##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    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: 001-34875
 
 SCIQUEST, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    56-2127592(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 6501 Weston Parkway, Suite 200
Cary, North Carolina 27513
(Address of Principal Executive Offices, Including Zip Code)
 (919) 659-2100
(Registrants Telephone Number, Including Area Code)
 
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



SCIQUEST, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS
 PagesPART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSBalance Sheets as of September 30, 2010 (unaudited) and December 31, 2009
    
    
    2Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)
    
    
    3Statement of Stockholders Equity for the nine months ended September 30, 2010 (unaudited)
    
    
    4Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)
    
    
    5Notes to Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    24ITEM 4. CONTROLS AND PROCEDURES
    
    
    24PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    25ITEM 1A. RISK FACTORS
    
    
    25ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    25ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    26ITEM 5. OTHER INFORMATION
    
    
    26ITEM 6. EXHIBITS
    
    
    26SIGNATURES
    
    
    27Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 SCIQUEST, INC.
 
 BALANCE SHEETS
 (in thousands except share and per share amounts)
 As of
    
    
    As ofSeptember 30,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    35,444
    
    
    $
    17,132Restricted cash
    
    
    
    
    
    
    350Accounts receivable
    
    
    3,453
    
    
    
    4,846Prepaid expenses and other current assets
    
    
    1,070
    
    
    
    834Deferred tax asset
    
    
    219
    
    
    
    177Total current assets
    
    
    40,186
    
    
    
    23,339Property and equipment, net
    
    
    1,736
    
    
    
    1,307Goodwill
    
    
    6,765
    
    
    
    6,765Intangible assets, net
    
    
    1,114
    
    
    
    1,340Deferred project costs
    
    
    5,074
    
    
    
    5,148Deferred tax asset
    
    
    16,923
    
    
    
    17,269Other
    
    
    43
    
    
    
    43Total assets
    
    $
    71,841
    
    
    $
    55,211Liabilities and Redeemable Preferred StockCurrent liabilities:Accounts payable
    
    $
    23
    
    
    $
    46Accrued liabilities
    
    
    3,911
    
    
    
    2,980Line of credit
    
    
    
    
    
    
    350Deferred revenues
    
    
    24,566
    
    
    
    27,066Total current liabilities
    
    
    28,500
    
    
    
    30,442Deferred revenues, less current portion
    
    
    9,509
    
    
    
    7,209Deferred tax liability, less current portion
    
    
    791
    
    
    
    646Series A redeemable preferred stock at redemption value, $0.001 par value; 222,073 shares authorized;
zero and 222,073 shares issued and outstanding at September 30, 2010 and December 31, 2009,
respectively
    
    
    
    
    
    
    34,072Stockholders Equity (Deficit)Common stock, $0.001 par value; 50,000,000 shares authorized; 20,332,489 and 14,342,284 shares issued
and outstanding as of September 30, 2010 and December 31, 2009, respectively
    
    
    20
    
    
    
    14Additional paid-in capital
    
    
    50,272
    
    
    
    Notes receivable from stockholders
    
    
    (15
    )
    
    
    (769
    )Accumulated deficit
    
    
    (17,236
    )
    
    
    (16,403
    )Total stockholders equity (deficit)
    
    
    33,041
    
    
    
    (17,158
    )Total liabilities, redeemable preferred stock, and stockholders equity (deficit)
    
    $
    71,841
    
    
    $
    55,211
 The accompanying notes are an integral part of the financial statements.
  2




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SCIQUEST, INC.
 
 STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (in thousands except share and per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    10,771
    
    
    $
    9,049
    
    
    $
    31,459
    
    
    $
    26,455Cost of revenues
    
    
    2,329
    
    
    
    1,879
    
    
    
    6,776
    
    
    
    5,627Gross profit
    
    
    8,442
    
    
    
    7,170
    
    
    
    24,683
    
    
    
    20,828Operating expenses:Research and development
    
    
    2,173
    
    
    
    1,968
    
    
    
    6,092
    
    
    
    6,328Sales and marketing
    
    
    2,815
    
    
    
    2,528
    
    
    
    8,784
    
    
    
    7,874General and administrative
    
    
    1,471
    
    
    
    805
    
    
    
    4,106
    
    
    
    2,750Management bonus plan associated with initial public offering
    
    
    5,888
    
    
    
    
    
    
    
    5,888
    
    
    
    Litigation settlement and associated legal expenses
    
    
    
    
    
    
    3,089
    
    
    
    
    
    
    
    3,189Amortization of intangible assets
    
    
    75
    
    
    
    101
    
    
    
    226
    
    
    
    302Total operating expenses
    
    
    12,422
    
    
    
    8,491
    
    
    
    25,096
    
    
    
    20,443(Loss) income from operations
    
    
    (3,980
    )
    
    
    (1,321
    )
    
    
    (413
    )
    
    
    385Other income (expense), net:Interest income
    
    
    9
    
    
    
    8
    
    
    
    22
    
    
    
    40Interest expense
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (5
    )Other income (expense), net
    
    
    20
    
    
    
    (6
    )
    
    
    1,698
    
    
    
    (4
    )Total other income, net
    
    
    29
    
    
    
    
    
    
    
    1,718
    
    
    
    31(Loss) income before income taxes
    
    
    (3,951
    )
    
    
    (1,321
    )
    
    
    1,305
    
    
    
    416Income tax benefit (expense)
    
    
    1,486
    
    
    
    
    
    
    
    (566
    )
    
    
    Net (loss) income
    
    
    (2,465
    )
    
    
    (1,321
    )
    
    
    739
    
    
    
    416Dividends on redeemable preferred stock
    
    
    715
    
    
    
    660
    
    
    
    2,079
    
    
    
    1,921Net loss attributable to common stockholders
    
    $
    (3,180
    )
    
    $
    (1,981
    )
    
    $
    (1,340
    )
    
    $
    (1,505
    )Net loss attributable to common stockholders per share  Basic and Diluted
    
    $
    (0.22
    )
    
    $
    (0.14
    )
    
    $
    (0.09
    )
    
    $
    (0.11
    )Weighted average shares outstanding used in computing per share amounts
    
    
    14,558
    
    
    
    14,090
    
    
    
    14,241
    
    
    
    14,035
 The accompanying notes are an integral part of the financial statements.
  3




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SCIQUEST, INC.
 
 STATEMENT OF STOCKHOLDERS EQUITY
 (UNAUDITED)
 (in thousands except share amounts)
 Notes ReceivableCommon Stock
    
    
    Additional Paid-In
    
    
    from
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stockholders
    
    
    Deficit
    
    
    EquityBalance as of December 31, 2009
    
    
    14,342,284
    
    
    $
    14
    
    
    $
    
    
    
    $
    (769
    )
    
    $
    (16,403
    )
    
    $
    (17,158
    )Proceeds from public offering, net of
underwriting discounts and offering
costs
    
    
    6,000,000
    
    
    
    6
    
    
    
    50,596
    
    
    
    
    
    
    
    
    
    
    
    50,602Exercise of common stock options
    
    
    12,887
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Contribution of stock to fund a
charitable trust established by the
Company
    
    
    25,000
    
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    
    
    
    
    238Issuance of restricted stock
    
    
    95,861
    
    
    
    
    
    
    
    216
    
    
    
    (177
    )
    
    
    
    
    
    
    39Repurchase of restricted stock
    
    
    (143,543
    )
    
    
    
    
    
    
    (273
    )
    
    
    
    
    
    
    
    
    
    
    (273
    )Payments on notes receivable from
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Forgiveness of notes receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    927
    
    
    
    (927
    )
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    905
    
    
    
    
    
    
    
    
    
    
    
    905Dividends accrued on redeemable
preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,434
    )
    
    
    
    
    
    
    (645
    )
    
    
    (2,079
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739
    
    
    
    739Balance as of September 30, 2010
    
    
    20,332,489
    
    
    $
    20
    
    
    $
    50,272
    
    
    $
    (15
    )
    
    $
    (17,236
    )
    
    $
    33,041
 The accompanying notes are an integral part of the financial statements.
  4




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SCIQUEST, INC.
 
 STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (in thousands)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    739
    
    
    $
    416Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    800
    
    
    
    924Gain on sale of investment
    
    
    (1,700
    )
    
    
    Stock-based compensation expense
    
    
    905
    
    
    
    277Contribution of stock to fund a charitable trust established by the Company
    
    
    238
    
    
    
    Deferred taxes
    
    
    449
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1,393
    
    
    
    247Prepaid expense and other current assets
    
    
    (236
    )
    
    
    302Deferred project costs and other assets
    
    
    74
    
    
    
    379Accounts payable
    
    
    (23
    )
    
    
    (79
    )Accrued liabilities and other
    
    
    394
    
    
    
    (694
    )Deferred revenues
    
    
    (200
    )
    
    
    (2,084
    )Net cash provided by (used in) operating activities
    
    
    2,833
    
    
    
    (312
    )Cash flows from investing activitiesAddition of capitalized software development costs
    
    
    (521
    )
    
    
    (95
    )Purchase of property and equipment
    
    
    (482
    )
    
    
    (527
    )Proceds from sale of investment
    
    
    1,700
    
    
    
    Restricted cash
    
    
    350
    
    
    
    Net cash provided by (used in) investing activities
    
    
    1,047
    
    
    
    (622
    )Cash flows from financing activitiesProceeds from initial public offering, net of underwriting discounts
    
    
    53,010
    
    
    
    Initial public offering costs
    
    
    (1,871
    )
    
    
    Redemption of preferred stock
    
    
    (36,151
    )
    
    
    Issuance of restricted stock
    
    
    39
    
    
    
    24Repurchases of restricted stock
    
    
    (273
    )
    
    
    (15
    )Repayment of notes payable
    
    
    (350
    )
    
    
    Repayment of notes receivable from stockholders
    
    
    4
    
    
    
    7Proceeds from exercise of common stock options
    
    
    24
    
    
    
    4Net cash provided by financing activities
    
    
    14,432
    
    
    
    20Net increase (decrease) in cash and cash equivalents
    
    
    18,312
    
    
    
    (914
    )Cash and cash equivalents at beginning of the period
    
    
    17,132
    
    
    
    13,502Cash and cash equivalents at end of the period
    
    $
    35,444
    
    
    $
    12,588Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    2
    
    
    $
    5Supplemental disclosure of non-cash flow informationDividends on redeemable preferred stock
    
    $
    2,079
    
    
    $
    1,921
 The accompanying notes are an integral part of the financial statements.
  5




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SCIQUEST, INC.
 
 NOTES TO FINANCIAL STATEMENTS
 UNAUDITED
 (in thousands except share and per share amounts)
 1. Description of Business
  Initial public offering
  2. Summary of Significant Accounting Policies
 Basis of presentation
  Use of Estimates
  Revenue Recognition
   6




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Cost of Revenues
  Deferred Project Costs
  Cash and Cash Equivalents
  Accounts Receivable
   7




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##### Table of Contents



Property and Equipment
  Software Development Costs
   Goodwill
  Stock-Based Compensation
   Segment Data
  Earnings Per Share
   8




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##### Table of Contents



September 30,2010
    
    
    2009Nonvested restricted stock
    
    
    196,326
    
    
    
    222,203Common stock options
    
    
    708,056
    
    
    
    458,321Common stock warrants
    
    
    221,680
    
    
    
    221,680Total
    
    
    1,126,062
    
    
    
    902,204
  Fair Value of Financial Instruments
  Level 1:
    
    Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
The fair value hierarchy gives the highest priority to Level 1 inputs.Level 2:
    
    Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.Level 3:
    
    Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
  Income Taxes
   Recent Accounting Pronouncements
   9




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##### Table of Contents



3. Property and Equipment
  As of September 30,
    
    
    As of December 31,2010
    
    
    2009Furniture and equipment
    
    $
    597
    
    
    $
    579Computer software and equipment
    
    
    4,455
    
    
    
    3,483Leasehold improvements
    
    
    244
    
    
    
    231Total costs
    
    
    5,296
    
    
    
    4,293Less accumulated depreciation and amortization
    
    
    (3,560
    )
    
    
    (2,986
    )Property and equipment, net
    
    $
    1,736
    
    
    $
    1,307
   4. Goodwill and Other Intangible Assets
  September 30, 2010
    
    
    December 31, 2009Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountGoodwill
    
    $
    6,765
    
    
    $
    
    
    
    $
    6,765
    
    
    $
    6,765
    
    
    $
    
    
    
    $
    6,765Acquired technology
    
    
    8,100
    
    
    
    (8,100
    )
    
    
    
    
    
    
    8,100
    
    
    
    (8,100
    )
    
    
    Customer relationships
    
    
    5,200
    
    
    
    (4,516
    )
    
    
    684
    
    
    
    5,200
    
    
    
    (4,290
    )
    
    
    910Trademarks
    
    
    430
    
    
    
    
    
    
    
    430
    
    
    
    430
    
    
    
    
    
    
    
    430Total
    
    $
    20,495
    
    
    $
    (12,616
    )
    
    $
    7,879
    
    
    $
    20,495
    
    
    $
    (12,390
    )
    
    $
    8,105
   10




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2010 (remaining three months)
    
    $
    752011
    
    
    2252012
    
    
    1672013
    
    
    1252014
    
    
    92$
    684
 5. Accrued Liabilities
  As of September 30,
    
    
    As of December 31,2010
    
    
    2009Accrued compensation
    
    $
    2,478
    
    
    $
    2,321Accrued public offering costs
    
    
    537
    
    
    
    Accrued consulting and professional services
    
    
    100
    
    
    
    96Accrued rent
    
    
    214
    
    
    
    239Accrued licenses
    
    
    213
    
    
    
    Other
    
    
    369
    
    
    
    324Total
    
    $
    3,911
    
    
    $
    2,980
 6. Debt
  7. Redeemable Preferred Stock
   Number of RedeemableRedeemable Preferred
    
    
    Preferred SharesStock
    
    
    OutstandingBalance as of December 31, 2009
    
    $
    34,072
    
    
    
    222,073Dividends accrued on redeemable preferred stock
    
    
    2,079
    
    
    
    Redemption of preferred stock
    
    
    (36,151
    )
    
    
    (222,073
    )Balance as of September 30, 2010
    
    $
    
    
    
    
    
  11




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8. Stockholders Equity (Deficit)
 Reverse Stock Split
  Restricted Stock
   Weighted-AverageNumber of Shares
    
    
    Grant Date Fair ValueNonvested as of December 31, 2009
    
    
    176,981
    
    
    $
    1.62Issued
    
    
    95,861
    
    
    
    1.58Vested
    
    
    (76,516
    )
    
    
    1.45Nonvested as of September 30, 2010
    
    
    196,326
    
    
    $
    1.67
       12




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Stock Options
  Weighted-Average
    
    
    AggregateNumber of
    
    
    
    
    
    
    Weighted-
    
    
    Remaining
    
    
    Intrinsic ValueOptions
    
    
    Range of Exercise
    
    
    Average
    
    
    Contractual Term
    
    
    as of SeptemberOutstanding
    
    
    Prices
    
    
    Exercise Price
    
    
    (in years)
    
    
    30, 2010Balance as of December 31, 2009
    
    
    443,603
    
    
    
    $0.08  $3.16
    
    
    $
    1.26
    
    
    
