0001144204-12-039489.txt : 20120716 0001144204-12-039489.hdr.sgml : 20120716 20120713214322 ACCESSION NUMBER: 0001144204-12-039489 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120331 FILED AS OF DATE: 20120716 DATE AS OF CHANGE: 20120713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYRIS, INC. CENTRAL INDEX KEY: 0001166220 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 010579490 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-82154 FILM NUMBER: 12962602 BUSINESS ADDRESS: STREET 1: 6401 HOLLIS STREET STREET 2: SUITE 125 CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 800-768-2929 MAIL ADDRESS: STREET 1: 6401 HOLLIS STREET STREET 2: SUITE 125 CITY: EMERYVILLE STATE: CA ZIP: 94608 FORMER COMPANY: FORMER CONFORMED NAME: JL HALSEY CORP DATE OF NAME CHANGE: 20020129 10-Q/A 1 v317616_10qa.htm FORM 10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 2)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________________________

Commission File Number 333-82154

Lyris, Inc.

(Exact name of registrant as specified in its charter)

Delaware		01-0579490
(State of incorporation)		(I.R.S. Employer Identification No.)

6401 Hollis Street, Suite 125, Emeryville, CA 94608

(Address of principal executive office, including zip code)

(800) 768-2929

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

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

Large accelerated filer	£		Accelerated filer	£

Non-accelerated filer	£	(Do not check if a smaller reporting company)	Smaller Reporting Company	S

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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

9,411,083 shares of $.01 Par Value Common Stock as of May 24, 2012

EXPLANATORY NOTE

Lyris is filing this Amendment No. 2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 filed with the Securities and Exchange Commission on May 10, 2012, and as amended by Amendment No. 1 filed on May 24, 2012 (together, the “Original Form 10-Q”), to reclassify expenses between cost of revenues and research and development. Because this is a change in the classification of expenses, our revenue, total expense, income (loss) from operations, net income (loss), or earnings (loss) per share will not be affected by the restatement. All prior year amounts remain unchanged.

In the first quarter of the current fiscal year, we shifted the focus of the engineering team away from product support, to product development. As a result of this switch, engineering expenses that previously were considered cost of revenues are now reclassified as research and development to better reflect this change in our engineering focus at the time that change occurred. Our engineers are now primarily focused on the development of our next generation product line, and increasing the functionality and enhancing the ease of use of our on-demand software.

Our Audit Committee, after considering all the relevant quantitative and qualitative measures, determined that the change in classification was not material. However, it was decided by our Audit Committee that the quarter ended March 31, 2012 should be restated to reflect the reclassification of engineering expenses as a result of this change in our engineering focus.

Please refer to Note 1 – “Restatement” of our Notes to Condensed Consolidated Financial Statements. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of the following items is contained in this Amendment:

·	Part I, Item 1:	Financial Statements
·	Part I, Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations.
·	Part I, Item 4:	Controls and Procedures

All other items remain unchanged. This Amendment should be read in conjunction with the Original Form 10-Q. Except as specifically noted above, this Amendment does not modify or update disclosures in the Original Form 10-Q. Accordingly, this Amendment does not reflect events occurring after the filing of the Original Form 10-Q or modify or update any related or other disclosures.

LYRIS, INC. AND SUBSIDIARIES

Amendment No. 2 to

Quarterly Report on Form 10-Q

For Quarter Ended March 31, 2012

Item No.	Description	Page Number

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2012 and June 30, 2011	1
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2012 (as restated) and March 31, 2011	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2012 and March 31, 2011	3
	Notes to (Unaudited) Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4.	Controls and Procedures	25

Signatures		26

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

LYRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except per share data)

	March 31,			June 30,
	2012			2011 (1)
ASSETS
Current assets:
Cash and cash equivalents	$	1,401		$	244
Accounts receivable, less allowances of $1,248 and $936, respectively		5,139			6,328
Prepaid expenses and other current assets		784			851
Deferred income taxes		943			882
Total current assets		8,267			8,305
Property and equipment, net		6,065			3,139
Intangible assets, net		5,343			6,701
Goodwill		9,791			18,791
Other long-term assets		851			899
TOTAL ASSETS	$	30,317		$	37,835

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	4,155		$	4,628
Revolving line of credit		4,714			3,285
Capital lease obligations - short-term		593			192
Income taxes payable		220			231
Deferred revenue		3,833			4,388
Total current liabilities		13,515			12,724
Other long-term liabilities		218			539
Capital lease obligations - long-term		735			165
TOTAL LIABILITIES		14,468			13,428
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $0.01 par value; authorized 40,000 shares; 9,411 and 8,082 issued and outstanding shares at March 31, 2012 and June 30, 2011, respectively		1,414			1,214
Additional paid-in capital		267,247			265,075
Accumulated deficit		(252,716	)		(241,813	)
Treasury stock, at cost 11 shares held at March 31, 2012 and June 30, 2011		(56	)		(56	)
Accumulated Other Comprehensive Income		141			159
Total stockholders’ equity controlling interest		16,030			24,579
Total stockholders’ equity noncontrolling interest		(181	)		(172	)
Total stockholders' equity		15,849			24,407
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	30,317		$	37,835

(1) Derived from the consolidated audited financial statements included in our annual report on Form 10-K for the year ended June 30, 2011 filed with the SEC.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

LYRIS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2012			2011			2012			2011
	(restated)						(restated)
Revenues:
Subscription revenue	$	7,160		$	7,638		$	21,965		$	23,218
Support and maintenance revenue		945			846			2,829			2,748
Professional services revenue		783			1,340			3,344			3,209
Software revenue		374			272			1,354			1,368
Total revenues		9,262			10,096			29,492			30,543
Cost of revenues:
Subscription, support and maintenance, professional services, and software		3,163			4,146			10,145			14,347
Amortization of developed technology		229			144			596			664
Total cost of revenues		3,392			4,290			10,741			15,011
Gross profit		5,870			5,806			18,751			15,532
Operating expenses:
Sales and marketing		1,729			3,110			7,024			10,485
General and administrative		2,121			2,057			6,817			6,362
Research and development		1,444			1,042			4,784			1,765
Amortization of customer relationships and trade names		51			338			1,286			1,192
Impairment of goodwill		-			-			9,000			-
Impairment of capitalized software		-			-			385			-
Total operating expenses		5,346			6,547			29,297			19,804
Income (Loss) from operations		524			(741	)		(10,546	)		(4,272	)
Interest expense		(108	)		(24	)		(296	)		(57	)
Interest income		2			3			11			12
Other (expense) income, net		(2	)		(52	)		(18	)		(66	)
Income (Loss) from operations before income tax provision		416			(814	)		(10,849	)		(4,383	)
Income tax provision		(125	)		(53	)		61			(54	)
Net Income (Loss)		541			(761	)		(10,910	)		(4,329	)
Less: income attributable to noncontrolling interest		(44	)		-			(9	)		-
Net Income (Loss) attributable to Lyris, Inc.	$	585		$	(761	)	$	(10,901	)	$	(4,329	)

Basic and diluted:
Net Income (Loss) per share	$	0.06		$	(0.09	)	$	(1.25	)	$	(0.54	)

Weighted average shares used in calculating net loss per common share		9,418			8,082			8,742			8,087

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

LYRIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

	Nine Months Ended March 31,
	2012			2011

Cash Flows from Operating Activities:
Net loss	$	(10,901	)	$	(4,329	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense		470			643
Depreciation		917			813
Amortization of intangible assets		1,358			1,522
Goodwill impairments		9,000			-
Amortization of developed technology		524			334
Impairment of capitalized software		385			-
Provision for bad debt		842			941
Deferred income tax benefit		(61	)		(51	)
Prepaid income tax		(1	)		-
Loss on sale of assets		17			-
Changes in assets and liabilities:
Accounts receivable		373			1,114
Prepaid expenses and other assets		81			(54	)
Accounts payable and accrued expenses		(788	)		(146	)
Deferred revenue		(555	)		(687	)
Income taxes payable		(6	)		(6	)
Net cash provided by operating activities		1,655			95
Cash Flows from Investing Activities:
Purchases of property and equipment		(505	)		(421	)
Capitalized software expenditures		(2,941	)		(749	)
Payment (proceeds) for equity investments		8			(685	)
Net cash used in investing activities		(3,438	)		(1,855	)
Cash Flows from Financing Activities:
Proceeds from stock issuance		1,901			-
Purchases of treasury stock		-			(56	)
Proceeds from debt and credit arrangements		19,043			13,915
Payments of debt and credit arrangements		(17,615	)		(12,136	)
Payments under capital lease obligations		(360	)		(122	)
Noncontrolling Interest		(9	)		-
Net cash provided by financing activities		2,960			1,601
Net effect of exchange rate changes on cash and cash equivalents		(20	)		47
Net increase (decrease) in cash and cash equivalents		1,157			(112	)
Cash and cash equivalents, beginning of period		244			492
Cash and cash equivalents, end of period	$	1,401		$	380

See accompanying Notes to Unaudited Consolidated Financial Statements.

LYRIS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012

Note 1 - Restatement

Lyris has restated its previously issued unaudited Consolidated Statements of Operations for the three and nine months ended March 31, 2012, to reflect a change in the classification of expenses between cost of revenues and research and development. Because this is a change in the classification of expenses, its revenue, total expense, income (loss) from operations, net income (loss), or earnings (loss) per share will not be affected by the restatement. All prior year amounts remain unchanged.

Lyris management has determined that product development efforts should be reclassified as research and development expense rather than cost of revenues expense as a result of its reassignment of engineering resources from product support to product development activities beginning in July, 2011. Lyris has restated its cost of revenue and research and development to reflect this reclassification of expenses.

In the first quarter of the current fiscal year, Lyris shifted the focus of the engineering team away from product support, to product development. As a result of this switch, engineering expenses that previously were considered cost of revenues are now reclassified as research and development to better reflect this change in the Company’s engineering focus at the time of that change. Lyris’s engineers are now primarily focused on the development of its next generation product line, and increasing the functionality and enhancing the ease of use of its on-demand software.

The Company’s Audit Committee, after considering all the relevant quantitative and qualitative measures, determined that the change in classification was not material. However, it was decided by its Audit Committee that the quarter ended March 31, 2012 should be restated to reflect the reclassification of engineering expenses that resulted from this change in the Company’s engineering focus.

The following tables summarize the corrections on each of the affected financial statement line items for each period presented:

	As Previously Reported		Restatement Adjustment			As Restated
	(in thousands)(unaudited)
For the three months ended March 31, 2012
Subscription, support and maintenance, professional services, and software		4,372		(1,209	)		3,163
Total cost of revenues		4,601		(1,209	)		3,392
Gross profit		4,662		1,208			5,870
Research and development		237		1,207			1,444
Total operating expenses		4,138		1,208			5,346

For the nine months ended March 31, 2012
Subscription, support and maintenance, professional services, and software		14,019		(3,874	)		10,145
Total cost of revenues		14,615		(3,874	)		10,741
Gross profit		14,878		3,873			18,751
Research and development		911		3,873			4,784
Total operating expenses		25,424		3,873			29,297

Note 2 – Nature of Business and Basis of Presentation

Lyris is a leading internet marketing technology company. Its software-as-a-service, or SaaS-based online marketing solutions and services provide customers the ability to build, deliver and manage online, permission-based direct marketing programs and other communications to customers that use online and mobile channels to communicate to their respective customers and members. The Company’s software products are offered to customers on a subscription and license basis.

The Company was incorporated under the laws of the state of Delaware as J.L. Halsey Corporation and changed its name to Lyris, Inc. in October 2007. The Company has principal offices in Emeryville, California and conducts its business worldwide, with wholly owned subsidiaries in Canada and the United Kingdom, and subsidiaries in Argentina and Australia. During the second quarter of fiscal year 2011, the Company commenced its operation in Latin America and during the fourth quarter of fiscal year 2011, the Company commenced its operations in Asia Pacific. The Company’s foreign subsidiaries are generally engaged in providing sales, account management and support.

Reclassification and Reverse Stock Split

Certain prior year revenue line items have been reordered to conform to the presentation as of and for the three and nine months ended March 31, 2012.

All share and per share amounts have been restated to reflect its 15-for-1 reverse stock split, which took effect on March 12, 2012.

Fiscal Year

The Company’s fiscal year ends on June 30. References to fiscal year 2012, for example, refer to the fiscal year ended June 30, 2012.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements and prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations; however the Company believes that the disclosures included are adequate.

These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, or fiscal year 2011, filed with the SEC on September 21, 2011. Interim information presented in the unaudited condensed consolidated financial statements has been prepared by management. In the opinion of management, statements include all adjustments necessary for a fair presentation and that all such adjustments are of a normal, recurring nature and necessary for the fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with GAAP. There are certain reclassifications that have been made to the prior year condensed consolidated financial statements to conform to the current year presentation. These reclassifications had no impact on net loss or stockholders’ equity. Interim results of operations for the three and nine months ended March 31, 2012 are not necessarily indicative of results to be expected for the year ending June 30, 2012, or fiscal year 2012, or for any future period.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues, expenses and related disclosures during the reporting period. On an ongoing basis, management evaluates these estimates, judgments and assumptions, including those related to revenue recognition, stock-based compensation, goodwill and acquired intangible assets, capitalization of software, allowances for bad debt and income taxes. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods.

Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, and certain other accrued liabilities approximate their fair values, due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying amounts of capital lease obligations approximate their fair value. The revolving line of credit approximates fair value due to its market interest rate and short-term nature.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date. The Financial Accounting Standards Board (“FASB”) has established a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under the guidance for fair value measurement are described below:

Level 1: Pricing inputs are based upon quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. As of March 31, 2012, the Company used Level 1 assumptions for its cash and cash equivalents, which were $1.4 million and $0.2 million at March 31, 2012 and June 30, 2011, respectively. The valuations are based on quoted prices of the underlying security that are readily and regularly available in an active market, and accordingly, a significant degree of judgment is not required.

Level 2: Pricing inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of March 31, 2012 and June 30, 2011, the Company did not have any Level 2 financial assets or liabilities.

Level 3: Pricing inputs are generally unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require management’s judgment or estimation of assumptions that market participants would use in pricing the assets or liabilities. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. As of March 31, 2012 and June 30, 2011, the Company did not have any significant Level 3 financial assets or liabilities.

Revenue Recognition

The Company recognizes revenue from providing hosting and professional services and licensing its software products to its customers.

The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for software licenses, revenue is recognized when the customer is given electronic access to the licensed software); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable.

Subscription and Other Services Revenue

The Company generates services revenue from several sources, including hosted software services bundled with technical support (maintenance) services, and professional services. The Company recognizes subscription revenue in two ways: (1) based on the subscription plan defined in the agreement with specified monthly volume, and (2) based on actual usages at rates specified in the agreement. Additionally, the Company invoices excess usage and recognizes it as revenue when incurred by its customers.

Provide updated guidance on how the deliverables of an arrangement should be separated, and how the consideration should be allocated;

Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and

Require an entity to allocate revenue to an arrangement using the estimated selling prices (“ESP”) of deliverables if it does not have vendor-specific objective evidence (“VSOE”) of fair value or third-party evidence (“TPE”) of selling price.

Valuation terms are defined as set forth below:

VSOE — the price at which the element is sold in a separate stand-alone transaction

TPE — evidence from the Company or other companies of the value of a largely interchangeable element in a transaction

ESP — the Company’s best estimate of the selling price of an element in a transaction

The Company adopted ASU No. 2009-13 in fiscal year 2011 on a prospective basis for multiple-element arrangements that include subscription services bundled with technical support and professional services. The implementation resulted in an immaterial difference in revenue recognized and additional disclosures that are included below.

The Company follows accounting guidance for revenue recognition of multiple-element arrangements to determine whether such arrangements contain more than one unit of accounting. Multiple-element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Although the Company’s professional services that are a part of multiple element arrangement have standalone value to the customer, such services could not be accounted as separate units of accounting under the previous guidance, as VSOE did not exist for the undelivered element. The VSOE for subscription services could not be established based on the historical pricing trends to date, which indicate that the price of the majority of standalone sales does not yet fall within a narrow range around the median price. Since the Company’s subscription services have standalone value as such services are often sold separately, but do not have VSOE, the Company uses ESP to determine fair value for its subscription services when sold in a multiple-element arrangement and recognize revenue based on ASU No. 2009-13. For the three and nine month ended March 31, 2012, TPE was concluded to be an impractical alternative due to differences in features and functionality of other companies’ offerings and lack of access to the actual selling price of competitor standalone sales. If new subscription service products are acquired or developed that require significant professional services in order to deliver the subscription service and the subscription service and professional services cannot support standalone value, then such subscription services and professional services will be evaluated as one unit of accounting. The Company determined ESP of fair value for subscription services based on the following:

The Company has defined processes and controls to ensure its pricing integrity. Such controls include oversight by a cross-functional team and members of executive management. Significant factors considered when establishing pricing include market conditions, underlying costs, promotions, and pricing history of similar services. Based on this information and actual pricing trends, management establishes or modifies the pricing.

The Company identified the population of transactions to serve as the basis for establishing ESP, including subscription services and professional services pricing history in transactions with multiple-element arrangements and those sold on a standalone basis.

The Company analyzed the population of items sold by stratifying the population by product type and level, and considered several data points, such as (1) average price charged, (2) weighted average price to incorporate the frequency of each item sold at any given price, and (3) the median price charged. These three price points were then compared with the existing price list that is used as a point of reference to negotiate contracts and does not represent fair value. Additionally, the Company gathered and analyzed sales’ team feedback gained from interaction with customers and similar activities. This feedback included consideration of current market trends for pricing charged by companies offering similar services, competitive advantage of the products Lyris offers and recent economic pressures that have resulted in lower spending on marketing activities. ESP for each item in the population was established based on the factors noted above and was reviewed by management.

For transactions entered into or materially modified after July 1, 2010, the Company allocates consideration in multiple-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for each separate element based on its fair value. For the three and nine months ended March 31, 2012, the impact on the Company’s revenue under the new accounting guidance as compared to the previous methodology resulted in an immaterial difference in revenue recognized as compared to that which would have previously been deferred and recognized ratably. The immaterial impact is primarily a result of the limited population of transactions subject to newly adopted guidance, as it includes only those arrangements entered into or materially modified since its adoption in fiscal year 2011. The accounting treatment for arrangements entered into prior to July 1, 2010 continues to follow legacy accounting rules and the revenue recognition method applied to certain types of arrangements has not changed upon adopting new guidance, and does not affect the revenue recognized. The adoption of new guidance did not result in a material impact to the financial statements for the three and nine months ended March 31, 2012, and is not anticipated to become material for the remainder of fiscal year 2012.

