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Ditech Networks Inc. (DITC) filed Quarterly Report for the period ended 2011-10-31.
Ditech Networks Inc. has a market cap of $23.39 million; its shares were traded at around $0.85 with and P/S ratio of 1.26.
This is the annual revenues and earnings per share of DITC over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of DITC.
Highlight of Business Operations:
As a result of this agreement, the Company recorded the total consideration at a fair value of $6.7 million and recorded assets associated with the exclusive distribution rights and transfer of customers. The value assigned to the intangible assets, which are recorded in other assets on the face of the Condensed Consolidated Balance Sheet, was determined by valuing the discounted potential cash flows associated with each asset over the four year term of the agreement. The asset associated with the transferred customer relationships will be amortized, on a tax deductible basis, to sales and marketing expense ratably over the four year term of the agreement and the asset associated with the distribution rights will be amortized, on a tax deductible basis, to cost of revenue on a unit of revenue basis, similar to a royalty payment, at the rate of 25% of revenue recognized based on the base level of revenue anticipated in the agreement attributable to the $7.0 million of consideration issued to date. The Company recorded amortization expense associated with the distribution rights of approximately $0.5 million for each of the six months ended October 31, 2011 and 2010, respectively; and amortization expense associated with the transfer of customers of approximately $0.3 million for each of the six month periods ended October 31, 2011, and 2010. The Company recorded amortization expense associated with the distribution rights of approximately $0.3 million and $0.2 million for the three months ended October 31, 2011 and 2010, respectively, and amortization expense associated with the transfer of customers of approximately $0.2 million for the three months ended October 31, 2011 and 2010. Subsequent to executing the agreement, the Company hired one of the principle officers of Simulscribe to assume the position of Chief Strategy Officer at the Company. His primary focus was on expansion of the wholesale market for voice transcription service. This individual continues to hold a large ownership interest in Simulscribe. As such, although he may have input into key decisions related to interaction between the Company and Simulscribe, the final decisions rest with the executive management team, of which he is not a member, and/or the Board of Directors. This individual was also a major shareholder in Grid.com, which the Company acquired in February 2010. In the third quarter of fiscal 2011, the Chief Strategy Officer resigned; however, he continues to provide certain services to the Company as a consultant.Sales for the three months ended October 31, 2011 included sales to two customers that represented greater than 10% of total revenue (35% and 16%). Sales for the six months ended October 31, 2011 included sales to two customers that represented greater than 10% of total revenue (39% and 17%). Sales for the three months ended October 31, 2010 included sales to three customers that represented greater than 10% of total revenue (24%, 16% and 14%). Sales for the six months ended October 31, 2010 included sales to four customers that represented greater than 10% of total revenue (16%, 15%, 14% and 14%).
Our revenue historically has come from a small number of customers. Our largest customer in the six months ended October 31, 2011, a domestic VoIP-based conference call provider, accounted for approximately 39% of our revenue. In fiscal 2011 and 2010, our largest customer was a domestic wireline and wireless carrier, which accounted for approximately 28% and 30% of revenue, respectively. Our five largest customers accounted for approximately 66% of our revenue in the six months ended October 31, 2011 and approximately 67% and 75% of our revenue in fiscal 2011 and 2010, respectively. Consequently, the loss of, or significant decline in purchases by any one of our largest customers, without an offsetting increase in revenue from existing or new customers, would have a negative and substantial effect on our business. This customer concentration risk was evidenced over the last few fiscal years as sudden delays and/or declines in purchases by our large customers resulted in significant declines in our overall revenues and ultimately resulted in net losses for those periods.
The decrease in revenue during the three and six months ended October 31, 2011 as compared to the three and six months ended October 31, 2010 of approximately 12% and 10%, or $0.4 and $0.8 million, respectively, was largely due to a decrease of approximately 16% and 14%, or $0.6 million and $1.1 million, for the three and six months ended October 31, 2011, respectively, in sales of our legacy product and services. This was partially offset by an increase of approximately 22% and 17%, or $0.2 million and $0.3 million, in voice services revenue for the three and six months ended October 31, 2011, respectively.
Sales and marketing expenses primarily consist of personnel costs, including commissions and costs associated with customer service, travel, trade shows and outside consulting services. The decrease in sales and marketing expense in the three and six month periods ended October 31, 2011 was largely due to ongoing cost reductions throughout fiscal 2011 and 2012, including reductions in headcount, consultants, and related costs. The reduction in headcount had a direct impact on both base pay and variable compensation, which experienced a combined reduction of approximately $0.4 million and $0.7 million, respectively. The reduction in headcount also impacted consulting, tradeshow, travel and related expenses which experienced a $50,000 and $0.2 million decrease, respectively, when compared to the three and six month periods ended October 31, 2010. Additionally, depreciation and facilities expense decreased in the three and six month periods ended October 31, 2011 by $0.1 million and $0.3 million, respectively, due to a decreased asset depreciation base as more of the company’s assets become fully depreciated, and the closure of several foreign sales offices and a reduction of domestic office space. These decreases were partially offset by an increase in marketing expense of approximately $0.1 million primarily for Phonetag customer trials in the six months ended October 31, 2011.
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