    7.5
    
    
    $
    3,067Options granted
    
    
    303,099
    
    
    
    $2.26  $8.18
    
    
    $
    3.81Options exercised
    
    
    (12,887
    )
    
    
    $0.14  $2.26
    
    
    $
    1.89Options canceled
    
    
    (25,759
    )
    
    
    $0.08  $8.18
    
    
    $
    2.14Balance as of September 30, 2010
    
    
    708,056
    
    
    
    $0.08  $8.18
    
    
    $
    2.32
    
    
    
    7.9
    
    
    $
    6,913Vested and expected to vest at September
30, 2010
    
    
    626,408
    
    
    
    $0.08  $8.18
    
    
    $
    2.20
    
    
    
    7.7
    
    
    $
    6,189Exercisable as of September 30, 2010
    
    
    299,822
    
    
    
    $0.08  $8.18
    
    
    $
    1.10
    
    
    
    6.4
    
    
    $
    3,293
   Options Outstanding at September 30, 2010
    
    
    Options Exercisable at September 30, 2010Weighted-Average
    
    
    
    
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Weighted-
    
    
    
    
    
    
    AverageContractual Life
    
    
    Average
    
    
    
    
    
    ExerciseRange of Exercise Price
    
    Number
    
    
    (in years)
    
    
    Exercise Price
    
    
    Number
    
    
    Price$0.08  $0.14
    
    
    172,399
    
    
    
    5.0
    
    
    $
    0.10
    
    
    
    165,408
    
    
    $
    0.10$1.90  $2.04
    
    
    231,433
    
    
    
    8.1
    
    
    
    2.03
    
    
    
    116,179
    
    
    
    2.03$2.26  $3.16
    
    
    226,224
    
    
    
    9.3
    
    
    
    2.27
    
    
    
    12,611
    
    
    
    2.39$8.18
    
    
    78,000
    
    
    
    9.6
    
    
    
    8.18
    
    
    
    5,624
    
    
    
    8.18Total
    
    
    708,056
    
    
    
    7.9
    
    
    $
    2.32
    
    
    
    299,822
    
    
    $
    1.10
  Nine Months Ended September 30,2010
    
    
    2009Estimated dividend yield
    
    
    0%
    
    
    
    0%Expected stock price volatility
    
    
    100.00%
    
    
    
    100.00%Weighted-average risk-free interest rate
    
    
    2.6%  3.0%
    
    
    
    1.9%  2.8%Expected life of options (in years)
    
    
    6.25
    
    
    
    6.25
  13




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##### Table of Contents



Warrants
  Charitable Donation
  9. Income Taxes
  10. Commitments and Contingencies
 Management Bonus Plan Associated with Initial Public Offering
   Legal Contingencies
   14




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##### Table of Contents



Warranties and Indemnification
   11. Subsequent Events
 Warrant
  Lease
   15




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##### Table of Contents



SCIQUEST, INC.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our financial statements and related notes that appear elsewhere
in this report. In addition to historical financial information, the following discussion contains
forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual
results could differ materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to these differences include those discussed below and elsewhere in
this report under Part II, Other InformationItem 1A, Risk Factors. Forward-looking statements
include information concerning our possible or assumed future results of operations, business
strategies and operations, financing plans, potential growth opportunities, potential market
opportunities and the effects of competition. Forward-looking statements include all statements
that are not historical facts and can be identified by terms such as anticipates, believes,
could, seeks, estimates, expects, intends, may, plans, potential, predicts,
projects, should, will, would or similar expressions and the negatives of those terms.
Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Also, forward-looking statements represent our managements plans, estimates, assumptions and
beliefs only as of the date of this report. Except as required by law, we assume no obligation to
update these forward-looking statements publicly or to update the reasons actual results could
differ materially from those anticipated in these forward-looking statements, even if new
information becomes available in the future.
 Except as otherwise indicated, all share and per share information referenced in this report
has been adjusted to reflect the one-for-two reverse split of our common stock that occurred on
September 20, 2010.
 As used herein, except as otherwise indicated by context, references to we, us, our, or
the Company refer to SciQuest, Inc.
 Overview
      16