However, new guidance may result in a material impact in the future, due to the change in other factors affecting the revenue recognition method, as the impact on the timing and pattern of revenue will vary depending on the nature and volume of new or materially modified contracts in any given period. The Company expects that the new accounting guidance will facilitate its efforts to optimize the sales and marketing of its offerings due to better alignment between the economics of an arrangement and the accounting for that arrangement. Such optimization may lead the Company to modify its pricing practices, which could result in changes in the relative selling prices of its elements, including both VSOE and ESP, and therefore change the allocation of the sales price between multiple elements within an arrangement. However, this will not change the total revenue recognized with respect to the arrangement.

The Company defers technical support (maintenance) revenue, including revenue that is part of a multiple element arrangement, and recognizes it ratably over the term of the agreement, which is generally one year.

For professional services sold separately from subscription services, the Company recognizes professional service revenues as delivered. Expenses associated with delivering all professional services are recognized as incurred when the services are performed. Associated out-of-pocket travel costs and expenses related to the delivery of professional services are typically reimbursed by the customer and are accounted for as both revenue and expense in the period the cost is incurred.

For multiple element arrangements entered into prior to July 1, 2010 that include both subscription and professional services and did not meet the separability criteria under the previous guidance, the Company has accounted for as a single unit of accounting. Consistent with the revenue recognition method applied prior to the adoption of ASU No. 2009-13, revenue for these arrangements continues to be recognized ratably over the term of the related subscription arrangement. If the multi-element arrangement is materially modified, the transaction is evaluated in accordance with the new accounting guidance which will most likely result in any deferred services revenue being recognized at the time of the material modification.

Software Revenue

The Company enters into certain revenue arrangements for which it is obligated to deliver multiple products and/or services (multiple elements). For these arrangements, which generally include software products, technical (maintenance) support and professional services, the Company allocates and defers revenue for the undelivered elements based on their VSOE. The Company allocates total earned revenue under the agreement among the various elements based on their relative fair value. VSOE exists for all elements of multiple element arrangements. In the event that VSOE cannot be established for one of the elements of multiple element arrangement, the Company will apply the residual method to determine how much revenue for the delivered elements (software licenses) can be recognized upon delivery by assigning VSOE to other elements in multiple element arrangements.

The Company determines VSOE based on actual prices charged for standalone sales of maintenance. To accomplish this, the Company tracks sales for the maintenance product when sold on a standalone basis for a one year term and compares to sales of the associated licensed software product.

The Company performs a quarterly analysis of the actual sales for standalone maintenance and licensed software to establish the percentage of sales relationships for each level of maintenance and licensed software. The result of this analysis has historically been a tight range of percentage of sales relationships centered on a mid-point. Renewal rates, expressed as a consistent percentage of the license fee at each level, represent VSOE of fair value for the maintenance element of the arrangements.

The Company recognizes revenue from its professional services as rendered. VSOE for professional services is based on the use of a consistent rate per hour when similar services are sold separately on a time-and-material basis. In cases where VSOE has not been established, the Company defers the full value of the arrangement and recognizes it ratably over the term of the agreement.

Note 3 – Recent Accounting Standards

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for reporting periods beginning after December 15, 2011, with early adoption prohibited for public companies. The new guidance will require prospective application. The Company will adopt this pronouncement in fiscal year 2013, and does not expect its adoption to have a material effect on its financial position or results of operations.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which will require companies to present the components of net income and other comprehensive income either in a single continuous statement or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The pronouncement does not change the current option for presenting components of other comprehensive income, gross, or net of the effect of income taxes, provided that such tax effects are presented in the statement in which other comprehensive income is presented or disclosed in the notes to the financial statements. Additionally, the pronouncement does not affect the calculation or reporting of earnings per share. The pronouncement also does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. The Company has deferred implementing amendments to its presentation of its items of accumulated other comprehensive income in accordance with the recent Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), which superseded certain pending paragraphs in ASU No. 2011-05, to effectively defer only those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The Company will adopt this pronouncement beginning of fiscal year 2013.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350) Testing Goodwill for Impairment ("ASU 2011-08”), which simplify how entities test goodwill for impairment. It provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with an option to early adopt. The Company early adopted this pronouncement in the first quarter of fiscal year 2012 and it did not have a material impact on the Company’s statement of position or results of operations. In the second quarter of fiscal year 2012, however, the Company had re-assessed certain qualitative factors and performed accordingly the current two-step process for goodwill impairment. As a result of this process, the Company determined a goodwill impairment of $9.0 million as of December 31, 2011. In the third quarter of fiscal year 2012, the Company assessed qualitative factors and determined it was not necessary to perform the two-step test for goodwill impairment.

Note 4 – Other Long-term Assets

	As of March 31, 2012		As of June 30, 2011
	(In thousands)
SiteWit Investment	$	670	$	678
Security Deposits	$	112	$	126
Note Receivable	$	69	$	95
Total Other long-term assets	$	851	$	899

On July 23, 2010, the Company entered into a Strategic Partnership Agreement and a Stock Purchase Agreement (together, the “SiteWit Agreements”) with SiteWit Corp. (“SiteWit”), a privately held company that provides an online marketing search engine to its customers. The Company invested in SiteWit to secure the right to use SiteWit’s online marketing search engine technology, and to develop and market certain services related to SiteWit’s product. Pursuant to the SiteWit Agreements, the Company had invested $0.8 million in SiteWit and owned less than 50% of SiteWit’s outstanding stock.

Due to a disagreement regarding the parties’ respective rights and obligations under the SiteWit Agreements, the parties mutually agreed to terminate the SiteWit Agreements and release one another from all rights and obligations thereunder. Effective August 17, 2011, the Company entered into a Termination Agreement (the “Termination Agreement”) with SiteWit.

Pursuant to the Termination Agreement, the Company will make no further investments in SiteWit, the right of the Company to designate one of the members of SiteWit’s board of directors was terminated, and the Company returned to SiteWit approximately 75% of the SiteWit shares that were issued to the Company pursuant to the SiteWit Agreements. For a period of 18 months commencing on August 17, 2011, the Company’s remaining SiteWit shares are subject to a right of repurchase by SiteWit or SiteWit’s shareholders for the original aggregate purchase price, and under some circumstances the Company will have a one-time right to require SiteWit to repurchase all the remaining SiteWit shares that the Company holds. The Company plans on exercising this right when these circumstances occur.

During the first quarter of fiscal year 2012, the Company changed its accounting method for its investment in SiteWit from the equity method to the cost method due to the decrease in ownership and loss of significant influence that resulted from the Termination Agreement. At March 31, 2012, the Company held SiteWit at its carrying value of $0.7 million. Periodically, the Company assesses whether this investment has been other-than-temporarily impaired by considering factors such as trends and future prospects of the investee, ability to pay dividends annually, general market conditions, and other economic factors. When a decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value as a new cost basis and the amount of the other than temporary impairment is included in earnings. During the third quarter of fiscal year 2012, no significant changes that would have a material adverse effect on the Company’s investment arose and, thus, no other-than-temporary impairment was recorded for the three and nine months ended March 31, 2012.

Note 5 – Goodwill, Long-lived Assets and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with the Company’s business combinations accounted for using the acquisition method of accounting.

The following table outlines the Company’s goodwill, by acquisition:

	As of March 31, 2012		As of June 30, 2011
	(In thousands)
Lyris Technologies	$	9,707	$	16,505
Email Labs				2,202
Cogent		84		84
Total	$	9,791	$	18,791

ASU No. 2011-08 provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required. Otherwise, no further testing is required. The Company operates as one reporting unit, and conducts a test for the impairment of goodwill on at least an annual basis. The Company adopted June 30^th as the date of the annual impairment test, but will conduct the test at an earlier date if indicators of possible impairment arise.

The Company adopted ASU No. 2011-08 in the first quarter of fiscal year 2012 and considered various events and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance, entity-specific events, and its share price relative to peers. During the first quarter of fiscal year 2012, an overall market decline affected all companies across all industries, thus the decline in the Company’s stock price from $4.20 to $1.65 was considered temporary due to expectations for recovery in the market. However, in the second quarter of fiscal year 2012, the Company’s assessment of relevant events and circumstances conducted on December 31, 2011, considered the stock price having remained flat at $1.80 as of December 31, 2011 in spite of an additional purchase of 1.3 million shares, having no positive market effect on stock price, the Company determined that it was more-likely-than-not that the fair value was less than the carrying amount. As a result, the two-step impairment test related to goodwill was performed during the second quarter of fiscal year 2012.

As part of performing the goodwill impairment test, the Company first assessed the value of long-lived assets, including tangible and intangible assets. Due to the lack of use and discontinuance of the Uptilt and Sparklist trade names, the Company recognized a full write-off of these assets of $0.8 million and $44 thousand, net of amortization, respectively, at December 31, 2011.

In the first step of the impairment test, the Company compared the estimated fair value of the Company to its carrying value utilizing both an income approach and a market approach considering guideline company market multiples. Since the carrying value exceeded fair value, this was an indicator of impairment, and proceeded to step two. Step two involved assigning the estimated fair value from step one to the Company’s identifiable assets, with any residual fair value assigned to goodwill. Based on the results of step two, the Company recorded a $9.0 million impairment loss in the second quarter of fiscal year 2012; $6.8 million was for Lyris Technologies and $2.2 million for EmailLabs, respectively. In the third quarter of fiscal year 2012, the Company assessed qualitative factors and determined it was not necessary to perform the two-step test for goodwill impairment.

The valuation approaches related to step one and step two considered a number of factors that included, but were not limited to, expected future cash flows, growth rates, discount rates, comparable multiples from publicly traded companies in the industry, technology lifecycles and growth rates, customer attrition, and required certain assumptions and estimates regarding industry, economic factors, and future profitability of business. The assumptions were based on reasonable market participant considerations and historical experience, which were inherently uncertain.

Note 6 – Credit Facility

The Ninth Amendment revises the financial covenant requiring the Company to maintain earnings before interest, taxes, depreciation and amortization (“EBITDA”) not less than specified amounts, which are measured on a trailing three month basis, as follows for the applicable periods:

Measuring Period Ending	Minimum Trailing Three (3) Month EBITDA
(In thousands)
4/30/2012	$	200
5/31/2012 through 11/30/2012	$	50
12/31/2012 and thereafter	$	250

The Ninth Amendment increased the Company’s revolving line of credit (“Revolving Line”) from $2,500,000 to $3,500,000. The amount available under the Revolving Line is limited by a borrowing base, which is 80% of the amount of the aggregate of the Company’s accounts receivable, less certain exclusions. The Ninth Amendment adds to the borrowing base certain eligible foreign accounts receivable up to a limit of $350,000.

The Ninth Amendment also extends the maturity of the Revolving Line and the Company’s second revolving line of credit of $2,500,000 (“Non-Formula Line,” and together with the Revolving Line, the “Revolving Lines”). The Revolving Lines mature on April 30, 2013.

Advances under the Revolving Lines will accrue interest at a variable rate calculated as the Bank’s prime rate plus a margin of 2.5% for the Existing Line and the Bank’s prime rate plus a margin of 0.5% for the Non-Formula Line. Interest is payable monthly, and principal is payable upon maturity.

As previously disclosed, repayment of the Revolving Lines are secured by a security interest in substantially all of the assets of the Company. In addition, Mr. William T. Comfort, III, the Company’s Chairman of the Board, guarantees the company’s repayment of indebtedness under the Revolving Lines by a limited guaranty (“Guaranty”). In connection with the Amendment, Mr. Comfort entered into an Amendment to and Affirmation of Secured Guaranty Documents (“Affirmation of Guaranty”) to consent to the entry by the Company into the Amendment, affirm that the Guaranty will remain effective and to amend the limits of his liability under the Guaranty. Mr. Comfort’s liability under the Guaranty was amended to be limited to $2,500,000 with respect to advances made under the Non-Formula Line. Mr. Comfort also executed an Affirmation of Subordination Agreement to consent to the entry by the Company into the Amendment and to affirm that the Subordination Agreement between the Bank, Company and Mr. Comfort will remain effective.

The Company was in compliance with all of its covenants for all applicable measurement periods in the third quarter of fiscal year 2012. The Company’s outstanding borrowings totaled $4.7 million with $0.1 million in available credit remaining as of March 31, 2012, an increase in outstanding borrowings of $0.1 million since December 31, 2011.

Note 7 - Income Taxes

The Company’s effective tax rates for the nine months ended March 31, 2012 and 2011 were (0.6%) and 1.2%, respectively. The following table provides a reconciliation of the income tax provision at the statutory U.S. federal rate to the Company’s actual income tax provisions for the nine months ended March 31, 2012 and 2011:

	Nine Months Ended March 31,
	2012			%			2011			%
	(In thousands)
Income tax expense at the statutory rate		(3,794	)		35.00	%	$	(1,534	)		35.0	%
State income taxes, net of federal benefit		53			(0.5	%)		(36	)		0.8	%
Utilization of NOL carryover		-			-			-			-
Amortization of intangible assets		576			(5.3	%)		533			(12.2	%)
Goodwill Impairment		3,150			(29.1	%)		-			-
Impact of Foreign Operations		11			(0.1	%)		528			(12.1	%)
Difference between AMT and statutory federal income tax rates		1,626			(15.0	%)		657			(15.0	%)
Refunds		41			(0.4	%)		-			-
Other, net		(1,611	)		14.9	%		(202	)		4.7	%
Change in valuation reserve		9			(0.1	%)		-			-
Income tax provision (benefits)	$	61			(0.6	%)	$	(54	)		1.2	%

In accordance with FASB standards, the Company establishes a valuation allowance if it believes that it is more likely than not that some or all of its deferred tax assets will not be realized. The Company does not recognize a tax benefit unless it determines that it is more likely than not that the benefit will be sustained upon external examination, an audit by taxing authority. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood in being realized upon ultimate settlement. The overall increase is attributable to the Australia subsidiary being taken into account of the provision calculations.

Note 8 – Comprehensive Income (Loss)

The following table shows the computation of comprehensive (loss) income:

	Three Months Ended March 31,					Nine Months Ended March 31,
	2012		2011			2012			2011
	(In thousands)
Net income (loss)	$	541	$	(761	)	$	(10,910	)	$	(4,329	)
Foreign currency translation adjustments		15		14			(18	)		40
Total comprehensive income (loss)	$	556	$	(747	)	$	(10,928	)	$	(4,289	)

Other comprehensive loss includes gains (losses) on the translation of foreign currency denominated financial statements. Adjustments resulting from these translations are accumulated and reported as a component of other comprehensive income in stockholders’ equity section of the balance sheet.

Note 9 - Net Income (Loss) per Share

Accounting standards established by the FASB require the presentation of the basic net income (loss) per common share and diluted net income (loss) per common share. Basic net income (loss) per common share excludes any dilutive effects of options and convertible securities. Dilutive net income (loss) per common share is the same as basic net income (loss) per common share since the effect of potentially dilutive securities are antidilutive.

The following table sets forth the computation and reconciliation of net income (loss) per share:

	Three Months Ended March 31,					Nine Months Ended March 31,
	2012		2011			2012			2011
	(In thousands)
Net income (loss)	$	541	$	(761	)	$	(10,910	)	$	(4,329	)

Basic and dilutive:
Weighted average shares outstanding:		9,418		8,082			8,742			8,087

Basic and dilutive:
Net Income (Loss) per share	$	0.06	$	(0.09	)	$	(1.25	)	$	(0.54	)

No dilutives shares are included for the weighted average shares outstanding for three months ended March 31, 2012. Anti-dilutive stock options were excluded in the dilutive loss per common share calculation for the three months ended March 31, 2011 and nine months ended March 31, 2012 and 2011.

Note 10 - Stock-Based Compensation

Stock Options

The Company recognizes stock-based compensation costs, including employee stock awards and purchases under stock purchase plans, at the grant date fair value of the award. Determining the fair value of stock-based awards at the grant date requires judgment. Judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be impacted.

The following table summarizes the allocation of stock-based compensation expense included in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2012 and 2011:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2012		2011		2012		2011
	(In thousands)
Cost of revenues	$	–	$	27	$	–	$	89
General and administrative		131		109		378		448
Research and development		60		–		81		–
Sales and marketing		3		36		11		106
Total	$	194	$	172	$	470	$	643

For the three and nine months ended March 31, 2012, total stock-based compensation expense related to stock options included $101 thousand and $191 thousand, respectively, and $93 thousand and $279 thousand, respectively, of which is related to restricted stock units (RSUs). For the three and nine months ended March 31, 2011, total stock-based compensation expense of $81 thousand and $417 thousand, respectively, and $91 thousand and $226 thousand, respectively, of which is related to RSUs. The Company determines the fair value of each option grant using a Black-Scholes model. The Black-Scholes model utilizes multiple assumptions including expected volatility, expected life, expected dividends and interest rates. The expected term of the options is based on the period of time that options are expected to be outstanding and is derived by analyzing historical exercise behavior of employees in the Company’s peer group as well as the options’ contractual terms. Expected volatilities are based on implied volatilities from traded options on the Company’s peer group’s common stock, the Company’s historical volatility and other factors. The risk-free rates are for the period matching the expected term of the option and are based on the U.S. Treasury yield curve rates as published by the Federal Reserve in effect at the time of grant. The dividend yield is zero based on the fact the Company has no intention of paying dividends in the near term.

The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award, which is typically the option vesting term of four years.

Stock-based compensation expense as part of capitalized software development costs was not significant for the nine months ended March 31, 2012.

As of March 31, 2012, unamortized stock-based compensation expense associated with common stock options was $1.5 million, which the Company expects to recognize over a weighted-average period of 3.28 years.

On March 12, 2012, the Company effected a 1-for-15 Reverse Stock Split of its common stock and decreased the number of authorized shares of common stock from 200,000,000 shares to 40,000,000 shares and decreased the number of authorized shares of preferred stock from 20,000,000 to 4,000,000. Every fifteen (15) shares of the Company’s issued and outstanding common stock were automatically combined into one (1) issued and outstanding share of the Company’s common stock, without any change in the par value per share.

As a result of the Reverse Stock Split, the total number of outstanding shares of Common stock was reduced to approximately 9.4 million shares and the conversion ratio for all instruments convertible into or exercisable for shares of common stock, including stock options and restricted stock units, was be adjusted accordingly. These adjustments included adjustments to the number of shares of common stock that may be obtained upon exercise or conversion of these securities and the applicable exercise or purchase price.

No fractional shares of the Company’s post-Reverse Stock Split common stock were issued as a result of the Reverse Stock Split; instead, the Company paid in cash (without interest) the fair value of fractions of shares of its common stock that would otherwise result from the Reverse Stock Split based upon the last trade price of the common stock on the OTC Bulletin Board on March12, 2012, which was $2.97 dollars.

