SPDC Speed Comm Inc (CE)

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 operations 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. The Company 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 with the equity issuance, our executive management team and board of directors cancelled a total of 2,327,606 granted options. As a result, the Company recorded a non-cash $0.3 million reduction of stock compensation expense within general and administrative 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 from 100,000,000 to 200,000,000.

On October 6, 2015, we received approval from NASDAQ to transfer the listing of our common stock from the NASDAQ Global Market to the NASDAQ Capital market. This transfer was effective upon the opening of business on October 8, 2015. Following the transfer of its listing, we were granted an additional 180-day grace period to regain compliance with the NASDAQ's $1.00 minimum bid price requirement. To regain compliance and qualify for continued listing on the NASDAQ Capital Market, the minimum bid price per share of our common stock must be at least $1.00 for at least ten consecutive business days during the additional 180-day grace period, which will end on April 4, 2016. If we fail to regain compliance during this grace period, our common stock will be subject to delisting by NASDAQ. The Company has provided written notice of its intention to cure the minimum bid price deficiency during the second grace period by carrying out a reverse stock split, if necessary.

On October 9, 2015, we entered into a Second Amendment Agreement with Wynit Distribution, LLC to reduce the current principal of a promissory note payable to from Wynit to zero; discharged any and all indemnification claims by Buyers arising from the purchase; and eliminates Buyers’ ability to make any other claims relating to the representations and warranties. The reduction in the value of the note receivable of $1.4 million was recognized as of September 30, 2015 as Type I subsequent event. Accordingly, we reduced the value of the note receivable, which was included as a long-term other asset, to zero and recognized a loss on sale of discontinued operations in the statement of operations of $1.4 million for the three months ended September 30, 2015.

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 the credit facility. The timing of required payments can significantly impact our working capital levels. During the three months ended September 30, 2015, our credit facility was amended to convert $4.8 million of interest to principal.

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 8, 2015, we 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) we obtained 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, we obtained 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) we agreed to an amendment fee equal to 200 basis points, (v) we agreed to provide Garrison with certain additional forecasts and updates regarding our liquidity and financial condition, and (vi) we are 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, we entered into the Third Amendment to the Amended and Restated Credit and Guaranty Agreement to modify certain terms with respect to the timing of certain payments under the Credit Agreement. 

On July 2, 2015, we entered into a Fourth Amendment to: (i) remove a financial covenant requiring that we 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, we entered into the Fifth Amendment to provide up to an additional $5 million of term loans which was subsequently funded to us. 

On September 17, 2015, we entered into the Sixth Amendment to delete certain non-financial covenants and to waive any defaults by us.

On October 6, 2015, we entered into the Seventh Amendment to provide up to an additional $3 million of term loans and $1.5 million were funded to the Company. We may request that the remaining $1.5 million to be funded at any time prior to December 23, 2015. The financial terms are generally consistent with those of the existing borrowings provided to us under the Credit Agreement.

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:

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.

Results from Continuing Operations

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

Net Revenue

Net revenue was $31.3 million for the three months ended September 30, 2015 compared to $23.1 million for the three months ended September 30, 2014, an increase of $8.2 million, or 35.8%. 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 $26.0 million for the three months ended September 30, 2015 compared to $17.6 million for the three months ended September 30, 2014, an increase of $8.4 million, or 47.9%. 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 $0.7 million for the three months ended September 30, 2015 compared to $0.8 million for the three months ended September 30, 2014, a decrease of $0.1 million, or 9.6%. The decrease was primarily attributable to decrease in the marketing programs for the introduction of SARA, our pre-configured accelerator for Oracle Commerce for midsize e-commerce retailers.

General and administrative expenses were $5.1 million for the three months ended September 30, 2015 compared to $3.9 million for the three months ended September 30, 2014, an increase of $1.2 million, or 28.4%. The increase was primarily due to incremental Fifth Gear expenses. General and administrative expenses consisted principally of executive, accounting and administrative personnel and related expenses, including professional fees.

Information technology expenses were $1.4 million for the three months ended September 30, 2015 compared to $1.0 million for the three months ended September 30, 2014, an increase of $0.4 million or 42.9%. The increase was primarily attributable to our Fifth Gear acquisition and personnel growth in IT infrastructure.

Depreciation and amortization expenses were $3.5 million for the three months ended September 30, 2015 compared to $1.8 million for the three months ended September 30, 2014, an increase of $1.7 million or 87.2%. The increase was primarily attributable to amortization of our intangible assets and newly acquired intangible assets from our Fifth Gear acquisition.

Goodwill and impairment charge was $17.3 million for the three months ended September 30, 2015 compared to zero for the three months ended September 30, 2014. During the quarter ended September 30, 2015, we concluded that indicators of impairment were present due to sustained decline of our share price and results of our operations.