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##### Table of Contents



Key Financial Terms and Metrics
 Managements Discussion and Analysis of Financial
Condition and Results of OperationsKey Financial Terms and Metrics
 Critical Accounting Policies
   
    
    revenue recognition;
 
    
    stock-based compensation;
 
    
    deferred project costs;
 
    
    goodwill; and
 
    
    income taxes.
   17




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##### Table of Contents



Results of Operations
  Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    10,771
    
    
    $
    9,049
    
    
    $
    31,459
    
    
    $
    26,455Cost of revenues (1)(2)
    
    
    2,329
    
    
    
    1,879
    
    
    
    6,776
    
    
    
    5,627Gross profit
    
    
    8,442
    
    
    
    7,170
    
    
    
    24,683
    
    
    
    20,828Operating expenses: (1)Research and development
    
    
    2,173
    
    
    
    1,968
    
    
    
    6,092
    
    
    
    6,328Sales and marketing
    
    
    2,815
    
    
    
    2,528
    
    
    
    8,784
    
    
    
    7,874General and administrative
    
    
    1,471
    
    
    
    805
    
    
    
    4,106
    
    
    
    2,750Management bonus plan associated with initial
public offering
    
    
    5,888
    
    
    
    
    
    
    
    5,888
    
    
    
    Litigation settlement and associated legal expenses
    
    
    
    
    
    
    3,089
    
    
    
    
    
    
    
    3,189Amortization of intangible assets
    
    
    75
    
    
    
    101
    
    
    
    226
    
    
    
    302Total operating expenses
    
    
    12,422
    
    
    
    8,491
    
    
    
    25,096
    
    
    
    20,443(Loss) income from operations
    
    
    (3,980
    )
    
    
    (1,321
    )
    
    
    (413
    )
    
    
    385Interest and other income net
    
    
    29
    
    
    
    
    
    
    
    1,718
    
    
    
    31(Loss) income before income taxes
    
    
    (3,951
    )
    
    
    (1,321
    )
    
    
    1,305
    
    
    
    416Income tax benefit (expense)
    
    
    1,486
    
    
    
    
    
    
    
    (566
    )
    
    
    Net (loss) income
    
    $
    (2,465
    )
    
    $
    (1,321
    )
    
    $
    739
    
    
    $
    416
 (1)
    
    Amounts include stock based compensation expense, as follows: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenues
    
    $
    21
    
    
    $
    10
    
    
    $
    52
    
    
    $
    28Research and
development
    
    
    22
    
    
    
    21
    
    
    
    197
    
    
    
    63Sales and marketing
    
    
    21
    
    
    
    22
    
    
    
    139
    
    
    
    59General and
administrative
    
    
    85
    
    
    
    39
    
    
    
    517
    
    
    
    127$
    149
    
    
    $
    92
    
    
    $
    905
    
    
    $
    277
 (2)
    
    Cost of revenues includes amortization of capitalized software development costs of: Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Amortization of capitalized software development costs:
    
    $
    70
    
    
    $
    39
    
    
    $
    167
    
    
    $
    125
  18




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of revenues
    
    
    22
    
    
    
    21
    
    
    
    21
    
    
    
    21Gross profit
    
    
    78
    
    
    
    79
    
    
    
    79
    
    
    
    79Operating expenses:Research and development
    
    
    20
    
    
    
    22
    
    
    
    19
    
    
    
    24Sales and marketing
    
    
    26
    
    
    
    28
    
    
    
    28
    
    
    
    30General and administrative
    
    
    13
    
    
    
    9
    
    
    
    13
    
    
    
    10Management bonus plan associated with initial
public offering
    
    
    55
    
    
    
    
    
    
    
    19
    
    
    