	Number of options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life in Years
	(In thousands)
Outstanding at July 1, 2011		847		$	5.17
Granted		109		$	4.95
Forfeited/expired		(425	)	$	4.84
Outstanding at September 30, 2011		531		$	5.38		9.0
Vested and expected to vest at September 30, 2011		366		$	5.48		8.8
Exercisable at September 30, 2011		70		$	6.56		6.7

Outstanding at September 30, 2011		531		$	5.38
Granted		-		$	-
Forfeited/expired		(92	)	$	5.93
Outstanding at December 31, 2011		439		$	5.27		8.8
Vested and expected to vest at December 31, 2011		320		$	5.33		8.6
Exercisable at December 31, 2011		75		$	6.01		7.1

Outstanding at December 31, 2011		439		$	5.27		8.8
Granted		812		$	1.66
Forfeited/expired		(59	)	$	4.83
Outstanding at March 31, 2012		1,191		$	2.83		9.4
Vested and expected to vest at March 31, 2012		787		$	3.03		9.3
Exercisable at March 31, 2012		114		$	5.35		7.7

As of March 31, 2012, the calculated aggregate intrinsic value of options outstanding and options exercisable was immaterial for disclosure. The intrinsic value represents the pre-tax intrinsic value, based on the Company’s closing stock price on March 31, 2012 which would have been received by the option holders had all option holders exercised their options as of that date.

812 thousand options were granted under the share option plan for the nine months ended March 31, 2012. The weighted-average fair values of the options granted under the share option plans was $1.66 per option and $4.95 per option for the three months ended March 31, 2012 and 2011, respectively, and was $2.05 per option and $5.06 per option for the nine months ended March 31, 2012 and 2011.

Restricted Stock Units

During the first quarter of fiscal year 2011, Wolfgang Maasberg was appointed President and Chief Executive Officer of the Company and a member of the Board. The Company granted Mr. Maasberg 100,000 common stock options and 300,000 RSUs as stock-based compensation. Mr. Maasberg’s stock options and RSUs vest one-fourth on the first anniversary of the grant then quarterly thereafter for the following 12 quarters. During the first quarter of fiscal year 2012, 75,000 RSUs of Mr. Maasberg vested. In accordance with the terms of his award agreement, 27,333 shares of RSUs that vested were net-share settled such that the Company withheld that number of shares with a value equal to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted cash in the amount equal to such withholding taxes to the appropriate taxing authorities. During the second and third quarters of fiscal year 2012, one fourth of the annual shares vested of 18,750, and similarly, were net settled the same as the first quarter of fiscal year 2012, for the applicable income and other employment taxes. Fair value of the $1.5 million of the RSUs was determined based on the intrinsic value of the RSUs on the grant date using a $4.95 per share market price. The Company recognizes stock-based compensation on a straight-line basis over the requisite service period of the award, which is typically the RSUs vesting term of four years. Total expense for RSUs for the three and nine months ended March 31, 2012 was $93 thousand and $279 thousand, respectively.

As of March 31, 2012, unamortized stock-based compensation expense associated with RSUs was $884 thousand. The Company expects to recognize this cost associated with RSUs over a weighted-average period of 2.4 years.

Reserved Shares of Common Stock

On November 18, 2011, the Company amended its 2005 Equity-Based Compensation Plan (“Plan”) to increase the number of shares available under the Plan by an additional 653,333 shares. As of March 31, 2012, the Company had reserved 609 thousand shares of common stock, under its Plan for the awarding of future stock options and settlement of outstanding restricted stock units.

Note 11 – Segment Information

ASC 280 “Segment Reporting,” or ASC 280, establishes standards for the way public business enterprises report information about operating segments in annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company concluded that there is only one reportable segment as it is a SaaS-based online marketing solutions and service provider and uses an integrated approach in developing and selling its solutions and services. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC 280.

Note 12 - Commitments and Contingencies

The Company’s commitments consist of obligations under operating leases for corporate office space and co-location facilities for data center capacity for research and test data centers. The Company has also entered into capital leases in connection with acquiring computer equipment for its data center operations which is included in property and equipment. The Company used a 5.25% interest rate to calculate the present value of the future principal payments and interest expense related to its capital leases. Additionally, in the ordinary course of business, the Company enters into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms.

During the third quarter of fiscal year 2012, the Company entered into $26 thousand in new capital leases for computer equipment for its data center operations.

	Operating Leases
	Facilities		Co-location Hosting Facilities		Other		Total Operating		Capital Leases			Total
	(In thousands)
Fiscal Year 2012		278		285		14		577		169			746
Fiscal Year 2013		1,063		925		46		2,035		615			2,650
Fiscal Year 2014		1,008		19		34		1,061		507			1,568
Fiscal Year 2015		800		-		16		816		115			931
Thereafter		506		-		-		506		-			506
Total	$	3,655	$	1,229	$	110	$	4,995	$	1,406		$	6,401
Less amounts representing interest										(78	)
Present value minimum lease payments									$	1,328
Less short-term portion										(593	)
Long-term portion									$	735

Legal claims

From time to time, the Company is a party to litigation and subject to claims incidental to the ordinary course of business, including customer disputes, breach of contract claims, and other matters. Although the results of such litigation and claims cannot be predicted with certainty, the Company believes that the final outcome of such litigation and claims will not have a material adverse effect on its business, consolidated financial position, results of operations and cash flows. Due to the inherent uncertainties of such litigation and claims, the Company’s view of such matters may change in the future.

As of March 31, 2012, there have been no material developments in the Company’s litigation matters since it filed its Annual Report on Form 10-K for fiscal year ended June 30, 2011.

Note 13 – Subsequent Events

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended June 30, 2011, or fiscal year 2011, included in our Annual Report on Form 10-K for fiscal year 2011, filed with the SEC on September 21, 2011.

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements identify prospective information, particularly statements referencing our expectations regarding revenue and operating expenses, cost of revenue, tax and accounting estimates, cash, cash equivalents and cash provided by operating activities, the demand and expansion opportunities for our products, our customer base, our competitive position and the impact of the current economic environment on our business. In some cases, forward-looking statements can be identified by the use of words such as “may,” “could,” “would,” “might,” “will,” “should,” “expect,” “forecast,” “predict,” “potential,” “continue,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “is scheduled for,” “targeted,” and variations of such words and similar expressions. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management’s beliefs, and assumptions made by management. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results and outcomes may differ materially from what is expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include those set forth herein under “Risk Factors” or included elsewhere in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

Lyris, Inc., (the “Company” or “Lyris”), formerly J.L. Halsey Corporation, is a leading online marketing technology company serving a wide range of customers from the Fortune 500 to the small and medium-sized business market. We offer the industry’s first on-demand, integrated marketing solution, Lyris HQ on a software-as-a-service, or SaaS, basis.

Our SaaS-based online marketing solutions and services provide customers with solutions for creating, delivering and managing online, permission-based direct marketing programs and other communications to customers who use online and mobile channels to communicate with their customers and members.

We offer Lyris HQ, an integrated on-demand marketing suite that consolidates our full suite of digital marketing technologies into a single sign-on dashboard interface, as our premier core product. We also offer the following separate individual online marketing solutions: Lyris ListManager, our licensed software product for email marketing; EmailLabs, our hosted email marketing software; and EmailAdvisor, our deliverability monitoring tool. We also offer a separate product ClickTracks, our Web analytics product.

We operate in a highly competitive industry and face strong competition from other general and specialty software companies. In order to increase our revenues and improve our financial results, we expect to continue expanding and upgrading our all-in-one on demand marketing offering, Lyris HQ, and increase the number of hosted customers. We also continue to implement key growth initiatives in order to achieve long-term sustainable growth, create value for our stockholders, and deliver valued products and services to our customers.

During the first quarter of fiscal year 2012 we initiated a reduction in workforce in an effort to obtain greater operating efficiencies. In the second quarter of fiscal 2012, we continued efforts to streamline the organization by realigning responsibilities primarily within our sales, research and administrative departments, while continuing to invest in future growth initiatives, such as new products and expanded market presence. In the first and second quarter of fiscal 2012, the Company reduced headcount by 49 and 31, respectively. As a result of our efforts to reduce expenses we have seen a profit for the three months ended March 31, 2012.

Critical Accounting Policies and Use of Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. Our management has reviewed these critical accounting policies, our use of estimates and the related disclosures with our audit committee.

In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU No. 2009-13”), which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. ASU No. 2009-13 significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. We adopted ASU No. 2009-13 in the first quarter of fiscal year 2011 and are described in detail below.

Revenue Recognition

We recognize revenue from both recurring and non-recurring sources. Our recurring revenue includes subscription, support, and maintenance revenue. We recognize revenue from providing hosting and professional services and licensing our software products to our customers.

We recognize revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for software licenses, revenue is recognized when the customer is given electronic access to the licensed software); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable.

Subscription and Other Services Revenue

We generate services revenue from several sources, including hosted software services bundled with technical support (maintenance) services and professional services. Our subscription revenue includes revenue from our Lyris HQ product, and a variety of legacy products which are in the process of reaching their end of life. We recognize subscription revenue in two ways: (1) based on the subscription plan defined in the agreement with specified monthly volume, and (2) based on actual usages at rates specified in the agreement. Additionally, we invoice excess usage and recognize it as revenue when incurred.

In October 2009, ASU No. 2009-13 amended the accounting standards for revenue recognition for multiple deliverable revenue arrangements to:

Provide updated guidance on how the deliverables of an arrangement should be separated, and how the consideration should be allocated;

Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and

Require an entity to allocate revenue to an arrangement using the estimated selling prices (“ESP”) of deliverables if it does not have vendor-specific objective evidence “VSOE” of fair value or third-party evidence (“TPE”) of selling price.

Valuation terms are defined as set forth below:

VSOE — the price at which the element is sold in a separate stand-alone transaction

TPE — evidence from us or other companies of the value of a largely interchangeable element in a transaction

ESP — our best estimate of the selling price of an element in a transaction

We adopted ASU No. 2009-13 in the fiscal year 2011 on a prospective basis for multiple-element arrangements that include subscription services bundled with technical support and professional services. The implementation resulted in an immaterial difference in revenue recognized and additional disclosures that are included below.

We follow accounting guidance for revenue recognition of multiple-element arrangements to determine whether such arrangements contain more than one unit of accounting. Multiple-element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Although our professional services that are a part of multiple element arrangement have standalone value to the customer, such services could not be accounted as separate units of accounting under the previous guidance, as VSOE did not exist for the undelivered element. The VSOE for subscription services could not be established based on the historical pricing trends to date, which indicate that the price of the majority of standalone sales does not yet fall within a narrow range around the median price. Since our subscription services have standalone value as such services are often sold separately, but do not have VSOE, we use ESP to determine fair value for its subscription services when sold in a multiple-element arrangement and recognize revenue based on ASU No. 2009-13. For the three and nine month ended, March 31, 2012, TPE was concluded to be an impractical alternative due to differences in features and functionality of other companies’ offerings and lack of access to the actual selling price of competitor standalone sales. If new subscription service products are acquired or developed that require significant professional services in order to deliver the subscription service and the subscription service and professional services cannot support standalone value, then such subscription services and professional services will be evaluated as one unit of accounting. We determined ESP of fair value for subscription services based on the following:

We defined processes and controls to ensure its pricing integrity. Such controls include oversight by a cross-functional team and members of executive management. Significant factors considered when establishing pricing include market conditions, underlying costs, promotions, and pricing history of similar services. Based on this information and actual pricing trends, management establishes or modifies the pricing.

We identified the population of transactions to serve as the basis for establishing ESP, including subscription services and professional services pricing history in transactions with multiple-element arrangements and those sold on a standalone basis.

We analyzed the population of items sold by stratifying the population by product type and level, and considered several data points, such as (1) average price charged, (2) weighted average price to incorporate the frequency of each item sold at any given price, and (3) the median price charged. These three price points were then compared with the existing price list that is used as a point of reference to negotiate contracts and does not represent fair value. Additionally, we gathered and analyzed sales’ team feedback gained from interaction with customers and similar activities. This feedback included consideration of current market trends for pricing charged by companies offering similar services, competitive advantage of the products we offer and recent economic pressures that have resulted in lower spending on marketing activities. ESP for each item in the population was established based on the factors noted above and was reviewed by management.

For transactions entered into or materially modified after July 1, 2010, we allocate consideration in multiple-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for each separate element based on its fair value. For the three and nine months ended March 31, 2012, the impact on our revenue under the new accounting guidance as compared to the previous methodology resulted in an immaterial difference in revenue recognized as compared to that which would have previously been deferred and recognized ratably. The immaterial impact is primarily a result of the limited population of transactions subject to newly adopted guidance. The accounting treatment for arrangements entered into prior to July 1, 2010 continues to follow legacy accounting rules and the revenue recognition method applied to certain types of arrangements has not changed upon adopting new guidance, and does not affect the revenue recognized. The adoption of new guidance did not result in a material impact to the financial statements for the three and nine months ended March 31, 2012, and is not anticipated to become material for the remainder of fiscal year 2012.

However, new guidance may result in a material impact in the future, due to the change in other factors affecting the revenue recognition method, as the impact on the timing and pattern of revenue will vary depending on the nature and volume of new or materially modified contracts in any given period. We expect that the new accounting guidance will facilitate our efforts to optimize the sales and marketing of our offerings due to better alignment between the economics of an arrangement and the accounting for that arrangement. Such optimization may lead us to modify our pricing practices, which could result in changes in the relative selling prices of our elements, including both VSOE and ESP, and therefore change the allocation of the sales price between multiple elements within an arrangement. However, this will not change the total revenue recognized with respect to the arrangement.

We defer technical support (maintenance) revenue, including revenue that is part of a multiple element arrangement, and recognizes it ratably over the term of the agreement, which is generally one year.

For professional services sold separately from subscription services, we recognize professional service revenues as delivered. Expenses associated with delivering all professional services are recognized as incurred when the services are performed. Associated out-of-pocket travel costs and expenses related to the delivery of professional services are typically reimbursed by the customer and are accounted for as both revenue and expense in the period the cost is incurred.

For multiple element arrangements entered into prior to July 1, 2010 that include both subscription and professional services and did not meet the separability criteria under the previous guidance, we accounted for as a single unit of accounting. Consistent with the revenue recognition method applied prior to the adoption of ASU No. 2009-13, revenue for these arrangements continues to be recognized ratably over the term of the related subscription arrangement. If the multi-element arrangement is materially modified, the transaction is evaluated in accordance with the new accounting guidance which will most likely result in any deferred services revenue being recognized at the time of the material modification.

Software Revenue

We enter into certain revenue arrangements for which we are obligated to deliver multiple products and/or services (multiple elements). For these arrangements, which generally include software products, technical support (maintenance) and professional services, we allocate and defer revenue for the undelivered elements based on their VSOE. We allocate total earned revenue under the agreement among the various elements based on their relative fair value. VSOE exists for all elements of multiple element arrangements. In the event that VSOE cannot be established for one of the elements of multiple element arrangement, we will apply the residual method to determine how much revenue for the delivered elements (software licenses) can be recognized upon delivery by assigning VSOE to other elements in multiple element arrangements.

We determine VSOE based on actual prices charged for standalone sales of maintenance. To accomplish this, we track sales for the maintenance product when sold on a standalone basis for a one year term and compares to sales of the associated licensed software product.

We perform a quarterly analysis of the actual sales for standalone maintenance and licensed software to establish the percentage of sales relationships for each level of maintenance and licensed software. The result of this analysis has historically been a tight range of percentage of sales relationships centered on a mid-point. Renewal rates, expressed as a consistent percentage of the license fee at each level, represent VSOE of fair value for the maintenance element of the arrangements.

We recognize revenue from its professional services as rendered. VSOE for professional services is based on the use of a consistent rate per hour when similar services are sold separately on a time-and-material basis. In cases where VSOE has not been established, we defer the full value of the arrangement and recognize it ratably over the term of the agreement.

Financial Results of Operations

Three and Nine Months Ended March 31, 2012 Compared to Three and Nine Months Ended March 31, 2011

The following tables set forth our condensed consolidated statements of operations data as a percentage of total revenue for the three and nine months ended March 31, 2012 and 2011:

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2012			2011			2012			2011
	(restated)						(restated)
Subscription revenue:
Lyris HQ revenue		55	%		47	%		51	%		45	%
Legacy revenue		23	%		29	%		23	%		31	%
Total subscription revenue:		78	%		76	%		74	%		76	%
Support and maintenance revenue		10	%		8	%		10	%		9	%
Professional services revenue		8	%		13	%		11	%		11	%
Software revenue		4	%		3	%		5	%		4	%
Total revenue		100	%		100	%		100	%		100	%
Cost of revenue		36	%		42	%		36	%		49	%
Gross profit		64	%		58	%		64	%		51	%
Operating expenses:
Sales and marketing		19	%		31	%		24	%		34	%
General and administrative		23	%		20	%		23	%		21	%
Research and development		16	%		10	%		16	%		6	%
Amortization of customer relationships and trade names		1	%		3	%		4	%		4	%
Goodwill Impairment		0	%		0	%		31	%		0	%
Impairment of Capitalized Software		0	%		0	%		1	%		0	%
Total operating expenses		59	%		64	%		99	%		65	%
Income (Loss) from operations		6	%		-6	%		-36	%		-14	%
Interest income		0	%		0	%		0	%		0	%
Interest expense		-1	%		0	%		-1	%		0	%
Other (expense) income		0	%		-1	%		0	%		0	%
Income (Loss) from operations before income taxes		5	%		-7	%		-37	%		-14	%

Income tax (benefit) provision		-1	%		-1	%		0	%		0	%
Net income (loss)		6	%		-6	%		-37	%		-14	%
Less: Net loss attributable to noncontrolling interest		0	%		0	%		0	%		0	%
Net income (loss) attributable to Lyris, Inc.		6	%		-6	%		-37	%		-14	%

Revenues

	Three Months Ended March 31,				Change
	2012		2011		$			Percent
	(In thousands, except percentages)
	(restated)
Subscription revenue:
Lyris HQ revenue	$	5,040	$	4,760		280			6	%
Legacy revenue		2,120		2,878		(758	)		(26	%)
Total subscription revenue:		7,160		7,638		(478	)		(6	%)
Support and maintenance revenue		945		846		99			12	%
Professional services revenue		783		1,340		(557	)		(42	%)
Software revenue		374		272		102			38	%
Total revenue	$	9,262	$	10,096	$	(834	)		(8	%)

	Nine Months Ended March 31,				Change
	2012		2011		$			Percent
	(In thousands, except percentages)
Subscription revenue:
Lyris HQ revenue	$	15,071	$	13,861		1,210			9	%
Legacy revenue		6,894		9,357		(2,463	)		(26	%)
Total subscription revenue:		21,965		23,218		(1,253	)		(5	%)
Support and maintenance revenue		2,829		2,748		81			3	%
Professional services revenue		3,344		3,209		135			4	%
Software revenue		1,354		1,368		(14	)		(1	%)
Total revenue	$	29,492	$	30,543	$	(1,051	)		(3	%)

Subscription Revenue

Subscription revenue is primarily comprised of subscription fees from customers accessing our hosted services application, and from customers purchasing additional offerings. Our subscription revenue includes revenue from our Lyris HQ product, and a variety of legacy products which are in the process of reaching their end of life. Subscription revenue was $7.2 million or 78% of our total revenue for the three months ended March 31, 2012, compared to $7.6 million or 76% of our total revenue for the three months ended March 31, 2011, a decrease of $0.4 million or 6%. Subscription revenue was $22.0 million or 74% of our total revenue for the nine months ended March 31, 2012, compared to $23.2 million or 76% of our total revenue for the nine months ended March 31, 2011, a decrease of $1.2 million or 5%. Subscription revenue related to legacy for the three and nine months ended March 31, 2012 declined compared to the same periods in fiscal year 2011, primarily due to ending contracts with low priced subscriptions and management’s decision to end of life some low value legacy products. Subscription revenue related to Lyris HQ for the three and nine months ended March 31, 2012 increased compared to the same periods in fiscal year 2011, primarily as a result of larger actual and committed volumes from existing customers, as well as sales to new customers, partially offset by customer turnover.