Interest expense, net 

Interest expense was $3.6 million for the three months ended September 30, 2015 compared to expense of $0.8 million for the three months ended September 30, 2014, an increase of $2.8 million or 326.1%. The increase principally reflected higher average debt balances as a result of the refinancing of the credit facility.

Six Months Ended September 30, 2015 compared to Six Months Ended September 30, 2014

Net Revenue

Net revenue was $65.7 million for the six months ended September 30, 2015 compared to $45.1 million for the six months ended September 30, 2014, an increase of $20.6 million, or 45.6%. 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 $51.6 million for the six months ended September 30, 2015 compared to $34.9 million for the six months ended September 30, 2014, an increase of $16.7 million, or 47.9%. 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 $1.3 million for the six months ended September 30, 2015 compared to $1.8 million for the six months ended September 30, 2014, a decrease of $0.5 million, or 26.6%. The decrease was primarily attributable to decrease in the marketing programs for the introduction of SARA, our pre-configured accelerator for Oracle Commerce for midsize e-commerce retailers.

General and administrative expenses were $10.2 million for the six months ended September 30, 2015 compared to $7.8 million for the six months ended September 30, 2014, an increase of $2.4 million, or 31.4%. 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 $2.8 million for the six months ended September 30, 2015 compared to $1.8 million for the six months ended September 30, 2014, an increase of $1.0 million or 57.8%. The increase was primarily attributable to our Fifth Gear acquisition and personnel growth in IT infrastructure.

Depreciation and amortization expenses were $6.6 million for the six months ended September 30, 2015 compared to $3.6 million for the six months ended September 30, 2014, an increase of $3.0 million or 82.7%. The increase was primarily attributable to amortization of our intangible assets and newly acquired intangible assets from our Fifth Gear acquisition.

Goodwill and impairment charge was $17.3 million for the six months ended September 30, 2015 compared to zero for the six months ended September 30, 2014. Effective September 30, 2015, we concluded that indicators of impairment were present due to sustained decline of our share price and results of our operations.

Interest expense, net 

Interest expense was $6.1 million for the six months ended September 30, 2015 compared to expense of $1.4 million for the six months ended September 30, 2014, an increase of $4.7 million or 344.7%. 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 September 30, 2015, the Company recorded income tax benefit from continuing operations of $674,000, compared to income tax expense from continuing operations of $119,000 for the three months ended September 30, 2014. The tax benefit for the three months ended September 30, 2015 primarily relates to the impairment of indefinite-lived goodwill for which a deferred tax liability must be recorded. The Company 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 September 30, 2015 was a postive 2.5%, compared to a negative 6.7% for the three months ended September 30, 2014.

For the six months ended September 30, 2015, the Company recorded income tax benefit from continuing operations of $466,000, compared to income tax expense from continuing operations of $173,000 for the six months ended September 30, 2014. The effective income tax rate applied to continuing operations for the six months ended September 30, 2015 was a positive 1.7%, compared to a negative 3.4% for the six months ended September 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 September 30, 2015, we had $107.3 million of indebtedness subject to interest rate fluctuations. As such, a 100-basis point change in the current LIBOR rate would have a $1.1 million 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 six months ended September 30, 2015 were $10.8 million and were primarily impacted by the following:

Cash flows provided by operating activities during the six months ended September 30, 2014 were $2.4 million and were primarily impacted by the following:

Investing Activities

Cash flows used in investing activities for purchases of property, equipment and software totaled $3.0 million for the six months ended September 30, 2015 and cash flows used in investing activities totaled $0.2 million for the same period last year.

Financing Activities

Cash flows provided by financing activities totaled $9.4 million for the six months ended September 30, 2015. We received $6.8 million in net proceeds from our April 2015 equity offering, borrowed an additional $5.0 million under our credit facility, offset by a $1.3 million principal payment on our long-term debt and $1.1 million payments in other financing activities.

Cash flows provided by financing activities totaled $4.7 million for the six months ended September 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 Series C convertible preferred stock and we had net payment to the revolving line of credit of $38.4 million. We received $31.9 million net proceeds from the term loan and $1.2 million from other sources including proceeds from option exercises.

Discontinued Operations

Net cash flows used in discontinued operations were $1.5 million for the six months ended September 30, 2015 resulting from the termination of the $1.4 million note receivable due from the buyers in exchange for a full release for any seller indemnities.

Net cash flows provided by discontinued operations were $9.3 million for the six months ended September 30, 2014 and consisted of $9.4 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, we 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 8, 2015, we entered into a Consent and Second Amendment to the Credit Agreement. Pursuant to the Amendment, among other things, (i) we obtained 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, we obtained 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) we agreed to an amendment fee equal to 200 basis points, (v) we agreed to provide Garrison with certain additional forecasts and updates regarding our liquidity and financial condition, and (vi) we are 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 September 30, 2015 was 12%.

