TeleNav 2010 Annual Report Download - page 61

Sales and marketing. Our sales and marketing expenses increased 4% from $16.5 million in fiscal 2009 to
$17.2 million in fiscal 2010. As a percentage of revenue, sales and marketing expenses decreased from 15% in
fiscal 2009 to 10% in fiscal 2010. The decline in sales and marketing expenses as a percentage of revenue in
fiscal 2010 was the result of leveraging our investment in sales and marketing across a higher revenue base. We
expect that our sales and marketing expenses will continue to increase in absolute dollars as we establish
relationships with new wireless carrier partners, begin programs to market our services to their subscribers and
support our efforts to market and promote other services and products.
General and administrative. Our general and administrative expenses increased 75% from $8.3 million in
fiscal 2009 to $14.5 million in fiscal 2010. The increase was primarily due to added personnel, consultants, audit
and tax professional fees and legal expenses, as well as $1.3 million of stock compensation expense associated
with an outstanding stock option grant that vested upon the closing of our IPO. The total number of general and
administrative personnel increased 43%, from 42 at June 30, 2009 to 60 at June 30, 2010. As a percentage of
revenue, general and administrative expenses increased from 8% in fiscal 2009 to 9% in fiscal 2010. We expect
our general and administrative expenses to increase in absolute dollars in fiscal 2011 as we incur legal fees and
potentially other costs in connection with litigation in which we are named defendants or our wireless carrier
partners are named defendants and for which they have notified us that they are seeking or may seek
indemnification from us. We also expect to incur additional general and administration expenses in fiscal 2011
and beyond associated with being a public company, including higher legal, corporate insurance, audit and tax
and financial reporting expenses as well as the costs of achieving and maintaining compliance with Section 404
of the Sarbanes-Oxley Act.
Other income (expense), net. Our other income (expense), net was $(776,000) in fiscal 2009 and $(407,000)
in fiscal 2010. The change was primarily due to decreases in the expense related to the increase in fair value of
our Series E preferred stock warrants, partially offset by lower interest income due to reductions in the interest
rates paid on our cash and cash equivalent balances. As of December 31, 2009, all remaining Series E preferred
stock warrants had been exercised and the warrant liability was reclassified to preferred stock. The preferred
stock converted upon the closing of our IPO and the preferred stock was reclassified as common stock and
additional paid in capital.
Provision for income taxes. Our provision for income taxes increased 124% from $11.9 million in fiscal
2009 to $26.6 million in fiscal 2010. Our effective tax rate increased from 29% in fiscal 2009 to 39% in fiscal
2010. The increase in the effective tax rate was primarily attributable to a tax benefit in fiscal 2009 related to the
release of a portion of our valuation allowance against U.S. federal and state deferred tax assets and a reduction
in the forecasted federal research credit for fiscal 2010 due to the expiration of the federal research and
development tax credit effective December 31, 2009. The increase was partially offset by a tax benefit
recognized in fiscal 2010 for a tax deduction related to Qualified Domestic Production Activities under
Section 199 of the Internal Revenue Code and by the release of the remaining valuation allowance related to U.S.
federal and state deferred tax assets.
The usage of our remaining U.S. federal loss carryforwards is substantially limited each fiscal year by
Section 382 of the Internal Revenue Code. In addition, on September 30, 2008, the State of California enacted
Assembly Bill 1452 into law which among other provisions, suspended net operating loss deductions for our
fiscal 2009 and 2010, extends for two years the carryforward period of any net operating losses not utilized due
to such suspension, and limits the utilization of research and development credit carryforwards to no more than
50% of the tax liability before credits. We expect that for fiscal 2011 our effective tax rate will be approximately
41%.
We adopted the FASB standard for accounting for uncertainty in income taxes at the beginning of fiscal
2010. At the adoption date of July 1, 2009, the cumulative unrecognized tax benefit was $1.1 million, of which
$384,000 was netted against deferred tax assets. As of June 30, 2010, our cumulative unrecognized tax benefit
was $2.9 million, of which $141,000 was netted against deferred tax assets. Upon adoption, we recognized no
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