Support and Maintenance Revenue

Support and maintenance revenue is primarily comprised of customer service and recurring support for our products. Support and maintenance revenue was $0.9 million or 10% of our total revenue for the three months ended March 31, 2012, compared to $0.8 million or 8% of our total revenue for the three months ended March 31, 2011, an increase of $0.1 million or 12%. Support and maintenance revenue was $2.8 million or 10% of our total revenue for the nine months ended March 31, 2012, compared to $2.7 million or 9% of our total revenue for the nine months ended March 31, 2011, an increase of $0.1 million or 3%. Support and maintenance revenue increased slightly due to lower customer attrition combined with efforts in customer support to increase support contract sales.

Professional Services Revenue

Professional services revenue is primarily comprised of training, custom product implementation and integration, which includes web analytics and reporting, web design, email deliverability and search engine marketing. Professional services revenue was $0.8 million or 8% of our total revenue for the three months ended March 31, 2012, compared to $1.3 million or 13% of our total revenue for the three months ended March 31, 2011, a decrease of $0.5 million or 42%. Professional services revenue was $3.3 million or 11% of our total revenue for the nine months ended March 31, 2012, compared to $3.2 million or 11% of our total revenue for the nine months ended March 31, 2011, an increase of $0.1 million or 4%.

Professional services revenue decreased for the three months ended March 31, 2012 compared to the same period in fiscal year 2011 primarily due to one-time revenue recognized from a specific customer in the three months ended March 31, 2011 of $0.5 million creating a spike in the three months ended March 31, 2011. Professional services revenue for the nine months ended March 31, 2012 increased compared to the prior periods, primarily due to the continued expansion of our professional service and full service offerings in the U.S. market and the addition of customers in our foreign divisions of Australia and United Kingdom. Although we expect to see this continue to increase in the coming quarters, actual results may vary due to market uncertainties.

Software Revenue

Software revenue is derived from perpetual licensing rights of our software that we sell to our customers. Software revenue was $0.4 million or 4% of our total revenue for the three months ended March 31, 2012, compared to $0.3 million or 3% of our total revenue for the three months ended March 31, 2011, an increase of $0.1 million or 38%. Software revenue was $1.4 million or 5% of our total revenue for the nine months ended March 31, 2012, remaining flat as compared to the nine months ended March 31, 2011.

Software revenue increased for the three month ended March 31, 2012 compared to the same period in fiscal year 2011 primarily because we are focusing on sales of our SaaS-based solutions and services.

Cost of Revenue

Cost of revenue includes expenses primarily related to engineering employee salaries and related costs, support and hosting of our services, data center costs, amortization of developed technology, depreciation of computer equipment, website development costs, credit card fees and allocated overhead costs.

	Three Months Ended March 31,				Change
	2012		2011		$			Percent
	(In thousands, except percentages)
	(restated)
Cost of revenue	$	3,392	$	4,290	$	(898	)		(21	)%

	Nine Months Ended March 31,				Change
	2012		2011		$			Percent
	(In thousands, except percentages)
	(restated)
Cost of revenue	$	10,741	$	15,011	$	(4,270	)		(28	)%

Cost of revenue for the three months ended March 31, 2012 and 2011 was $3.4 million and $4.3 million, respectively, a decrease of $0.9 million or 21%. As a percentage of total revenue, cost of revenue decreased to 36% for the three months ended March 31, 2012 from 42% for the three months ended March 31, 2011. The decrease in cost of revenue was attributable to a $0.7 million decrease in engineering compensation and benefits for resources who worked on new product development, $0.2 million decrease in outside services, and $0.4 million increase in capitalized software.

Cost of revenue for the nine months ended March 31, 2012 and 2011 was $10.7 million and $15.0 million, respectively, a decrease of $4.3 million or 28%. As a percentage of total revenue, cost of revenue decreased to 36% for the nine months ended March 31, 2012 from 49% for the nine months ended March 31, 2011. Engineering employee salaries and related expense allocated to the statements of operations decreased as personnel were increasingly deployed to new product development efforts, which costs were then reflected in the balance sheet as capitalized software development. As a result, during the nine months ended March 31, 2012, engineering employee salaries and related expense decreased $4.3 million, or 43%, while capitalized software increased $1.8 million, or 249%. We also realized significant increases in our data center expense for the support and hosting of our subscription services, which increased $0.7 million, or 39%, during the nine months ended March 31, 2012. The increase was due in large part to the addition of our Milpitas facility, without yet having shut down Sunnyvale and Fremont as we execute on our migration strategy. Amortization of developed technology and depreciation of computer equipment did not change significantly during the period, but through our cost control efforts, we have been able to achieve a 70% reduction in the various support costs such as website development, processing fees, and allocated overhead, achieving a $0.2 million decrease in the nine months ended March 31, 2012.

Gross Profit

	Three Months Ended March 31,				Change
	2012		2011		$		Percent
	(In thousands, except percentages)
	(restated)
Gross profit	$	5,870	$	5,806	$	64		1	%

	Nine Months Ended March 31,				Change
	2012		2011		$		Percent
	(In thousands, except percentages)
	(restated)
Gross profit	$	18,751	$	15,532	$	3,219		21	%

Gross profit for the three months ended March 31, 2012 and 2011 was $5.9 million and $5.8 million, respectively, an increase of $0.1 million or 1%. As a percentage of total revenue, gross profit increased to 64% for the three months ended March 31, 2012 from 58% for the three months ended March 31, 2011. Gross profit for the nine months ended March 31, 2012 and 2011 was $18.7 million and $15.5 million, respectively, an increase of $3.2 million or 21%. As a percentage of total revenue, gross profit increased to 64% for the nine months ended March 31, 2012 from 51% for the nine months ended March 31, 2011.

Operating Expenses

	Three Months Ended March 31,				Change
	2012		2011		$			Percent
	(In thousands, except percentages)
Sales and marketing	$	1,729	$	3,110	$	(1,381	)		(44	)%
General and administrative		2,121		2,057		64			3	%
Research and development		1,444		1,042		402			39	%
Amortization and impairment of customer relationships and trade names		51		338		(287	)		(85	)%
Impairment of goodwill		-		-		-			0	%
Impairment of capitalized software		-		-		-			0	%
Total operating expenses	$	5,346	$	6,547	$	(1,201	)		(18	)%

	Nine Months Ended March 31,				Change
	2012		2011		$			Percent
	(In thousands, except percentages)
Sales and marketing	$	7,024		10,485	$	(3,461	)		(33	)%
General and administrative		6,817	$	6,362		455			7	%
Research and development		4,784		1,765		3,019			171	%
Amortization and impairment of customer relationships and trade names		1,286		1,192		94			8	%
Impairment of goodwill		9,000		-		9,000			0	%
Impairment of capitalized software		385		-		385			0	%
Total operating expenses	$	29,297	$	19,804	$	9,493			48	%

Sales and marketing

Sales and marketing expense consists of payroll, employee benefits, stock-based compensation, and other headcount-related expenses associated with advertising, promotions, trade shows, seminars and other marketing programs.

Sales and marketing expense for the three months ended March 31, 2012 and 2011 was $1.7 million and $3.1 million, respectively, a decrease of $1.4 million or 44%. As a percentage of net revenue, sales and marketing expense decreased to 19% for the three months ended March 31, 2012 from 31% for the three months ended March 31, 2011. The decrease in sales and marketing expense was attributable to $0.5 million decrease in headcount related expenses due to the reduction in workforce a $0.9 million reduction in advertising and related spend.

Sales and marketing expense for the nine months ended March 31, 2012 and 2011 was $7.0 million and $10.5 million, respectively, a decrease of $3.5 million or 33%. As a percentage of net revenue, sales and marketing expense decreased to 24% for the nine months ended March 31, 2012 from 34% for the nine months ended March 31, 2011. The decrease in sales and marketing expense was attributable to $1.8 million decrease in headcount related expenses due to the reduction in workforce and a $1.7 million reduction in advertising and related spend.

General and administrative

General and administrative expense consists primarily of compensation and benefits for administrative personnel, professional services such as consultants, legal fees, and accounting, audit and tax fees, and related allocation of overhead including stock-based compensation and other corporate development costs.

General and administrative expense for the three months ended March 31, 2012 and 2011 remained flat at $2.1 million, respectively. As a percentage of net revenue, general and administrative expense increased to 23% for the three months ended March 31, 2012 from 20% for the three months ended March 31, 2011.

General and administrative expense for the nine months ended March 31, 2012 and 2011 was $6.8 million and $6.4 million, respectively, an increase of $0.4 million or 7%. As a percentage of net revenue, general and administrative expense increased to 23% for the nine months ended March 31, 2012 from 21% for the nine months ended March 31, 2011. The increase in general and administrative expense was primarily due to an increase in various operational expenses such as legal and consulting fees.

Research and development

Research and development expense consists of payroll, employee benefits, stock-based compensation and other headcount-related expenses associated with product research. Upon achievement of technical feasibility, the majority of the company’s total product development expenses are accounted for in cost of revenue, either directly or as amortization of capitalized software.

Research and development expense for the three months ended March 31, 2012 and 2011 was $1.4 million and $1.0 million, respectively, an increase of $0.4 million or 39%. As a percentage of net revenue, research and development expense increased to 16% for the three months ended March 31, 2012 from 10% for the three months ended March 31, 2011. The increase in research and development expense was attributable to software capitalization of product development and quality assurance efforts and a shift in the focus of engineering resources from the production environment to product development.

Research and development expense for the nine months ended March 31, 2012 and 2011 was $4.8 million and $1.8 million, respectively, an increase of $3.0 million or 171%. As a percentage of net revenue, research and development expense increased to 16% for the nine months ended March 31, 2012 from 6% for the nine months ended March 31, 2011. The increase in research and development expense was attributable to software capitalization of product development and quality assurance efforts and a shift in the focus of engineering resources from the production environment to product development. Over the past year, we achieved certain product development milestones and made the related product functionality available to our customers resulting in a reduction of research and development costs.

Amortization of customer relationships and trade names

Amortization and impairment of customer relationships and trade names expenses consist of intangibles that we obtained through the acquisition of other businesses.

Amortization of customer relationships and trade names expense for the three months ended March 31, 2012 and 2011 was $0.1 million and $0.3 million, respectively, a decrease of $0.2 million or 85%. As a percentage of net revenue, amortization of customer relationships and trade names expense decreased to 1% for the three months ended March 31, 2012 from 3% for the three months ended March 31, 2011. The decrease in amortization of trade names is due to the full write off of Sparklist and Uptilt trade names in the second quarter fiscal year 2012.

Amortization of customer relationships and trade names expense for the nine months ended March 31, 2012 and 2011 was $1.3 million and $1.2 million, respectively, an increase of $0.1 million or 8%. As a percentage of net revenue, amortization of customer relationships and trade names expense remained relatively flat at 4% for the nine months ended March 31, 2012 and 2011.

Impairment of capitalized software

Impairment of capitalized software consists of internal-use software, which was intended to provide a major feature upgrade to the Lyris HQ application. The internal-use software had been in the application development stage since the fourth quarter of fiscal year 2011. Throughout the life of the project, $0.4 million in costs have been accounted for as capitalized software. In the second quarter of fiscal year 2012, a reduction in headcount resulted in the re-grouping of teams working on each internal-use software project and management determined that it was no longer probable that the internal-use software would be completed and placed in service since it was not expected to provide any substantive service potential to the Lyris HQ application. A full impairment of $0.4 million was recorded for the nine months ended March 31, 2012.

Interest expense

	Three Months Ended March 31,						Change
	2012			2011			$			Percent
	(In thousands, except percentages)
Interest expense	$	(108	)	$	(24	)	$	(84	)		350	%

	Nine Months Ended March 31,						Change
	2012			2011			$			Percent
	(In thousands, except percentages)
Interest expense	$	(296	)	$	(57	)	$	(239	)		419	%

Interest expense relates to our revolving line of credit with Comerica Bank and our short and long-term capital lease obligations in connection with acquiring computer equipment for our data center operations which is included in property and equipment.

Interest expense for the three months ended March 31, 2012 and 2011 was $0.1 million and $24 thousand, respectively, an increase of $0.8 million or 350%. The increase in interest expense was primarily attributable to a higher average balance in our revolving line of credit of $4.1 million at March 31, 2012 compared to an average balance of $1.7 million at March 31, 2011.

Interest expense for the nine months ended March 31, 2012 and 2011 was $0.3 million and $0.1 million, respectively, an increase of $0.2 million or 419%. The increase in interest expense was primarily attributable to a higher average balance of $4.0 million in our revolving line of credit of for the nine months ended March 31, 2012 compared to an average balance of $1.4 million for the nine months ended March 31, 2011.

Income tax provision

Our effective tax rates for the nine months ended March 31, 2012 and 2011 were (0.6%) and 1.2%, respectively. For additional information about income taxes, refer to Note7 of the Notes to (Unaudited) Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Liquidity, Capital Resources and Financial Condition

Our primary sources of liquidity to fund our operations as of March 31, 2012 was from the issuance of our stock, the collection of accounts receivable balances generated from net sales and proceeds from our revolving line of credit. For additional operational funds requirements, we have an available revolving line of credit with Comerica Bank which matures on April 30, 2013, (see Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements for detail information). As of March 31, 2012, our availability under this credit facility was approximately $0.1 million. As of March 31, 2012, our cash and cash equivalents totaled $1.4 million compared to $0.2 million at the fiscal year ended June 30, 2011. As of March 31, 2012, our accounts receivable, less allowances, totaled $5.1 million compared to $6.3 million at the fiscal year ended June 30, 2011.

							Change
	March 31, 2012			June 30, 2011			$			Percent
	(In thousands, except percentages)
Accounts Receivable	$	6,387		$	7,264		$	(876	)		(12	)%
Allowance for Doubtful Accounts		(1,248	)		(936	)		(312	)		33	%
Total - Accounts receivable	$	5,139		$	6,328		$	(1,189	)		(19	)%

Accounts receivables, net decreased $1.2 million or 19% for the nine months ended March 31, 2012 due to a $0.9 million decrease in accounts receivable due to higher collections relative to amounts invoiced as a result of improved collection processes. Allowance for Doubtful Accounts (“Allowance”) increased $0.3 million or 33% for the nine months ended March 31, 2012 as a result of our routine evaluation of customer balances with special focus on our new subsidiary in Australia. We adjusted the Allowance as appropriate based upon the collectability of the receivables in light of historical trends, adverse situations that may affect our customers’ ability to repay, and prevailing economic conditions. This evaluation was done in order to identify issues which may impact the collectability of receivables and reserve estimates. Revisions to the Allowance are recorded as an adjustment to bad debt expense. After appropriate collection efforts are exhausted, specific receivables deemed to be uncollectible are charged against the Allowance in the period they are deemed uncollectible. Recoveries of receivables previously written-off are recorded as credits to the Allowance.

Our short-term and long-term liquidity requirements primarily arise from: (i) interest and principal payments related to our debt obligations, (ii) working capital requirements and (iii) capital expenditures, including periodic acquisitions.

On April 18, 2012, the Company entered into a Ninth Amendment (“Ninth Amendment”) to the Amended and Restated Loan and Security Agreement (“Loan Agreement”) with Comerica Bank (“Bank”). The Ninth Amendment revises the financial covenant requiring the Company to maintain earnings before interest, taxes, depreciation and amortization (“EBITDA”) not less than specified amounts, by lowering the EBITDA minimum requirements, which are measured on a trailing three month basis (See Note 6). The Ninth Amendment also revises the existing line of credit of $2,500,000 (“Existing Line”) to $3,500,000 revolving line (“Revolving Line”). The amount available under the Revolving Line is limited by a borrowing base, which is 80% of the amount of the aggregate of our accounts receivable, less certain exclusions.

We believe our existing cash and cash equivalents, and cash flow from operations resulting from decreased headcount costs and stable sales will provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for at least the next 12 months. We have maintained a strong working relationship with Comerica Bank since we signed our first agreement and are meeting our EBITDA requirements as set by our agreement.

Costs incurred in the first and second quarter of fiscal year 2012 included one-time charges associated with the reorganization of our Company. We do not expect to incur these costs in the near future. During the second and third quarter of fiscal year 2012, we had to draw upon our revolving line of credit to fund the operations of our Company. While this fiscal year has been challenging, we still expect we will maintain long-term growth in our hosted revenue offerings, particularly with Lyris HQ, and increase efficiency within our operating expenses to generate available cash to satisfy our capital needs and debt obligations. To the extent that existing cash and cash equivalents, and cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing.

In summary, our cash flows were as follows for the nine months ended March 31, 2012 and 2011:

	Nine Months Ended March 31,
	2012			2011
	(In thousands)
Net cash provided by operating activities	$	1,655		$	95
Net cash used in investing activities		(3,438	)		(1,855	)
Net cash provided by financing activities		2,960			1,601
Effect of exchange rate changes on cash		(20	)		47
Increase (decrease) in cash and cash equivalents	$	1,157		$	(112	)

Operating Activities

Net cash flows provided by operating activities were $1.7 million for the nine months ended March 31, 2012 as compared to $0.1 million for the nine months ended March 31, 2011, an improvement of $1.6 million.

