Quarterly report pursuant to Section 13 or 15(d)

Nature of Business and Basis of Presentation

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Nature of Business and Basis of Presentation
9 Months Ended
Oct. 31, 2013
Accounting Policies [Abstract]  
Nature of Business and Basis of Presentation

1. Nature of Business and Basis of Presentation

The Company

SeaChange International, Inc. and its subsidiaries (“SeaChange”, “we”, or the “Company”) is a global leader in the development and delivery of multi-screen video. Our products and services facilitate the storage, management and distribution of video, television programming and advertising content to cable system operators, telecommunications companies and mobile operators.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of SeaChange International, Inc. and its subsidiaries (“SeaChange” or the “Company”) in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reports and the instructions for the Quarterly Report on Form 10-Q (“Form 10-Q”) and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. GAAP have been condensed or omitted pursuant to such regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our most recently audited financial statements and the notes thereto included in our Annual Report on Form 10-K (“Form 10-K”) as filed with the SEC. In the opinion of management, the accompanying financial statements include all adjustments necessary to present a fair presentation of the consolidated financial statements for the periods shown. Interim results are not necessarily indicative of the operating results for the full fiscal year or any future periods. The balance sheet data as of January 31, 2013 that is included in this Form 10-Q was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP. The preparation of these financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results may differ from our estimates. All intercompany transactions and balances have been eliminated. We have reclassified certain fiscal 2013 data to conform to our fiscal 2014 presentation.

Effective February 1, 2013, as a result of a change in how we review our business, certain information technology costs which were formerly allocated out of general and administration expenses, remained in general and administration expenses. Prior fiscal year balances were adjusted to conform to this presentation. The reclassification, reflected in our current statements of operations and comprehensive income (loss) related to the three and nine months ended October 31, 2012, is as follows:

 

     Three Months Ended     Nine Months Ended  
     October 31, 2012     October 31, 2012  

Cost of revenue - product

   $ (50   $ (162

Cost of revenue - service

     (250     (737

Research and development expenses

     (221     (593

Selling and marketing expenses

     (46     (127

General and administrative expenses

     567        1,619   
  

 

 

   

 

 

 
   $ —        $ —     
  

 

 

   

 

 

 

We also hold minority investments in the capital stock of certain private companies having product offerings or customer relationships that have strategic importance. We evaluate our equity and debt investments and other contractual relationships with affiliate companies in order to determine whether the guidelines regarding the consolidation of variable interest entities (“VIEs”) should be applied in the financial statements. We have concluded that we are not the primary beneficiary for any VIEs. As such, no amounts have been consolidated as of October 31, 2013.

 

Immaterial Prior Period Adjustment

During the second quarter of fiscal 2014, we identified an adjustment to the calculation of the derived service period on 875,000 stock options, which included both a market price and service conditions, awarded to our CEO in May 2012 and which are currently fully vested as of October 31, 2013. The stock options vested in three increments based upon the closing price of SeaChange’s common stock. If on May 1, 2015 fewer than 437,500 options had vested pursuant to market price vesting terms, then an additional number of options would vest such that the total number of vested options under the award would equal 437,500 and all remaining unvested options would expire. We previously recorded the fair value of these stock options using the Monte Carlo simulation model, since the stock option vesting was variable depending on the closing market price of our common stock. The model simulated the daily trading price of the market price-based stock options’ expected term to determine if the vesting conditions would be triggered during that term and calculated a derived service period. As a result, the fair value of these stock options was estimated at $3.3 million with a derived service period of 2.1 years. During the second quarter of fiscal 2014, we determined that the simulation model used to calculate the derived service period of 2.1 years should have excluded the service condition of 36 months in vesting iterations. As a result of this change, the fair value of the stock option award of $3.3 million did not change but the derived service period would have been 7.2 months for the first increment of 291,667 stock options, 9.6 months for the second increment of 291,666 stock options and 10.8 months for the third increment of 291,667 stock options. The impact of this change resulted in an additional $1.8 million of stock compensation expense for our fiscal year 2013, which we have concluded would not have been material, individually or in the aggregate, to our prior reporting periods.

In evaluating whether this adjustment was material to previously issued consolidated financial statements, we considered the guidance in the SEC’s Staff Accounting Bulletin No. (“SAB”) 99, “Materiality,” and Accounting Standards Codification (“ASC”) 250, “Accounting Changes and Error Corrections.” We concluded this adjustment was not material individually or in the aggregate to any of the prior reporting periods, and therefore, amendments of previously filed reports were not required. However, the cumulative adjustment would have been material during the second quarter of fiscal 2014 if the cumulative adjustment was recorded. Accordingly, in accordance with the SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” adjustments to the applicable prior periods are reflected in the financial information herein and will be reflected in future filings containing such financial information. This non-cash adjustment had no net impact to our consolidated statements of cash flows. Below are the line items within these consolidated financial statements that have been adjusted (amounts in thousands):

Consolidated Statements of Operations and Comprehensive Income (Loss):

 

     Three Months Ended     Nine Months Ended  
     October 31, 2012     October 31, 2012  
     As Previously           As     As Previously           As  
     Reported     Adjustment     Revised     Reported     Adjustment     Revised  

Stock-based compensation expense

   $ 728      $ 704      $ 1,432      $ 3,056      $ 1,408      $ 4,464   

Loss from operations

   $ (901   $ (704   $ (1,605   $ (8,877   $ (1,408   $ (10,285

Net income (loss)

   $ 578      $ (704   $ (126   $ (24,293   $ (1,408   $ (25,701

Comprehensive income (loss)

   $ 2,021      $ (704   $ 1,317      $ (17,691   $ (1,408   $ (19,099

Basic and diluted net income (loss) per share

   $ 0.02      $ (0.02   $ (0.00   $ (0.75   $ (0.04   $ (0.79

Consolidated Balance Sheet:

 

     January 31, 2013  
     As Previously           As  
     Reported     Adjustment     Revised  

Additional paid-in capital

   $ 214,531      $ 1,828      $ 216,359   

Accumulated loss

   $ (10,830   $ (1,828   $ (12,658