    Litigation settlement and associated legal expenses
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    12Amortization of intangible assets
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Total operating expenses
    
    
    115
    
    
    
    94
    
    
    
    80
    
    
    
    77(Loss) income from operations
    
    
    (37
    )
    
    
    (15
    )
    
    
    (1
    )
    
    
    2Interest and other income, net
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    (Loss) income before income taxes
    
    
    (37
    )
    
    
    (15
    )
    
    
    4
    
    
    
    2Income tax benefit (expense)
    
    
    14
    
    
    
    
    
    
    
    (2
    )
    
    
    Net (loss) income
    
    
    -23
    %
    
    
    -15
    %
    
    
    2
    %
    
    
    2
    %
 Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
 Revenues.
 Cost of Revenues.
 Research and Development Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
  19




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Management Bonus Plan Associated with Initial Public Offering.
 Litigation and Settlement and Associated Legal Expenses.
 Amortization of Intangible Assets.
 Income (Loss) from Operations.
 Income Tax Benefit.
 Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
 Revenues.
 Cost of Revenues.
 Research and Development Expenses.
 Sales and Marketing Expenses.
  20




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##### Table of Contents



General and Administrative Expenses.
 Management Bonus Plan Associated with Initial Public Offering.
 Litigation and Settlement and Associated Legal Expenses.
 Amortization of Intangible Assets.
 Income (Loss) from Operations.
 Interest and Other Income.
 Income Tax Expense.
 Liquidity
 Net Cash Flows from Operating Activities
   21




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##### Table of Contents



Net Cash Flows from Investing Activities
  Net Cash Flows from Financing Activities
  Line of Credit
  Off-Balance Sheet Arrangements
  Capital Resources
   22




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##### Table of Contents



Contractual and Commercial Commitment Summary
 Managements Discussion and
Analysis of Financial Condition and Results of OperationsContractual and Commercial Commitment
Summary
 Seasonality
  New Accounting Pronouncements
   23




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk.
  Interest Rate Sensitivity.
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
   24




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##### Table of Contents



SCIQUEST, INC.
 
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Sales of Unregistered Securities
  Number of
    
    
    Per ShareDate of Issuance
    
    Shares Issued
    
    
    Exercise PriceAugust 12, 2010
    
    
    875
    
    
    $
    2.04August 19, 2010
    
    
    625
    
    
    $
    1.90
  Use of Proceeds from Public Offering of Common Stock
   25




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. (REMOVED AND RESERVED)
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    
    Second Amended and Restated Certificate of Incorporation of SciQuest, Inc. (incorporated by
reference herein from Exhibit 3.1 to Amendment No. 5 to the Companys Registration
Statement on Form S-1 (Registration No. 333-165720), as filed with the Commission on
September 2, 2010)3.2
    
    
    Amended and Restated Bylaws of SciQuest, Inc. (incorporated by reference herein from
Exhibit 3.2 to Amendment No. 4 to the Companys Registration Statement on Form S-1
(Registration No. 333-165720), as filed with the Commission on August 5, 2010)31.1
    *
    
    Rule 13a-14(a)/15d-14(a) Certification, executed by Stephen J. Wiehe, President, Chief
Executive Officer and Director of SciQuest.31.2
    *
    
    Rule 13a-14(a)/15d-14(a) Certification, executed by Rudy C. Howard, Chief Financial Officer
of SciQuest.32.1
    **
    
    Section 1350 Certification, executed by Stephen J. Wiehe, President, Chief Executive
Officer and Director of SciQuest.32.2
    **
    
    Section 1350 Certification, executed by Rudy C. Howard, Chief Financial Officer of SciQuest.
 
 *
    
    Filed herewith.**
    
    Furnished herewith.  26




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##### Table of Contents



SCIQUEST, INC.
 
 SIGNATURE
  SCIQUEST, INC.
(Registrant)By:
    /s/ Rudy C. HowardRudy C. HowardChief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 12, 2010  27