Net cash flow used in operating activities for the nine months ended March 31, 2012 included a net loss of $10.9 million, compared to a net loss in the nine months ended March 31, 2011 of $4.3 million. The $10.9 million net loss in the nine months ended March 31, 2012 included $13.5 million of non-cash charges to reconcile net loss to net cash provided by operating activities. The largest of these non-cash charges consisted of $9.0 million for the impairment of goodwill associated with Lyris Technologies and EmailLabs recorded in the second quarter fiscal year 2012, $0.9 million of depreciation, a $0.8 million in provision for bad debt and the charge for uncollectable accounts receivable, and $0.5 million of amortization of developed technology made up a large portion of the total non-cash charges. Non-cash charges to reconcile net loss to net cash provided by operating activities in the prior year nine months ended was $4.2 million.

Changes in assets and liabilities had a negative effect on cash flows provided by operating activities, due largely to a $0.8 million increase in accounts payable and accrued expense, exclusive of the effect of payments on capital leases, and a $0.6 million decline in deferred revenue during the nine months ended March 31, 2012.. Gross accounts receivable declined by $0.9 million, which was primarily due to an increase in our collection effectiveness.

Investing Activities

Net cash flows used in investing activities were $3.4 million for the nine months ended March 31, 2012 as compared to net cash flows used in investing activities of $1.9 million for the nine months ended March 31, 2011. Net cash flow used in investing activities for the nine months ended March 31, 2012 consisted of $2.9 million in capitalized software expenditures, and $0.5 million used in purchasing property and equipment consisting of computer equipment for its data center operations. Net cash flow used in investing activities for the nine months ended March 31, 2011 was primarily due to our investment in SiteWit. Net cash flow used in investing activities for the nine months ended March 31, 2011 consisted of $0.7 million payment for equity investments in SiteWit, $0.8 million in capitalized software expenditures, and $0.4 million used in purchasing property and equipment consisting of computer equipment for its data center operations.

Financing Activities

Net cash flows provided by financing activities were $3.0 million for the nine months ended March 31, 2012 as compared to net cash flows provided by financing activities of $1.6 million for the nine months ended March 31, 2011. The improvement in cash flow for the nine-month period was primarily due to net proceeds over payments from our revolving line of credit with Comerica Bank. Net cash flow provided by financing proceeds over payments for the nine months ended March 31, 2012 consisted of $1.4 million in net proceeds over payment from our revolving line of credit with Comerica Bank and $1.9 million proceeds from the sale of stock in the second quarter of fiscal year 2012, offset by $0.4 million in payments under our capital lease obligations in connection with acquiring computer equipment for our data center operations. Net cash flow provided by financing activities for the nine months ended March 31, 2011 consisted of $1.8 million in net payments over proceeds from our revolving line of credit with Comerica Bank offset by $0.1 million in purchases of treasury stock from our former CEO, Mr. Luis Rivera in accordance with the terms of his termination agreement and $0.1 million in payments under our capital lease obligations in connection with acquiring computer equipment for our data center operations.

Off-Balance Sheet Arrangements

There have been no material changes in our off-balance sheet arrangements since we filed our Annual Report on Form 10-K for the fiscal year 2011 ended June 30, 2011.

Revolving Line of Credit

For a summary description of our credit facility with Comerica Bank, please refer to Note 6 of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

ITEM 4.

CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

As of March 31, 2012, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (“Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded at that time that our disclosure controls and procedures were effective to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Lyris management subsequently determined that our disclosure controls and procedures and related internal control over financial reporting regarding the expense classification of engineering and quality assurance labor were ineffective, which resulted in a restatement of our previously issued unaudited Consolidated Statements of Operations for the three months ended March 31, 2012, to reflect a change in the classification of expenses between Cost of revenues and Research and development. Because this is a change in the classification of expenses, our revenue, total expense, income (loss) from operations, net income (loss), or earnings (loss) per share will not be affected. All prior year amounts remain unchanged.

We have taken steps to improve the accuracy and timeliness of our financial reporting, including the appropriate classification of costs and expenses, and have put in place revised controls and expanded procedures to address the control deficiencies that we identified.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b) Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2012, Lyris changed the design and operation of our internal control over financial reporting in ways that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In particular, we expanded the categorization of engineering services to separately identify services related to existing product support and services related to new product development, so that expenses associated with those services could be more accurately classified as cost of revenues or as research and development. These changes did not involve any changes to our internal control over financial reporting associated with capitalizing of software development costs.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: July 16, 2012
	By:	/s/ Deborah Eudaley
		Deborah Eudaley
		Chief Financial Officer
		(principal financial officer and duly authorized signatory)

EXHIBIT INDEX

			Incorporated by Reference
Exhibit No.	Description	Form	Date of First Filing	Exhibit Number	Filed Herewith

3.1	Certificate of Incorporation of the Company.	10-K	9/26/07	3(a)(i)
3.2	Certificate of Amendment to Certificate of Incorporation of the Company.	10-K	9/26/07	3(a)(ii)
3.3	Certificate of Amendment to Certificate of Incorporation of the Company.	8-K	3/5/12	3.1
3.4	Certificate of Ownership and Merger, merging NAHC, Inc. with and into J.L. Halsey Corporation.	10-K	9/26/07	3(a)(iii)
3.5	Certificate of Ownership and Merger, merging Lyris, Inc, with and into J.L. Halsey Corporation.	8-K	10/31/07	3.2
3.6	First Amended and Restated Bylaws of the	8-K	2/21/07	3.3

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)				X

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)				X

32.1	Section 1350 Certification of Chief Executive Officer				X

32.1	Section 1350 Certification of Chief Financial Officer				X

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101.CAL	XBRL Taxonomy Extension Calculation Linkbase				X

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EX-31.1 2 v317616_ex31-1.htm EXHIBIT 31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Wolfgang Maasberg, certify that:

I have reviewed this quarterly report on Form 10-Q of Lyris, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Lyris, Inc. as of, and for, the periods presented in this report;

Lyris, Inc’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for Lyris, Inc. and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Lyris, Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of Lyris, Inc.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in Lyris, Inc.’s internal control over financial reporting that occurred during Lyris, Inc.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Lyris, Inc.’s internal control over financial reporting; and

Lyris, Inc.’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Lyris, Inc.’s auditors and the audit committee of Lyris, Inc.’s board of directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Lyris, Inc.’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in Lyris, Inc.’s internal control over financial reporting.

Dated: July 16, 2012		/s/ Wolfgang Maasberg
		Wolfgang Maasberg, Chief Executive Officer

EX-31.2 3 v317616_ex31-2.htm EXHIBIT 31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Deborah Eudaley, certify that:

I have reviewed this quarterly report on Form 10-Q of Lyris, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in Lyris, Inc.’s internal control over financial reporting.

Dated: July 16, 2012	/s/ Deborah Eudaley
	Deborah Eudaley, Chief Financial Officer

EX-32.1 4 v317616_ex32-1.htm EXHIBIT 32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Lyris, Inc. (the “Company”) for the quarterly period ended March 31, 2012 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wolfgang Maasberg, Chief Executive Officer and President of the Company, certify, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 16, 2012		/s/ Wolfgang Maasberg
		Wolfgang Maasberg, Chief Executive Officer and President

EX-32.2 5 v317616_ex32-2.htm EXHIBIT 32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Lyris, Inc. (the “Company”) for the quarterly period ended March 31, 2012 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Deborah Eudaley, Chief Financial Officer of the Company, certify, pursuant to §906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 16, 2012		/s/ Deborah Eudaley
		Deborah Eudaley, Chief Financial Officer

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1192000 3209000 12136000 8087000 Q3 LYRI LYRIS, INC. true Smaller Reporting Company 2012 10-Q Lyris is filing this Amendment No. 2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 filed with the Securities and Exchange Commission on May 10, 2012, and as amended by Amendment No. 1 filed on May 24, 2012 (together, the “Original Form 10-Q”), to reclassify expenses between cost of revenues and research and development. Because this is a change in the classification of expenses, our revenue, total expense, income (loss) from operations, net income (loss), or earnings (loss) per share will not be affected by the restatement. All prior year amounts remain unchanged. In the first quarter of the current fiscal year, we shifted the focus of the engineering team away from product support, to product development. As a result of this switch, engineering expenses that previously were considered cost of revenues are now reclassified as research and development to better reflect this change in our engineering focus at the time that change occurred. Our engineers are now primarily focused on the development of our next generation product line, and increasing the functionality and enhancing the ease of use of our on-demand software. Our Audit Committee, after considering all the relevant quantitative and qualitative measures, determined that the change in classification was not material. However, it was decided by our Audit Committee that the quarter ended March 31, 2012 should be restated to reflect the reclassification of engineering expenses as a result of this change in our engineering focus. Please refer to Note 1 – “Restatement” of our Notes to Condensed Consolidated Financial Statements. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of the following items is contained in this Amendment: • Part I, Item 1: Financial Statements• Part I, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations. Part I, Item 4: Controls and Procedures All other items remain unchanged. This Amendment should be read in conjunction with the Original Form 10-Q. Except as specifically noted above, this Amendment does not modify or update disclosures in the Original Form 10-Q. Accordingly, this Amendment does not reflect events occurring after the filing of the Original Form 10-Q or modify or update any related or other disclosures. 2012-03-31 0001166220 --06-30

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<div style="font: 10pt Times New Roman, Times, Serif"> Note 12 - Commitments and Contingencies    The Company’s commitments consist of obligations under operating leases for corporate office space and co-location facilities for data center capacity for research and test data centers. The Company has also entered into capital leases in connection with acquiring computer equipment for its data center operations which is included in property and equipment. The Company used a 5.25% interest rate to calculate the present value of the future principal payments and interest expense related to its capital leases. Additionally, in the ordinary course of business, the Company enters into contractual purchase obligations and other agreements that are legally binding and specify certain minimum payment terms.   During the third quarter of fiscal year 2012, the Company entered into $26 thousand in new capital leases for computer equipment for its data center operations.     <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 93%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td nowrap="nowrap"> </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="14" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Operating Leases</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="padding-bottom: 1pt"> </td> <td colspan="2" nowrap="nowrap"> </td> <td nowrap="nowrap" style="padding-bottom: 1pt"> </td> <td nowrap="nowrap" style="padding-bottom: 1pt"> </td> <td colspan="2" nowrap="nowrap"> </td> <td nowrap="nowrap" style="padding-bottom: 1pt"> </td> </tr> <tr style="vertical-align: bottom"> <td nowrap="nowrap" style="font-weight: bold; text-align: center">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Facilities</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Co-location Hosting Facilities</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Other</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Total Operating</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Capital Leases</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Total</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="22" style="text-align: center"> (In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 28%; text-align: left">Fiscal Year 2012</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">278</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">285</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">14</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">577</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">169</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">746</td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Fiscal Year 2013</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,063</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">925</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">46</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">2,035</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">615</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">2,650</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Fiscal Year 2014</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,008</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">19</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">34</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,061</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">507</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,568</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Fiscal Year 2015</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">800</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">16</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">816</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">115</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">931</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 1pt">Thereafter</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 506</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> -</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> -</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 506</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> -</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 506</td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Total</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 3,655</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 1,229</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 110</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 4,995</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 1,406</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 6,401</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 1pt">Less amounts representing interest</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: right">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: right">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: right">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: right">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (78</td> <td style="padding-bottom: 1pt; text-align: left">)</td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: right">  </td> <td style="padding-bottom: 1pt; font-weight: bold; text-align: left">  </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Present value minimum lease payments</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">1,328</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 1pt">Less short-term portion</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (593</td> <td style="padding-bottom: 1pt; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Long-term portion</td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 735</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> </table> Legal claims   From time to time, the Company is a party to litigation and subject to claims incidental to the ordinary course of business, including customer disputes, breach of contract claims, and other matters. Although the results of such litigation and claims cannot be predicted with certainty, the Company believes that the final outcome of such litigation and claims will not have a material adverse effect on its business, consolidated financial position, results of operations and cash flows. Due to the inherent uncertainties of such litigation and claims, the Company’s view of such matters may change in the future.   As of March 31, 2012, there have been no material developments in the Company’s litigation matters since it filed its Annual Report on Form 10-K for fiscal year ended June 30, 2011. </div>

<div style="font: 10pt Times New Roman, Times, Serif"> Note 11 – Segment Information   ASC 280 “Segment Reporting,” or ASC 280, establishes standards for the way public business enterprises report information about operating segments in annual consolidated financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company concluded that there is only one reportable segment as it is a SaaS-based online marketing solutions and service provider and uses an integrated approach in developing and selling its solutions and services. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by ASC 280. </div>

360000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 6 – Credit Facility   On April 18, 2012, the Company entered into a Ninth Amendment (“Ninth Amendment”) to the Amended and Restated Loan and Security Agreement (“Loan Agreement”) with Comerica Bank (“Bank”). The Ninth Amendment revises the terms of the Loan Agreement.   The Ninth Amendment revises the financial covenant requiring the Company to maintain earnings before interest, taxes, depreciation and amortization (“EBITDA”) not less than specified amounts, which are measured on a trailing three month basis, as follows for the applicable periods:   <table cellpadding="0" cellspacing="0" align="center" style="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td nowrap="nowrap" style="text-align: center">Measuring Period Ending</td> <td nowrap="nowrap"> </td> <td colspan="2" nowrap="nowrap" style="text-align: center">Minimum Trailing Three (3) Month EBITDA</td> <td nowrap="nowrap"> </td> </tr> <tr style="vertical-align: bottom"> <td colspan="5" style="text-align: center">(In thousands)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 57%; text-align: center">4/30/2012</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 40%; text-align: right">200</td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: center">5/31/2012 through 11/30/2012</td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">50</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: center">12/31/2012 and thereafter</td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">250</td> <td style="text-align: left"> </td> </tr> </table>   The Ninth Amendment increased the Company’s revolving line of credit (“Revolving Line”) from $2,500,000 to $3,500,000. The amount available under the Revolving Line is limited by a borrowing base, which is 80% of the amount of the aggregate of the Company’s accounts receivable, less certain exclusions. The Ninth Amendment adds to the borrowing base certain eligible foreign accounts receivable up to a limit of $350,000.   The Ninth Amendment also extends the maturity of the Revolving Line and the Company’s second revolving line of credit of $2,500,000 (“Non-Formula Line,” and together with the Revolving Line, the “Revolving Lines”). The Revolving Lines mature on April 30, 2013.   Advances under the Revolving Lines will accrue interest at a variable rate calculated as the Bank’s prime rate plus a margin of 2.5% for the Existing Line and the Bank’s prime rate plus a margin of 0.5% for the Non-Formula Line. Interest is payable monthly, and principal is payable upon maturity.   As previously disclosed, repayment of the Revolving Lines are secured by a security interest in substantially all of the assets of the Company. In addition, Mr. William T. Comfort, III, the Company’s Chairman of the Board, guarantees the company’s repayment of indebtedness under the Revolving Lines by a limited guaranty (“Guaranty”). In connection with the Amendment, Mr. Comfort entered into an Amendment to and Affirmation of Secured Guaranty Documents (“Affirmation of Guaranty”) to consent to the entry by the Company into the Amendment, affirm that the Guaranty will remain effective and to amend the limits of his liability under the Guaranty. Mr. Comfort’s liability under the Guaranty was amended to be limited to $2,500,000 with respect to advances made under the Non-Formula Line. Mr. Comfort also executed an Affirmation of Subordination Agreement to consent to the entry by the Company into the Amendment and to affirm that the Subordination Agreement between the Bank, Company and Mr. Comfort will remain effective.   The Company was in compliance with all of its covenants for all applicable measurement periods in the third quarter of fiscal year 2012. The Company’s outstanding borrowings totaled $4.7 million with $0.1 million in available credit remaining as of March 31, 2012, an increase in outstanding borrowings of $0.1 million since December 31, 2011. </div>

2941000

1655000

1354000

-17000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 9 - Net Income (Loss) per Share   Accounting standards established by the FASB require the presentation of the basic net income (loss) per common share and diluted net income (loss) per common share. Basic net income (loss) per common share excludes any dilutive effects of options and convertible securities. Dilutive net income (loss) per common share is the same as basic net income (loss) per common share since the effect of potentially dilutive securities are antidilutive.   The following table sets forth the computation and reconciliation of net income (loss) per share:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Three Months Ended March 31,</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Nine Months Ended March 31,</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="14" style="text-align: center">(In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 52%; text-align: left">Net income (loss)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">541</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(761</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(10,910</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(4,329</td> <td style="width: 1%; text-align: left">)</td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="font-weight: bold; text-align: left">Basic and dilutive:</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt">Weighted average shares outstanding:</td> <td style="padding-bottom: 1pt"> </td> <td style="text-align: left; border-bottom: Black 1pt solid">  </td> <td style="text-align: right; border-bottom: Black 1pt solid"> 9,418</td> <td style="text-align: left; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="text-align: left; border-bottom: Black 1pt solid">  </td> <td style="text-align: right; border-bottom: Black 1pt solid"> 8,082</td> <td style="text-align: left; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="text-align: left; border-bottom: Black 1pt solid">  </td> <td style="text-align: right; border-bottom: Black 1pt solid"> 8,742</td> <td style="text-align: left; padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt"> </td> <td style="text-align: left; border-bottom: Black 1pt solid">  </td> <td style="text-align: right; border-bottom: Black 1pt solid"> 8,087</td> <td style="text-align: left; padding-bottom: 1pt"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="font-weight: bold; text-align: left">Basic and dilutive:</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 2.5pt">Net Income (Loss) per share</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 0.06</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (0.09</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (1.25</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (0.54</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> </tr> </table>   No dilutives shares are included for the weighted average shares outstanding for three months ended March 31, 2012. Anti-dilutive stock options were excluded in the dilutive loss per common share calculation for the three months ended March 31, 2011 and nine months ended March 31, 2012 and 2011. </div>

