, respectively to SCI Donapierre.

16. Subsequent Events

As described in Footnote 13 above, on February 3, 2016, amended the Credit Facility with Western Alliance Bank to increase the total amount of available credit to $12 million. In connection with such amendment, ALSC entered into the 2016 Guaranty with Western Alliance Bank, guaranteeing up to $3 million under the Credit Facility, and the Company and ALSC entered into a Guaranty Fee Agreement.

On February 1, 2016, Seal Software Ltd. (“Seal”) filed suit against the Company in California Superior Court, San Mateo.  In the complaint, Seal alleged that the Company breached a contract by failing to make certain payments it alleges were required under the agreement. Seal is seeking monetary damages.  The Company intends to vigorously defend against Seal’s claims and is unable to reasonably determine the likelihood of a loss contingency at this stage.