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

On July 2, 2015, we entered into a Fourth Amendment to: (i) remove a financial covenant requiring that we 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 September 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, we entered into the Fifth Amendment to the Credit Agreement to provide up to an additional $5 million of term loans, which was subsequently funded to us. 

On September 17, 2015, we entered into the Sixth Amendment to delete certain non-financial covenants and to waive any defaults by us.

On October 6, 2015, we entered into the Seventh Amendment to provide up to an additional $3 million of term loans and $1.5 million was funded to the Company. We may request that the remaining $1.5 million to be funded at any time prior to December 23, 2015. The financial terms are generally consistent with those of the existing borrowings provided to us under the Credit Agreement.

On November 16, 2015, we entered into the Eighth Amendment to the Amended and Restated Credit Agreement which waived all covenant violations through September 30, 2015. Due to uncertainties in our ability to determine whether we will be able to meet existing loan covenants through March 31, 2016, the credit facility has been reclassified as a current liability in the our consolidated balance sheet as of September 30, 2015. Through September 30, 2015, we have made every scheduled payment of principal and interest on our Credit Agreement, as amended.

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. During the three months ended September 30, 2015, our credit facility was amended to convert $4.8 million of interest to principal.

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%.

On October 6, 2015, we entered into the Seventh Amendment to the Amended and Restated Credit Facility to provide up to an additional $3 million of term loans and $1.5 million were funded to us. We may request that the remaining $1.5 million to be funded at any time prior to December 23, 2015. The financial terms are generally consistent with those of the existing borrowings provided to us under the credit agreement.

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 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 expect to continue to incur operating losses for the near future and continue to consider and review all options available to us to fund our operations. Debt or equity financing may not, however, be available to us at that time due to a variety of events, including, among others, industry conditions, general economic conditions, market conditions and market perceptions of us and our industry. We also are continuing efforts to comply with the financial and non-financial covenants contained in our credit agreement, including the obligation to sell the Company by December 11, 2015.  It is uncertain at this time whether any transaction will occur, what the terms will be and how our equity will be valued.

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. Other than the risk factors below, there have been no other material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

We have a history of losses, and we expect to incur additional losses in the future. There can be no assurance that we will ever achieve profitability or have sufficient funds to execute our business strategy.

For the six months ended September, 2015 and 2014, we experienced net losses of $27.5 million and $12.3 million, respectively. We expect to continue to incur operating losses for the near future, and may not be able to support our operations or otherwise establish a return on invested capital. In addition, as of September 30, 2015, the Company had $2.0 million in available cash, with access to an additional $1.5 million under its credit facility. Given our limited access to cash, our expectation of continued operating losses, and other factors, we may not have sufficient funds to execute our business strategy, which would require us to seek additional financing. Such financing may not be available, or may be available on terms that are not acceptable to the Company, which would adversely affect our ability to continue our business operations.

In the event that we are unable to satisfy any of the listing requirements of The NASDAQ Capital Market, the Company’s common stock may be delisted, which could affect our market price and liquidity.

On April 6, 2015, the Company received written notice from NASDAQ Stock Market LLC notifying the Company that it is not in compliance with the minimum bid price requirements for continued listing on The NASDAQ Global Market. As a result, the Company applied and, on October 6, 2015, received approval from NASDAQ to transfer the listing of its common stock from the NASDAQ Global Market to the NASDAQ Capital market. This transfer was effective upon the opening of business on October 8, 2015. Following the transfer of its listing, the company has been granted an additional 180-day grace period to regain compliance with the NASDAQ's $1.00 minimum bid price requirement. To regain compliance and qualify for continued listing on the NASDAQ Capital Market, the minimum bid price per share of the Company’s common stock must be at least $1.00 for at least ten consecutive business days during the additional 180-day grace period, which will end on April 4, 2016. If the Company fails to regain compliance during this grace period, its common stock will be subject to delisting by NASDAQ. The Company has provided written notice of its intention to cure the minimum bid price deficiency during the second grace period by carrying out a reverse stock split, if necessary.

The Company’s common stock is listed on The NASDAQ Capital Market. For continued listing on The NASDAQ Capital Market, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, minimum stockholders equity requirement, the corporate governance requirements and the minimum closing bid price requirement, among other requirements. In the event that we fail to satisfy any of the listing requirements of The NASDAQ Capital Market, the Company Common Stock may be delisted. If we are unable to list on The NASDAQ Stock Market, it would likely be more difficult to trade in or obtain accurate quotations as to the market price of the Company’s common stock. If our securities are delisted from trading on The NASDAQ Stock Market, and we are not able to list our securities on another exchange or to have them quoted on NASDAQ, our securities could be quoted on the OTC Bulletin Board or on the “pink sheets.” As a result, we could face significant adverse consequences including:

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

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.

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