385000

-10849000

470000

917000

9000

-788000

19043000

296000

-61000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 4 – Other Long-term Assets   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td nowrap="nowrap"> </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> As of March 31, 2012</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> As of June 30, 2011</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> </tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td> </td> <td colspan="6" style="text-align: center">(In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 70%; text-align: left">SiteWit Investment</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 12%; text-align: right">670</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 12%; text-align: right">678</td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Security Deposits</td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">112</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">126</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 1pt">Note Receivable</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td> <td style="border-bottom: Black 1pt solid; text-align: right"> 69</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">$</td> <td style="border-bottom: Black 1pt solid; text-align: right"> 95</td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 2.5pt">Total Other long-term assets</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 851</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 899</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> </table>   On July 23, 2010, the Company entered into a Strategic Partnership Agreement and a Stock Purchase Agreement (together, the “SiteWit Agreements”) with SiteWit Corp. (“SiteWit”), a privately held company that provides an online marketing search engine to its customers. The Company invested in SiteWit to secure the right to use SiteWit’s online marketing search engine technology, and to develop and market certain services related to SiteWit’s product. Pursuant to the SiteWit Agreements, the Company had invested $0.8 million in SiteWit and owned less than 50% of SiteWit’s outstanding stock.   Due to a disagreement regarding the parties’ respective rights and obligations under the SiteWit Agreements, the parties mutually agreed to terminate the SiteWit Agreements and release one another from all rights and obligations thereunder. Effective August 17, 2011, the Company entered into a Termination Agreement (the “Termination Agreement”) with SiteWit.      Pursuant to the Termination Agreement, the Company will make no further investments in SiteWit, the right of the Company to designate one of the members of SiteWit’s board of directors was terminated, and the Company returned to SiteWit approximately 75% of the SiteWit shares that were issued to the Company pursuant to the SiteWit Agreements. For a period of 18 months commencing on August 17, 2011, the Company’s remaining SiteWit shares are subject to a right of repurchase by SiteWit or SiteWit’s shareholders for the original aggregate purchase price, and under some circumstances the Company will have a one-time right to require SiteWit to repurchase all the remaining SiteWit shares that the Company holds. The Company plans on exercising this right when these circumstances occur.   During the first quarter of fiscal year 2012, the Company changed its accounting method for its investment in SiteWit from the equity method to the cost method due to the decrease in ownership and loss of significant influence that resulted from the Termination Agreement. At March 31, 2012, the Company held SiteWit at its carrying value of $0.7 million. Periodically, the Company assesses whether this investment has been other-than-temporarily impaired by considering factors such as trends and future prospects of the investee, ability to pay dividends annually, general market conditions, and other economic factors. When a decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value as a new cost basis and the amount of the other than temporary impairment is included in earnings. During the third quarter of fiscal year 2012, no significant changes that would have a material adverse effect on the Company’s investment arose and, thus, no other-than-temporary impairment was recorded for the three and nine months ended March 31, 2012. </div>

<div style="font: 10pt Times New Roman, Times, Serif"> Note 13 – Subsequent Events   On April 18, 2012, the Company entered into a Ninth Amendment (“Ninth Amendment”) to the Amended and Restated Loan and Security Agreement (“Loan Agreement”) with Comerica Bank (“Bank”). The Ninth Amendment revises the terms of the Loan Agreement. See Note 6. </div>

842000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 8 – Comprehensive Income (Loss)   The following table shows the computation of comprehensive (loss) income:    <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td nowrap="nowrap"> </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="6" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Three Months Ended March 31,</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="6" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Nine Months Ended March 31,</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="14" style="text-align: center">(In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 52%; text-align: left">Net income (loss)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">541</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(761</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(10,910</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(4,329</td> <td style="width: 1%; text-align: left">)</td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Foreign currency translation adjustments</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 15</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 14</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (18</td> <td style="padding-bottom: 1pt; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 40</td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 2.5pt">Total comprehensive income (loss)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 556</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (747</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (10,928</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (4,289</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> </tr> </table>   Other comprehensive loss includes gains (losses) on the translation of foreign currency denominated financial statements. Adjustments resulting from these translations are accumulated and reported as a component of other comprehensive income in stockholders’ equity section of the balance sheet. </div>

-10901000

596000

4784000

21965000

9000000

-6000

10741000

505000

1358000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 5 – Goodwill, Long-lived Assets and Other Intangible Assets   Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with the Company’s business combinations accounted for using the acquisition method of accounting.   The following table outlines the Company’s goodwill, by acquisition:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 68%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in"> <tr style="vertical-align: bottom"> <td nowrap="nowrap" style="font-weight: bold"> </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> As of March 31, 2012</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> As of June 30, 2011</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="6" style="text-align: center">(In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 64%; text-align: left">Lyris Technologies</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 15%; text-align: right">9,707</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 15%; text-align: right">16,505</td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Email Labs</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">2,202</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 1pt">Cogent</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 84</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 84</td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Total</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 9,791</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 18,791</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> </table>   ASU No. 2011-08 provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required. Otherwise, no further testing is required. The Company operates as one reporting unit, and conducts a test for the impairment of goodwill on at least an annual basis. The Company adopted June 30th as the date of the annual impairment test, but will conduct the test at an earlier date if indicators of possible impairment arise.   The Company adopted ASU No. 2011-08 in the first quarter of fiscal year 2012 and considered various events and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance, entity-specific events, and its share price relative to peers. During the first quarter of fiscal year 2012, an overall market decline affected all companies across all industries, thus the decline in the Company’s stock price from $4.20 to $1.65 was considered temporary due to expectations for recovery in the market. However, in the second quarter of fiscal year 2012, the Company’s assessment of relevant events and circumstances conducted on December 31, 2011, considered the stock price having remained flat at $1.80 as of December 31, 2011 in spite of an additional purchase of 1.3 million shares, having no positive market effect on stock price, the Company determined that it was more-likely-than-not that the fair value was less than the carrying amount. As a result, the two-step impairment test related to goodwill was performed during the second quarter of fiscal year 2012.   As part of performing the goodwill impairment test, the Company first assessed the value of long-lived assets, including tangible and intangible assets. Due to the lack of use and discontinuance of the Uptilt and Sparklist trade names, the Company recognized a full write-off of these assets of $0.8 million and $44 thousand, net of amortization, respectively, at December 31, 2011.   In the first step of the impairment test, the Company compared the estimated fair value of the Company to its carrying value utilizing both an income approach and a market approach considering guideline company market multiples. Since the carrying value exceeded fair value, this was an indicator of impairment, and proceeded to step two. Step two involved assigning the estimated fair value from step one to the Company’s identifiable assets, with any residual fair value assigned to goodwill. Based on the results of step two, the Company recorded a $9.0 million impairment loss in the second quarter of fiscal year 2012; $6.8 million was for Lyris Technologies and $2.2 million for EmailLabs, respectively. In the third quarter of fiscal year 2012, the Company assessed qualitative factors and determined it was not necessary to perform the two-step test for goodwill impairment.   The valuation approaches related to step one and step two considered a number of factors that included, but were not limited to, expected future cash flows, growth rates, discount rates, comparable multiples from publicly traded companies in the industry, technology lifecycles and growth rates, customer attrition, and required certain assumptions and estimates regarding industry, economic factors, and future profitability of business. The assumptions were based on reasonable market participant considerations and historical experience, which were inherently uncertain. </div>

-10546000

-524000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 2 – Nature of Business and Basis of Presentation   Lyris is a leading internet marketing technology company. Its software-as-a-service, or SaaS-based online marketing solutions and services provide customers the ability to build, deliver and manage online, permission-based direct marketing programs and other communications to customers that use online and mobile channels to communicate to their respective customers and members. The Company’s software products are offered to customers on a subscription and license basis.   The Company was incorporated under the laws of the state of Delaware as J.L. Halsey Corporation and changed its name to Lyris, Inc. in October 2007. The Company has principal offices in Emeryville, California and conducts its business worldwide, with wholly owned subsidiaries in Canada and the United Kingdom, and subsidiaries in Argentina and Australia. During the second quarter of fiscal year 2011, the Company commenced its operation in Latin America and during the fourth quarter of fiscal year 2011, the Company commenced its operations in Asia Pacific. The Company’s foreign subsidiaries are generally engaged in providing sales, account management and support.   Reclassification and Reverse Stock Split   Certain prior year revenue line items have been reordered to conform to the presentation as of and for the three and nine months ended March 31, 2012.      All share and per share amounts have been restated to reflect its 15-for-1 reverse stock split, which took effect on March 12, 2012.   Fiscal Year   The Company’s fiscal year ends on June 30. References to fiscal year 2012, for example, refer to the fiscal year ended June 30, 2012.   Basis of Presentation and Consolidation   The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements and prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations; however the Company believes that the disclosures included are adequate.   These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, or fiscal year 2011, filed with the SEC on September 21, 2011. Interim information presented in the unaudited condensed consolidated financial statements has been prepared by management. In the opinion of management, statements include all adjustments necessary for a fair presentation and that all such adjustments are of a normal, recurring nature and necessary for the fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with GAAP. There are certain reclassifications that have been made to the prior year condensed consolidated financial statements to conform to the current year presentation. These reclassifications had no impact on net loss or stockholders’ equity. Interim results of operations for the three and nine months ended March 31, 2012 are not necessarily indicative of results to be expected for the year ending June 30, 2012, or fiscal year 2012, or for any future period.   The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues, expenses and related disclosures during the reporting period. On an ongoing basis, management evaluates these estimates, judgments and assumptions, including those related to revenue recognition, stock-based compensation, goodwill and acquired intangible assets, capitalization of software, allowances for bad debt and income taxes. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods.   Fair Value of Financial Instruments   The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, and certain other accrued liabilities approximate their fair values, due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying amounts of capital lease obligations approximate their fair value. The revolving line of credit approximates fair value due to its market interest rate and short-term nature.   Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date. The Financial Accounting Standards Board (“FASB”) has established a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).   The three levels of the fair value hierarchy under the guidance for fair value measurement are described below:   Level 1: Pricing inputs are based upon quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. As of March 31, 2012, the Company used Level 1 assumptions for its cash and cash equivalents, which were $1.4 million and $0.2 million at March 31, 2012 and June 30, 2011, respectively. The valuations are based on quoted prices of the underlying security that are readily and regularly available in an active market, and accordingly, a significant degree of judgment is not required.   Level 2: Pricing inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of March 31, 2012 and June 30, 2011, the Company did not have any Level 2 financial assets or liabilities.    Level 3: Pricing inputs are generally unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require management’s judgment or estimation of assumptions that market participants would use in pricing the assets or liabilities. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. As of March 31, 2012 and June 30, 2011, the Company did not have any significant Level 3 financial assets or liabilities.      Revenue Recognition   The Company recognizes revenue from providing hosting and professional services and licensing its software products to its customers.   The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for software licenses, revenue is recognized when the customer is given electronic access to the licensed software); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable.   Subscription and Other Services Revenue   The Company generates services revenue from several sources, including hosted software services bundled with technical support (maintenance) services, and professional services. The Company recognizes subscription revenue in two ways: (1) based on the subscription plan defined in the agreement with specified monthly volume, and (2) based on actual usages at rates specified in the agreement. Additionally, the Company invoices excess usage and recognizes it as revenue when incurred by its customers.   In October 2009, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU No. 2009-13”) which amended the accounting standards for revenue recognition for multiple deliverable revenue arrangements to:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top; text-align: justify"> <td style="width: 0.25in"></td> <td style="width: 0.25in; text-align: left">·</td> <td style="text-align: justify">Provide updated guidance on how the deliverables of an arrangement should be separated, and how the consideration should be allocated;</td> </tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and</td> </tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>Require an entity to allocate revenue to an arrangement using the estimated selling prices (“ESP”) of deliverables if it does not have vendor-specific objective evidence (“VSOE”) of fair value or third-party evidence (“TPE”) of selling price.</td> </tr> </table>   Valuation terms are defined as set forth below:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>VSOE — the price at which the element is sold in a separate stand-alone transaction</td> </tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>TPE — evidence from the Company or other companies of the value of a largely interchangeable element in a transaction</td> </tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>ESP — the Company’s best estimate of the selling price of an element in a transaction</td> </tr> </table>   The Company adopted ASU No. 2009-13 in fiscal year 2011 on a prospective basis for multiple-element arrangements that include subscription services bundled with technical support and professional services. The implementation resulted in an immaterial difference in revenue recognized and additional disclosures that are included below.   The Company follows accounting guidance for revenue recognition of multiple-element arrangements to determine whether such arrangements contain more than one unit of accounting. Multiple-element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Although the Company’s professional services that are a part of multiple element arrangement have standalone value to the customer, such services could not be accounted as separate units of accounting under the previous guidance, as VSOE did not exist for the undelivered element. The VSOE for subscription services could not be established based on the historical pricing trends to date, which indicate that the price of the majority of standalone sales does not yet fall within a narrow range around the median price. Since the Company’s subscription services have standalone value as such services are often sold separately, but do not have VSOE, the Company uses ESP to determine fair value for its subscription services when sold in a multiple-element arrangement and recognize revenue based on ASU No. 2009-13. For the three and nine month ended March 31, 2012, TPE was concluded to be an impractical alternative due to differences in features and functionality of other companies’ offerings and lack of access to the actual selling price of competitor standalone sales. If new subscription service products are acquired or developed that require significant professional services in order to deliver the subscription service and the subscription service and professional services cannot support standalone value, then such subscription services and professional services will be evaluated as one unit of accounting. The Company determined ESP of fair value for subscription services based on the following:   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>The Company has defined processes and controls to ensure its pricing integrity. Such controls include oversight by a cross-functional team and members of executive management. Significant factors considered when establishing pricing include market conditions, underlying costs, promotions, and pricing history of similar services. Based on this information and actual pricing trends, management establishes or modifies the pricing.</td> </tr> </table>   <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>The Company identified the population of transactions to serve as the basis for establishing ESP, including subscription services and professional services pricing history in transactions with multiple-element arrangements and those sold on a standalone basis.</td> </tr> </table>     <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0"> <tr style="vertical-align: top"> <td style="width: 0.25in"> </td> <td style="width: 0.25in">·</td> <td>The Company analyzed the population of items sold by stratifying the population by product type and level, and considered several data points, such as (1) average price charged, (2) weighted average price to incorporate the frequency of each item sold at any given price, and (3) the median price charged. These three price points were then compared with the existing price list that is used as a point of reference to negotiate contracts and does not represent fair value. Additionally, the Company gathered and analyzed sales’ team feedback gained from interaction with customers and similar activities. This feedback included consideration of current market trends for pricing charged by companies offering similar services, competitive advantage of the products Lyris offers and recent economic pressures that have resulted in lower spending on marketing activities. ESP for each item in the population was established based on the factors noted above and was reviewed by management.</td> </tr> </table>    For transactions entered into or materially modified after July 1, 2010, the Company allocates consideration in multiple-element arrangements based on the relative selling prices. Revenue is then recognized as appropriate for each separate element based on its fair value. For the three and nine months ended March 31, 2012, the impact on the Company’s revenue under the new accounting guidance as compared to the previous methodology resulted in an immaterial difference in revenue recognized as compared to that which would have previously been deferred and recognized ratably. The immaterial impact is primarily a result of the limited population of transactions subject to newly adopted guidance, as it includes only those arrangements entered into or materially modified since its adoption in fiscal year 2011. The accounting treatment for arrangements entered into prior to July 1, 2010 continues to follow legacy accounting rules and the revenue recognition method applied to certain types of arrangements has not changed upon adopting new guidance, and does not affect the revenue recognized. The adoption of new guidance did not result in a material impact to the financial statements for the three and nine months ended March 31, 2012, and is not anticipated to become material for the remainder of fiscal year 2012.   However, new guidance may result in a material impact in the future, due to the change in other factors affecting the revenue recognition method, as the impact on the timing and pattern of revenue will vary depending on the nature and volume of new or materially modified contracts in any given period. The Company expects that the new accounting guidance will facilitate its efforts to optimize the sales and marketing of its offerings due to better alignment between the economics of an arrangement and the accounting for that arrangement. Such optimization may lead the Company to modify its pricing practices, which could result in changes in the relative selling prices of its elements, including both VSOE and ESP, and therefore change the allocation of the sales price between multiple elements within an arrangement. However, this will not change the total revenue recognized with respect to the arrangement.   The Company defers technical support (maintenance) revenue, including revenue that is part of a multiple element arrangement, and recognizes it ratably over the term of the agreement, which is generally one year.   For professional services sold separately from subscription services, the Company recognizes professional service revenues as delivered. Expenses associated with delivering all professional services are recognized as incurred when the services are performed. Associated out-of-pocket travel costs and expenses related to the delivery of professional services are typically reimbursed by the customer and are accounted for as both revenue and expense in the period the cost is incurred.   For multiple element arrangements entered into prior to July 1, 2010 that include both subscription and professional services and did not meet the separability criteria under the previous guidance, the Company has accounted for as a single unit of accounting. Consistent with the revenue recognition method applied prior to the adoption of ASU No. 2009-13, revenue for these arrangements continues to be recognized ratably over the term of the related subscription arrangement. If the multi-element arrangement is materially modified, the transaction is evaluated in accordance with the new accounting guidance which will most likely result in any deferred services revenue being recognized at the time of the material modification.   Software Revenue   The Company enters into certain revenue arrangements for which it is obligated to deliver multiple products and/or services (multiple elements). For these arrangements, which generally include software products, technical (maintenance) support and professional services, the Company allocates and defers revenue for the undelivered elements based on their VSOE. The Company allocates total earned revenue under the agreement among the various elements based on their relative fair value. VSOE exists for all elements of multiple element arrangements. In the event that VSOE cannot be established for one of the elements of multiple element arrangement, the Company will apply the residual method to determine how much revenue for the delivered elements (software licenses) can be recognized upon delivery by assigning VSOE to other elements in multiple element arrangements.    The Company determines VSOE based on actual prices charged for standalone sales of maintenance. To accomplish this, the Company tracks sales for the maintenance product when sold on a standalone basis for a one year term and compares to sales of the associated licensed software product.   The Company performs a quarterly analysis of the actual sales for standalone maintenance and licensed software to establish the percentage of sales relationships for each level of maintenance and licensed software. The result of this analysis has historically been a tight range of percentage of sales relationships centered on a mid-point. Renewal rates, expressed as a consistent percentage of the license fee at each level, represent VSOE of fair value for the maintenance element of the arrangements.      The Company recognizes revenue from its professional services as rendered. VSOE for professional services is based on the use of a consistent rate per hour when similar services are sold separately on a time-and-material basis. In cases where VSOE has not been established, the Company defers the full value of the arrangement and recognizes it ratably over the term of the agreement. </div>

-8000

1901000

61000

1157000

-81000

-20000

2829000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 7 - Income Taxes   The Company’s effective tax rates for the nine months ended March 31, 2012 and 2011 were (0.6%) and 1.2%, respectively. The following table provides a reconciliation of the income tax provision at the statutory U.S. federal rate to the Company’s actual income tax provisions for the nine months ended March 31, 2012 and 2011:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="14" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Nine Months Ended March 31,</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> %</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> %</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td style="text-align: center"> </td> <td> </td> <td colspan="14" style="text-align: center">(In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 52%; text-align: left">Income tax expense at the statutory rate</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">(3,794</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">35.00</td> <td style="width: 1%; text-align: left">%</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">(1,534</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 9%; text-align: right">35.0</td> <td style="width: 1%; text-align: left">%</td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">State income taxes, net of federal benefit</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">53</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(0.5</td> <td style="text-align: left">%)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(36</td> <td style="text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">0.8</td> <td style="text-align: left">%</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Utilization of NOL carryover</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Amortization of intangible assets</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">576</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(5.3</td> <td style="text-align: left">%)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">533</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(12.2</td> <td style="text-align: left">%)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Goodwill Impairment</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">3,150</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(29.1</td> <td style="text-align: left">%)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Impact of Foreign Operations</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">11</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(0.1</td> <td style="text-align: left">%)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">528</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(12.1</td> <td style="text-align: left">%)</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Difference between AMT and statutory federal income tax rates</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,626</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(15.0</td> <td style="text-align: left">%)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">657</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(15.0</td> <td style="text-align: left">%)</td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td>Refunds</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">41</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(0.4</td> <td style="text-align: left">%)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Other, net</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(1,611</td> <td style="text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">14.9</td> <td style="text-align: left">%</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(202</td> <td style="text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">4.7</td> <td style="text-align: left">%</td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Change in valuation reserve</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 9</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (0.1</td> <td style="padding-bottom: 1pt; text-align: left">%)</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> -</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> -</td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 2.5pt">Income tax provision (benefits)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 61</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (0.6</td> <td style="padding-bottom: 2.5pt; text-align: left">%)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> (54</td> <td style="padding-bottom: 2.5pt; text-align: left">)</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 1.2</td> <td style="padding-bottom: 2.5pt; text-align: left">%</td> </tr> </table>       In accordance with FASB standards, the Company establishes a valuation allowance if it believes that it is more likely than not that some or all of its deferred tax assets will not be realized. The Company does not recognize a tax benefit unless it determines that it is more likely than not that the benefit will be sustained upon external examination, an audit by taxing authority. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood in being realized upon ultimate settlement. The overall increase is attributable to the Australia subsidiary being taken into account of the provision calculations. </div>

29297000

<div style="font: 10pt Times New Roman, Times, Serif"> Note 10 - Stock-Based Compensation   Stock Options   The Company recognizes stock-based compensation costs, including employee stock awards and purchases under stock purchase plans, at the grant date fair value of the award. Determining the fair value of stock-based awards at the grant date requires judgment. Judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be impacted.   The following table summarizes the allocation of stock-based compensation expense included in the Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2012 and 2011:      <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 75%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in"> <tr style="vertical-align: bottom"> <td nowrap="nowrap"> </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="6" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Three Months Ended March 31,</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="6" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Nine Months Ended March 31,</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2012</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> <td style="font-weight: bold; padding-bottom: 1pt"> </td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> 2011</td> <td style="padding-bottom: 1pt; font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="14" style="text-align: center">(In thousands)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 52%">Cost of revenues</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">–</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">27</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">–</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 9%; text-align: right">89</td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">General and administrative</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">131</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">109</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">378</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">448</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Research and development</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">60</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">–</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">81</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">–</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 1pt">Sales and marketing</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 3</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 36</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 11</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> 106</td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 2.5pt">Total</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 194</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 172</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 470</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left"> $</td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 643</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> </table>    For the three and nine months ended March 31, 2012, total stock-based compensation expense related to stock options included $101 thousand and $191 thousand, respectively, and $93 thousand and $279 thousand, respectively, of which is related to restricted stock units (RSUs). For the three and nine months ended March 31, 2011, total stock-based compensation expense of $81 thousand and $417 thousand, respectively, and $91 thousand and $226 thousand, respectively, of which is related to RSUs. The Company determines the fair value of each option grant using a Black-Scholes model. The Black-Scholes model utilizes multiple assumptions including expected volatility, expected life, expected dividends and interest rates. The expected term of the options is based on the period of time that options are expected to be outstanding and is derived by analyzing historical exercise behavior of employees in the Company’s peer group as well as the options’ contractual terms. Expected volatilities are based on implied volatilities from traded options on the Company’s peer group’s common stock, the Company’s historical volatility and other factors. The risk-free rates are for the period matching the expected term of the option and are based on the U.S. Treasury yield curve rates as published by the Federal Reserve in effect at the time of grant. The dividend yield is zero based on the fact the Company has no intention of paying dividends in the near term.   The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award, which is typically the option vesting term of four years.   Stock-based compensation expense as part of capitalized software development costs was not significant for the nine months ended March 31, 2012.   As of March 31, 2012, unamortized stock-based compensation expense associated with common stock options was $1.5 million, which the Company expects to recognize over a weighted-average period of 3.28 years.   On March 12, 2012, the Company effected a 1-for-15 Reverse Stock Split of its common stock and decreased the number of authorized shares of common stock from 200,000,000 shares to 40,000,000 shares and decreased the number of authorized shares of preferred stock from 20,000,000 to 4,000,000. Every fifteen (15) shares of the Company’s issued and outstanding common stock were automatically combined into one (1) issued and outstanding share of the Company’s common stock, without any change in the par value per share.   As a result of the Reverse Stock Split, the total number of outstanding shares of Common stock was reduced to approximately 9.4 million shares and the conversion ratio for all instruments convertible into or exercisable for shares of common stock, including stock options and restricted stock units, was be adjusted accordingly. These adjustments included adjustments to the number of shares of common stock that may be obtained upon exercise or conversion of these securities and the applicable exercise or purchase price.   No fractional shares of the Company’s post-Reverse Stock Split common stock were issued as a result of the Reverse Stock Split; instead, the Company paid in cash (without interest) the fair value of fractions of shares of its common stock that would otherwise result from the Reverse Stock Split based upon the last trade price of the common stock on the OTC Bulletin Board on March12, 2012, which was $2.97 dollars.   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td nowrap="nowrap"> </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Number of options</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"> Weighted- Average Exercise Price</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> <td nowrap="nowrap" style="font-weight: bold; padding-bottom: 1pt">  </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: right; border-bottom: Black 1pt solid"> Weighted-Average Remaining Contractual Life in Years</td> <td nowrap="nowrap" style="padding-bottom: 1pt; font-weight: bold">  </td> </tr> <tr style="vertical-align: bottom"> <td> </td> <td> </td> <td colspan="2" nowrap="nowrap" style="text-align: center">(In thousands)</td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> <td> </td> <td colspan="2"> </td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="width: 55%">Outstanding at July 1, 2011</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 12%; text-align: right">847</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left">$</td> <td style="width: 12%; text-align: right">5.17</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 12%; text-align: right"> </td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td>Granted</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">109</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">4.95</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 1pt">Forfeited/expired</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (425</td> <td style="padding-bottom: 1pt; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left">$</td> <td style="padding-bottom: 1pt; text-align: right">4.84</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Outstanding at September 30, 2011</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 531</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">5.38</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">9.0</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 2.5pt">Vested and expected to vest at September 30, 2011</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 366</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">5.48</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">8.8</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Exercisable at September 30, 2011</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 70</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">6.56</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">6.7</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td>Outstanding at September 30, 2011</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">531</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">5.38</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td>Granted</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">-</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 1pt">Forfeited/expired</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (92</td> <td style="padding-bottom: 1pt; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left">$</td> <td style="padding-bottom: 1pt; text-align: right">5.93</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 2.5pt">Outstanding at December 31, 2011</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 439</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">5.27</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">8.8</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-bottom: 2.5pt">Vested and expected to vest at December 31, 2011</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 320</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">5.33</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">8.6</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 2.5pt">Exercisable at December 31, 2011</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 75</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">6.01</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">7.1</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td>Outstanding at December 31, 2011</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">439</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">5.27</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">8.8</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td>Granted</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">812</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left">$</td> <td style="text-align: right">1.66</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="padding-bottom: 1pt">Forfeited/expired</td> <td style="padding-bottom: 1pt"> </td> <td style="border-bottom: Black 1pt solid; text-align: left">  </td> <td style="border-bottom: Black 1pt solid; text-align: right"> (59</td> <td style="padding-bottom: 1pt; text-align: left">)</td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left">$</td> <td style="padding-bottom: 1pt; text-align: right">4.83</td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> <td style="padding-bottom: 1pt; text-align: right"> </td> <td style="padding-bottom: 1pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Outstanding at March 31, 2012</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 1,191</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">2.83</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">9.4</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-bottom: 2.5pt">Vested and expected to vest at March 31, 2012</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 787</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">3.03</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">9.3</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="padding-bottom: 2.5pt">Exercisable at March 31, 2012</td> <td style="padding-bottom: 2.5pt"> </td> <td style="border-bottom: Black 2.5pt double; text-align: left">  </td> <td style="border-bottom: Black 2.5pt double; text-align: right"> 114</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left">$</td> <td style="padding-bottom: 2.5pt; text-align: right">5.35</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt"> </td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> <td style="padding-bottom: 2.5pt; text-align: right">7.7</td> <td style="padding-bottom: 2.5pt; text-align: left"> </td> </tr> </table>       As of March 31, 2012, the calculated aggregate intrinsic value of options outstanding and options exercisable was immaterial for disclosure. The intrinsic value represents the pre-tax intrinsic value, based on the Company’s closing stock price on March 31, 2012 which would have been received by the option holders had all option holders exercised their options as of that date.   812 thousand options were granted under the share option plan for the nine months ended March 31, 2012. The weighted-average fair values of the options granted under the share option plans was $1.66 per option and $4.95 per option for the three months ended March 31, 2012 and 2011, respectively, and was $2.05 per option and $5.06 per option for the nine months ended March 31, 2012 and 2011.   Restricted Stock Units   During the first quarter of fiscal year 2011, Wolfgang Maasberg was appointed President and Chief Executive Officer of the Company and a member of the Board. The Company granted Mr. Maasberg 100,000 common stock options and 300,000 RSUs as stock-based compensation. Mr. Maasberg’s stock options and RSUs vest one-fourth on the first anniversary of the grant then quarterly thereafter for the following 12 quarters. During the first quarter of fiscal year 2012, 75,000 RSUs of Mr. Maasberg vested. In accordance with the terms of his award agreement, 27,333 shares of RSUs that vested were net-share settled such that the Company withheld that number of shares with a value equal to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted cash in the amount equal to such withholding taxes to the appropriate taxing authorities. During the second and third quarters of fiscal year 2012, one fourth of the annual shares vested of 18,750, and similarly, were net settled the same as the first quarter of fiscal year 2012, for the applicable income and other employment taxes. Fair value of the $1.5 million of the RSUs was determined based on the intrinsic value of the RSUs on the grant date using a $4.95 per share market price. The Company recognizes stock-based compensation on a straight-line basis over the requisite service period of the award, which is typically the RSUs vesting term of four years. Total expense for RSUs for the three and nine months ended March 31, 2012 was $93 thousand and $279 thousand, respectively.   As of March 31, 2012, unamortized stock-based compensation expense associated with RSUs was $884 thousand. The Company expects to recognize this cost associated with RSUs over a weighted-average period of 2.4 years.   Reserved Shares of Common Stock   On November 18, 2011, the Company amended its 2005 Equity-Based Compensation Plan (“Plan”) to increase the number of shares available under the Plan by an additional 653,333 shares. As of March 31, 2012, the Company had reserved 609 thousand shares of common stock, under its Plan for the awarding of future stock options and settlement of outstanding restricted stock units. </div>

-555000

6817000

2960000

10145000

-10910000

-1.25

1286000 3344000 17615000 8742000 <div style="font: 10pt Times New Roman, Times, Serif"> Note 3 – Recent Accounting Standards   In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”), which is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for reporting periods beginning after December 15, 2011, with early adoption prohibited for public companies. The new guidance will require prospective application. The Company will adopt this pronouncement in fiscal year 2013, and does not expect its adoption to have a material effect on its financial position or results of operations.   In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which will require companies to present the components of net income and other comprehensive income either in a single continuous statement or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The pronouncement does not change the current option for presenting components of other comprehensive income, gross, or net of the effect of income taxes, provided that such tax effects are presented in the statement in which other comprehensive income is presented or disclosed in the notes to the financial statements. Additionally, the pronouncement does not affect the calculation or reporting of earnings per share. The pronouncement also does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. The Company has deferred implementing amendments to its presentation of its items of accumulated other comprehensive income in accordance with the recent Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-12”), which superseded certain pending paragraphs in ASU No. 2011-05, to effectively defer only those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The Company will adopt this pronouncement beginning of fiscal year 2013.   In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350) Testing Goodwill for Impairment ("ASU 2011-08”), which simplify how entities test goodwill for impairment. It provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with an option to early adopt. The Company early adopted this pronouncement in the first quarter of fiscal year 2012 and it did not have a material impact on the Company’s statement of position or results of operations. In the second quarter of fiscal year 2012, however, the Company had re-assessed certain qualitative factors and performed accordingly the current two-step process for goodwill impairment. As a result of this process, the Company determined a goodwill impairment of $9.0 million as of December 31, 2011. In the third quarter of fiscal year 2012, the Company assessed qualitative factors and determined it was not necessary to perform the two-step test for goodwill impairment. </div> <div style="font: 10pt Times New Roman, Times, Serif"> Note 1 - Restatement   Lyris has restated its previously issued unaudited Consolidated Statements of Operations for the three and nine months ended March 31, 2012, to reflect a change in the classification of expenses between cost of revenues and research and development. Because this is a change in the classification of expenses, its revenue, total expense, income (loss) from operations, net income (loss), or earnings (loss) per share will not be affected by the restatement. All prior year amounts remain unchanged.   Lyris management has determined that product development efforts should be reclassified as research and development expense rather than cost of revenues expense as a result of its reassignment of engineering resources from product support to product development activities beginning in July, 2011. Lyris has restated its cost of revenue and research and development to reflect this reclassification of expenses.   In the first quarter of the current fiscal year, Lyris shifted the focus of the engineering team away from product support, to product development. As a result of this switch, engineering expenses that previously were considered cost of revenues are now reclassified as research and development to better reflect this change in the Company’s engineering focus at the time of that change. Lyris’s engineers are now primarily focused on the development of its next generation product line, and increasing the functionality and enhancing the ease of use of its on-demand software.   The Company’s Audit Committee, after considering all the relevant quantitative and qualitative measures, determined that the change in classification was not material. However, it was decided by its Audit Committee that the quarter ended March 31, 2012 should be restated to reflect the reclassification of engineering expenses that resulted from this change in the Company’s engineering focus.   The following tables summarize the corrections on each of the affected financial statement line items for each period presented:   <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td nowrap="nowrap" style="font-weight: bold"> </td> <td nowrap="nowrap" style="font-weight: bold"> </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center">As Previously Reported</td> <td nowrap="nowrap" style="font-weight: bold"> </td> <td nowrap="nowrap" style="font-weight: bold"> </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center"> Restatement Adjustment</td> <td nowrap="nowrap" style="font-weight: bold"> </td> <td nowrap="nowrap" style="font-weight: bold"> </td> <td colspan="2" nowrap="nowrap" style="font-weight: bold; text-align: center">As Restated</td> <td nowrap="nowrap" style="font-weight: bold"> </td> </tr> <tr style="vertical-align: bottom"> <td style="font-weight: bold"> </td> <td> </td> <td colspan="10" style="text-align: center">(in thousands)(unaudited)</td> <td> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="font-weight: bold">For the three months ended March 31, 2012</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="width: 55%; text-align: left; padding-left: 9pt"> Subscription, support and maintenance, professional services, and software</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 12%; text-align: right">4,372</td> <td style="width: 1%; text-align: left"> </td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 12%; text-align: right">(1,209</td> <td style="width: 1%; text-align: left">)</td> <td style="width: 1%"> </td> <td style="width: 1%; text-align: left"> </td> <td style="width: 12%; text-align: right">3,163</td> <td style="width: 1%; text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Total cost of revenues</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">4,601</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(1,209</td> <td style="text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">3,392</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Gross profit</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">4,662</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,208</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">5,870</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-left: 9pt">Research and development</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">237</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,207</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,444</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Total operating expenses</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">4,138</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">1,208</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">5,346</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="font-weight: bold">For the nine months ended March 31, 2012</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right"> </td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left; padding-left: 9pt">Subscription, support and maintenance, professional services, and software</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">14,019</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(3,874</td> <td style="text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">10,145</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left">Total cost of revenues</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">14,615</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">(3,874</td> <td style="text-align: left">)</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">10,741</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Gross profit</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">14,878</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">3,873</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">18,751</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: White"> <td style="text-align: left; padding-left: 9pt">Research and development</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">911</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">3,873</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">4,784</td> <td style="text-align: left"> </td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204,255,204)"> <td style="text-align: left">Total operating expenses</td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">25,424</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">3,873</td> <td style="text-align: left"> </td> <td> </td> <td style="text-align: left"> </td> <td style="text-align: right">29,297</td> <td style="text-align: left"> </td> </tr> </table> </div>

5806000

3000

3110000

-52000

10096000

272000

-814000

24000

-761000

144000

1042000

7638000

4290000

-741000

-53000

846000

6547000

2057000

4146000

-761000

-0.09

338000 1340000 8082000

5870000

-44000

2000

1729000

-2000

9262000

374000

416000

108000

585000

229000

1444000

7160000

3392000

524000

-125000

945000

5346000

2121000

3163000

541000

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51000 783000 9418000 0001166220 2012-01-01 2012-03-31 0001166220 2011-01-01 2011-03-31 0001166220 2011-07-01 2012-03-31 0001166220 2010-07-01 2011-03-31 0001166220 2011-06-30 0001166220 2010-06-30 0001166220 2012-03-31 0001166220 2011-03-31 0001166220 2012-05-24 shares iso4217:USD iso4217:USD shares Derived from the consolidated audited financial statements included in our annual report on Form 10-K for the year ended June 30, 2011 filed with the SEC.

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Other Long-term Assets

9 Months Ended

Mar. 31, 2012

Other Long-term Assets

Note 4 – Other Long-term Assets

	As of March 31, 2012		As of June 30, 2011
	(In thousands)
SiteWit Investment	$	670	$	678
Security Deposits	$	112	$	126
Note Receivable	$	69	$	95
Total Other long-term assets	$	851	$	899

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Condensed Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified

Mar. 31, 2012

Jun. 30, 2011

Current assets:

Cash and cash equivalents

$ 1,401

$ 244

^[1]

Accounts receivable, less allowances of $1,248 and $936, respectively

5,139

6,328

^[1]

Prepaid expenses and other current assets

784

851

^[1]

Deferred income taxes

943

882

^[1]

Total current assets

8,267

8,305

^[1]

Property and equipment, net

6,065

3,139

^[1]

Intangible assets, net

5,343

6,701

^[1]

Goodwill

9,791

18,791

^[1]

Other long-term assets

851

899

^[1]

TOTAL ASSETS

30,317

37,835

^[1]

Current liabilities:

Accounts payable and accrued expenses

4,155

4,628

^[1]

Revolving line of credit

4,714

3,285

^[1]

Capital lease obligations - short-term

593

192

^[1]

Income taxes payable

220

231

^[1]

Deferred revenue

3,833

4,388

^[1]

Total current liabilities

13,515

12,724

^[1]

Other long-term liabilities

218

539

^[1]

Capital lease obligations - long-term

735

165

^[1]

TOTAL LIABILITIES

14,468

13,428

^[1]

Commitments and contingencies (Note 12)

^[1]

Stockholders' equity:

Common stock, $0.01 par value; authorized 40,000 shares; 9,411 and 8,082 issued and outstanding shares at March 31, 2012 and June 30, 2011, respectively

1,414

1,214

^[1]

Additional paid-in capital

267,247

265,075

^[1]

Accumulated deficit

(252,716)

(241,813)

^[1]

Treasury stock, at cost 11 shares held at March 31, 2012 and June 30, 2011

(56)

^[1]

Accumulated Other Comprehensive Income

141

159

^[1]

Total stockholders' equity controlling interest

16,030

24,579

^[1]

Total stockholders' equity noncontrolling interest

(181)

(172)

^[1]

Total stockholders' equity

15,849

24,407

^[1]

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 30,317

$ 37,835

^[1]

[1]	Derived from the consolidated audited financial statements included in our annual report on Form 10-K for the year ended June 30, 2011 filed with the SEC.

XML 17 R6.htm IDEA: XBRL DOCUMENT

Restatement

9 Months Ended

Mar. 31, 2012

Restatement

Note 1 - Restatement

The following tables summarize the corrections on each of the affected financial statement line items for each period presented:

	As Previously Reported		Restatement Adjustment			As Restated
	(in thousands)(unaudited)
For the three months ended March 31, 2012
Subscription, support and maintenance, professional services, and software		4,372		(1,209	)		3,163
Total cost of revenues		4,601		(1,209	)		3,392
Gross profit		4,662		1,208			5,870
Research and development		237		1,207			1,444
Total operating expenses		4,138		1,208			5,346

For the nine months ended March 31, 2012
Subscription, support and maintenance, professional services, and software		14,019		(3,874	)		10,145
Total cost of revenues		14,615		(3,874	)		10,741
Gross profit		14,878		3,873			18,751
Research and development		911		3,873			4,784
Total operating expenses		25,424		3,873			29,297

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Nature of Business and Basis of Presentation

9 Months Ended

Mar. 31, 2012

Nature of Business and Basis of Presentation

Note 2 – Nature of Business and Basis of Presentation

Reclassification and Reverse Stock Split

Certain prior year revenue line items have been reordered to conform to the presentation as of and for the three and nine months ended March 31, 2012.

All share and per share amounts have been restated to reflect its 15-for-1 reverse stock split, which took effect on March 12, 2012.

Fiscal Year

The Company’s fiscal year ends on June 30. References to fiscal year 2012, for example, refer to the fiscal year ended June 30, 2012.

Basis of Presentation and Consolidation

Fair Value of Financial Instruments

The three levels of the fair value hierarchy under the guidance for fair value measurement are described below:

Revenue Recognition

The Company recognizes revenue from providing hosting and professional services and licensing its software products to its customers.

Subscription and Other Services Revenue

Provide updated guidance on how the deliverables of an arrangement should be separated, and how the consideration should be allocated;

Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and

Valuation terms are defined as set forth below:

VSOE — the price at which the element is sold in a separate stand-alone transaction

TPE — evidence from the Company or other companies of the value of a largely interchangeable element in a transaction

ESP — the Company’s best estimate of the selling price of an element in a transaction

Software Revenue

XML 20 R3.htm IDEA: XBRL DOCUMENT

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified

Mar. 31, 2012

Jun. 30, 2011

Accounts receivable, allowances

$ 1,248

$ 936

^[1]

Common stock, par value

$ 0.01

^[1]

Common stock, authorized

40,000

^[1]

Common stock, issued shares

9,411

8,082

^[1]

Common stock, outstanding shares

9,411

8,082

^[1]

Treasury stock, shares

^[1]

[1]	Derived from the consolidated audited financial statements included in our annual report on Form 10-K for the year ended June 30, 2011 filed with the SEC.

XML 21 R17.htm IDEA: XBRL DOCUMENT

Commitments and Contingencies

9 Months Ended

Mar. 31, 2012

Commitments and Contingencies

Note 12 - Commitments and Contingencies

During the third quarter of fiscal year 2012, the Company entered into $26 thousand in new capital leases for computer equipment for its data center operations.

	Operating Leases
	Facilities		Co-location Hosting Facilities		Other		Total Operating		Capital Leases			Total
	(In thousands)
Fiscal Year 2012		278		285		14		577		169			746
Fiscal Year 2013		1,063		925		46		2,035		615			2,650
Fiscal Year 2014		1,008		19		34		1,061		507			1,568
Fiscal Year 2015		800		-		16		816		115			931
Thereafter		506		-		-		506		-			506
Total	$	3,655	$	1,229	$	110	$	4,995	$	1,406		$	6,401
Less amounts representing interest										(78	)
Present value minimum lease payments									$	1,328
Less short-term portion										(593	)
Long-term portion									$	735

Legal claims

As of March 31, 2012, there have been no material developments in the Company’s litigation matters since it filed its Annual Report on Form 10-K for fiscal year ended June 30, 2011.

XML 22 R1.htm IDEA: XBRL DOCUMENT

Document and Entity Information	9 Months Ended
Document and Entity Information	Mar. 31, 2012	May 24, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	true
AmendmentDescription	Lyris is filing this Amendment No. 2 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 filed with the Securities and Exchange Commission on May 10, 2012, and as amended by Amendment No. 1 filed on May 24, 2012 (together, the “Original Form 10-Q”), to reclassify expenses between cost of revenues and research and development. Because this is a change in the classification of expenses, our revenue, total expense, income (loss) from operations, net income (loss), or earnings (loss) per share will not be affected by the restatement. All prior year amounts remain unchanged. In the first quarter of the current fiscal year, we shifted the focus of the engineering team away from product support, to product development. As a result of this switch, engineering expenses that previously were considered cost of revenues are now reclassified as research and development to better reflect this change in our engineering focus at the time that change occurred. Our engineers are now primarily focused on the development of our next generation product line, and increasing the functionality and enhancing the ease of use of our on-demand software. Our Audit Committee, after considering all the relevant quantitative and qualitative measures, determined that the change in classification was not material. However, it was decided by our Audit Committee that the quarter ended March 31, 2012 should be restated to reflect the reclassification of engineering expenses as a result of this change in our engineering focus. Please refer to Note 1 – “Restatement” of our Notes to Condensed Consolidated Financial Statements. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the complete text of the following items is contained in this Amendment: • Part I, Item 1: Financial Statements• Part I, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations. Part I, Item 4: Controls and Procedures All other items remain unchanged. This Amendment should be read in conjunction with the Original Form 10-Q. Except as specifically noted above, this Amendment does not modify or update disclosures in the Original Form 10-Q. Accordingly, this Amendment does not reflect events occurring after the filing of the Original Form 10-Q or modify or update any related or other disclosures.
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	LYRI
Entity Registrant Name	LYRIS, INC.
Entity Central Index Key	0001166220
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		9,411,083

XML 23 R18.htm IDEA: XBRL DOCUMENT

Subsequent Events	9 Months Ended
Subsequent Events	Mar. 31, 2012
Subsequent Events	Note 13 – Subsequent Events On April 18, 2012, the Company entered into a Ninth Amendment (“Ninth Amendment”) to the Amended and Restated Loan and Security Agreement (“Loan Agreement”) with Comerica Bank (“Bank”). The Ninth Amendment revises the terms of the Loan Agreement. See Note 6.

XML 24 R4.htm IDEA: XBRL DOCUMENT

Condensed Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Mar. 31, 2011
Revenues:
Subscription revenue	$ 7,160	$ 7,638	$ 21,965	$ 23,218
Support and maintenance revenue	945	846	2,829	2,748
Professional services revenue	783	1,340	3,344	3,209
Software revenue	374	272	1,354	1,368
Total revenues	9,262	10,096	29,492	30,543
Cost of revenues:
Subscription, support and maintenance, professional services, and software	3,163	4,146	10,145	14,347
Amortization of developed technology	229	144	596	664
Total cost of revenues	3,392	4,290	10,741	15,011
Gross profit	5,870	5,806	18,751	15,532
Operating expenses:
Sales and marketing	1,729	3,110	7,024	10,485
General and administrative	2,121	2,057	6,817	6,362
Research and development	1,444	1,042	4,784	1,765
Amortization of customer relationships and trade names	51	338	1,286	1,192
Impairment of goodwill			9,000
Impairment of capitalized software			385
Total operating expenses	5,346	6,547	29,297	19,804
Income (Loss) from operations	524	(741)	(10,546)	(4,272)
Interest expense	(108)	(24)	(296)	(57)
Interest income	2	3	11	12
Other (expense) income, net	(2)	(52)	(18)	(66)
Income (Loss) from operations before income tax provision	416	(814)	(10,849)	(4,383)
Income tax provision	(125)	(53)	61	(54)
Net Income (Loss)	541	(761)	(10,910)	(4,329)
Less: income attributable to noncontrolling interest	(44)		(9)
Net Income (Loss) attributable to Lyris, Inc.	$ 585	$ (761)	$ (10,901)	$ (4,329)
Basic and diluted:
Net Income (Loss) per share	$ 0.06	$ (0.09)	$ (1.25)	$ (0.54)
Weighted average shares used in calculating net loss per common share	9,418	8,082	8,742	8,087

XML 25 R12.htm IDEA: XBRL DOCUMENT

Income Taxes

9 Months Ended

Mar. 31, 2012

Income Taxes

Note 7 - Income Taxes

	Nine Months Ended March 31,
	2012			%			2011			%
	(In thousands)
Income tax expense at the statutory rate		(3,794	)		35.00	%	$	(1,534	)		35.0	%
State income taxes, net of federal benefit		53			(0.5	%)		(36	)		0.8	%
Utilization of NOL carryover		-			-			-			-
Amortization of intangible assets		576			(5.3	%)		533			(12.2	%)
Goodwill Impairment		3,150			(29.1	%)		-			-
Impact of Foreign Operations		11			(0.1	%)		528			(12.1	%)
Difference between AMT and statutory federal income tax rates		1,626			(15.0	%)		657			(15.0	%)
Refunds		41			(0.4	%)		-			-
Other, net		(1,611	)		14.9	%		(202	)		4.7	%
Change in valuation reserve		9			(0.1	%)		-			-
Income tax provision (benefits)	$	61			(0.6	%)	$	(54	)		1.2	%

XML 26 R11.htm IDEA: XBRL DOCUMENT

Credit Facility

9 Months Ended

Mar. 31, 2012

Credit Facility

Note 6 – Credit Facility

Measuring Period Ending	Minimum Trailing Three (3) Month EBITDA
(In thousands)
4/30/2012	$	200
5/31/2012 through 11/30/2012	$	50
12/31/2012 and thereafter	$	250

XML 27 R15.htm IDEA: XBRL DOCUMENT

Stock-Based Compensation

9 Months Ended

Mar. 31, 2012

Stock-Based Compensation

Note 10 - Stock-Based Compensation

Stock Options

	Three Months Ended March 31,				Nine Months Ended March 31,
	2012		2011		2012		2011
	(In thousands)
Cost of revenues	$	–	$	27	$	–	$	89
General and administrative		131		109		378		448
Research and development		60		–		81		–
Sales and marketing		3		36		11		106
Total	$	194	$	172	$	470	$	643

The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award, which is typically the option vesting term of four years.

Stock-based compensation expense as part of capitalized software development costs was not significant for the nine months ended March 31, 2012.

	Number of options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life in Years
	(In thousands)
Outstanding at July 1, 2011		847		$	5.17
Granted		109		$	4.95
Forfeited/expired		(425	)	$	4.84
Outstanding at September 30, 2011		531		$	5.38		9.0
Vested and expected to vest at September 30, 2011		366		$	5.48		8.8
Exercisable at September 30, 2011		70		$	6.56		6.7

Outstanding at September 30, 2011		531		$	5.38
Granted		-		$	-
Forfeited/expired		(92	)	$	5.93
Outstanding at December 31, 2011		439		$	5.27		8.8
Vested and expected to vest at December 31, 2011		320		$	5.33		8.6
Exercisable at December 31, 2011		75		$	6.01		7.1

Outstanding at December 31, 2011		439		$	5.27		8.8
Granted		812		$	1.66
Forfeited/expired		(59	)	$	4.83
Outstanding at March 31, 2012		1,191		$	2.83		9.4
Vested and expected to vest at March 31, 2012		787		$	3.03		9.3
Exercisable at March 31, 2012		114		$	5.35		7.7

Restricted Stock Units

Reserved Shares of Common Stock

XML 28 R13.htm IDEA: XBRL DOCUMENT

Comprehensive Income (Loss)

9 Months Ended

Mar. 31, 2012

Comprehensive Income (Loss)

Note 8 – Comprehensive Income (Loss)

The following table shows the computation of comprehensive (loss) income:

	Three Months Ended March 31,					Nine Months Ended March 31,
	2012		2011			2012			2011
	(In thousands)
Net income (loss)	$	541	$	(761	)	$	(10,910	)	$	(4,329	)
Foreign currency translation adjustments		15		14			(18	)		40
Total comprehensive income (loss)	$	556	$	(747	)	$	(10,928	)	$	(4,289	)

- Definition

The entire disclosure for comprehensive income. Includes, but is not limited to, the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains (losses) on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains (losses) on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains (losses) on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain (loss) and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References+ Details

XML 29 R14.htm IDEA: XBRL DOCUMENT

Net Income (Loss) per Share

9 Months Ended

Mar. 31, 2012

Net Income (Loss) per Share

Note 9 - Net Income (Loss) per Share

The following table sets forth the computation and reconciliation of net income (loss) per share:

	Three Months Ended March 31,					Nine Months Ended March 31,
	2012		2011			2012			2011
	(In thousands)
Net income (loss)	$	541	$	(761	)	$	(10,910	)	$	(4,329	)

Basic and dilutive:
Weighted average shares outstanding:		9,418		8,082			8,742			8,087

Basic and dilutive:
Net Income (Loss) per share	$	0.06	$	(0.09	)	$	(1.25	)	$	(0.54	)

XML 30 R16.htm IDEA: XBRL DOCUMENT

Segment Information

9 Months Ended

Mar. 31, 2012

Segment Information

Note 11 – Segment Information

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Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
9 Months Ended

Mar. 31, 2012

Mar. 31, 2011

Cash Flows from Operating Activities:

Net loss $ (10,901) $ (4,329)

Adjustments to reconcile net loss to net cash provided by operating activities:

Stock-based compensation expense 470 643

Depreciation 917 813

Amortization of intangible assets 1,358 1,522

Goodwill impairments 9,000

Amortization of developed technology 524 334

Impairment of capitalized software 385

Provision for bad debt 842 941

Deferred income tax benefit (61) (51)

Prepaid income tax (1)

Loss on sale of assets 17

Changes in assets and liabilities:

Accounts receivable 373 1,114

Prepaid expenses and other assets 81 (54)

Accounts payable and accrued expenses (788) (146)

Deferred revenue (555) (687)

Income taxes payable (6) (6)

Net cash provided by operating activities 1,655 95

Cash Flows from Investing Activities:

Purchases of property and equipment (505) (421)

Capitalized software expenditures (2,941) (749)

Payment (proceeds) for equity investments 8 (685)

Net cash used in investing activities (3,438) (1,855)

Cash Flows from Financing Activities:

Proceeds from stock issuance 1,901

Purchases of treasury stock (56)

Proceeds from debt and credit arrangements 19,043 13,915

Payments of debt and credit arrangements (17,615) (12,136)

Payments under capital lease obligations (360) (122)

Noncontrolling Interest (9)

Net cash provided by financing activities 2,960 1,601

Net effect of exchange rate changes on cash and cash equivalents (20) 47

Net increase (decrease) in cash and cash equivalents 1,157 (112)

Cash and cash equivalents, beginning of period 244 ^[1] 492

Cash and cash equivalents, end of period $ 1,401 $ 380

[1] Derived from the consolidated audited financial statements included in our annual report on Form 10-K for the year ended June 30, 2011 filed with the SEC.

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XML 33 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6

Goodwill, Long-lived Assets and Other Intangible Assets
9 Months Ended

Mar. 31, 2012

Goodwill, Long-lived Assets and Other Intangible Assets

Note 5 – Goodwill, Long-lived Assets and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with the Company’s business combinations accounted for using the acquisition method of accounting.

The following table outlines the Company’s goodwill, by acquisition:

As of March 31, 2012 As of June 30, 2011

(In thousands)

Lyris Technologies $ 9,707 $ 16,505

Email Labs 2,202

Cogent 84 84

Total $ 9,791 $ 18,791

ASU No. 2011-08 provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step impairment test is required. Otherwise, no further testing is required. The Company operates as one reporting unit, and conducts a test for the impairment of goodwill on at least an annual basis. The Company adopted June 30^th as the date of the annual impairment test, but will conduct the test at an earlier date if indicators of possible impairment arise.

The Company adopted ASU No. 2011-08 in the first quarter of fiscal year 2012 and considered various events and circumstances such as macroeconomic conditions, industry and market considerations, overall financial performance, entity-specific events, and its share price relative to peers. During the first quarter of fiscal year 2012, an overall market decline affected all companies across all industries, thus the decline in the Company’s stock price from $4.20 to $1.65 was considered temporary due to expectations for recovery in the market. However, in the second quarter of fiscal year 2012, the Company’s assessment of relevant events and circumstances conducted on December 31, 2011, considered the stock price having remained flat at $1.80 as of December 31, 2011 in spite of an additional purchase of 1.3 million shares, having no positive market effect on stock price, the Company determined that it was more-likely-than-not that the fair value was less than the carrying amount. As a result, the two-step impairment test related to goodwill was performed during the second quarter of fiscal year 2012.

As part of performing the goodwill impairment test, the Company first assessed the value of long-lived assets, including tangible and intangible assets. Due to the lack of use and discontinuance of the Uptilt and Sparklist trade names, the Company recognized a full write-off of these assets of $0.8 million and $44 thousand, net of amortization, respectively, at December 31, 2011.

In the first step of the impairment test, the Company compared the estimated fair value of the Company to its carrying value utilizing both an income approach and a market approach considering guideline company market multiples. Since the carrying value exceeded fair value, this was an indicator of impairment, and proceeded to step two. Step two involved assigning the estimated fair value from step one to the Company’s identifiable assets, with any residual fair value assigned to goodwill. Based on the results of step two, the Company recorded a $9.0 million impairment loss in the second quarter of fiscal year 2012; $6.8 million was for Lyris Technologies and $2.2 million for EmailLabs, respectively. In the third quarter of fiscal year 2012, the Company assessed qualitative factors and determined it was not necessary to perform the two-step test for goodwill impairment.

The valuation approaches related to step one and step two considered a number of factors that included, but were not limited to, expected future cash flows, growth rates, discount rates, comparable multiples from publicly traded companies in the industry, technology lifecycles and growth rates, customer attrition, and required certain assumptions and estimates regarding industry, economic factors, and future profitability of business. The assumptions were based on reasonable market participant considerations and historical experience, which were inherently uncertain.

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The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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