##### 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 March 31, 2011
 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)
 
 Yes þ No 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)
 Yes o No þ




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##### 



SCIQUEST, INC.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 2011
TABLE OF CONTENTS
 PagesPART I. FINANCIAL INFORMATIONITEM 1. CONSOLIDATED FINANCIAL STATEMENTSBalance Sheets as of March 31, 2011 (unaudited) and December 31, 2010
    
    
    2Statements of Operations for the three months ended March 31, 2011 and 2010 (unaudited)
    
    
    3Statement of Stockholders Equity for the three months ended March 31, 2011 (unaudited)
    
    
    4Statements of Cash Flows for the three months ended March 31, 2011 and 2010 (unaudited)
    
    
    5Notes to Consolidated 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
    
    
    21ITEM 4. CONTROLS AND PROCEDURES
    
    
    21PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    22ITEM 1A. RISK FACTORS
    
    
    22ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    22ITEM 5. OTHER INFORMATION
    
    
    22ITEM 6. EXHIBITS
    
    
    22SIGNATURES
    
    
    23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    CONSOLIDATED FINANCIAL STATEMENTS
 SciQuest, Inc.
 
 Consolidated Balance Sheets
 (in thousands except share and per share amounts)
 As of
    
    
    As ofMarch 31,
    
    
    December 31,2011
    
    
    2010(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,519
    
    
    $
    17,494Short-term investments
    
    
    21,790
    
    
    
    20,000Accounts receivable, net
    
    
    5,799
    
    
    
    6,400Prepaid expenses and other current assets
    
    
    1,229
    
    
    
    1,297Deferred tax asset
    
    
    236
    
    
    
    207Total current assets
    
    
    38,573
    
    
    
    45,398Property and equipment, net
    
    
    2,342
    
    
    
    1,993Goodwill
    
    
    15,719
    
    
    
    6,765Intangible assets, net
    
    
    6,215
    
    
    
    1,039Deferred project costs
    
    
    5,518
    
    
    
    5,667Deferred tax asset
    
    
    14,410
    
    
    
    15,675Other
    
    
    550
    
    
    
    150Total assets
    
    $
    83,327
    
    
    $
    76,687Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    90
    
    
    $
    51Accrued liabilities
    
    
    3,508
    
    
    
    4,200Deferred revenues
    
    
    29,280
    
    
    
    28,305Total current liabilities
    
    
    32,878
    
    
    
    32,556Deferred revenues, less current portion
    
    
    10,519
    
    
    
    9,896Commitments and contingenciesStockholders EquityCommon stock, $0.001 par value; 50,000,000
shares authorized; 20,911,238 and
20,532,443 shares issued and outstanding as
of March 31, 2011 and December 31, 2010,
respectively
    
    
    21
    
    
    
    20Additional paid-in capital
    
    
    55,727
    
    
    
    50,462Notes receivable from stockholders
    
    
    (10
    )
    
    
    (15
    )Accumulated deficit
    
    
    (15,808
    )
    
    
    (16,232
    )Total stockholders equity
    
    
    39,930
    
    
    
    34,235Total liabilities and stockholders equity
    
    $
    83,327
    
    
    $
    76,687
 The accompanying notes are an integral part of the financial statements.
  2




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SciQuest, Inc.
 
 Consolidated Statements of Operations
 (in thousands except per share amounts)
 Three Months Ended March 31,2011
    
    
    2010(unaudited)Revenues
    
    $
    12,524
    
    
    $
    10,126Cost of revenues
    
    
    2,827
    
    
    
    2,109Gross profit
    
    
    9,697
    
    
    
    8,017Operating expenses:Research and development
    
    
    2,753
    
    
    
    2,037Sales and marketing
    
    
    3,784
    
    
    
    3,138General and administrative
    
    
    2,116
    
    
    
    1,380Amortization of intangible assets
    
    
    209
    
    
    
    76Total operating expenses
    
    
    8,862
    
    
    
    6,631Income from operations
    
    
    835
    
    
    
    1,386Other income (expense):Interest income
    
    
    23
    
    
    
    7Other income, net
    
    
    13
    
    
    
    1,680Total other income, net
    
    
    36
    
    
    
    1,687Income before income taxes
    
    
    871
    
    
    
    3,073Income tax expense
    
    
    (447
    )
    
    
    (1,143
    )Net income
    
    
    424
    
    
    
    1,930Dividends on redeemable preferred stock
    
    
    
    
    
    
    671Net income attributable to common stockholders
    
    $
    424
    
    
    $
    1,259Net income attributable to common stockholders per share:Basic
    
    $
    0.02
    
    
    $
    0.09Diluted
    
    $
    0.02
    
    
    $
    0.09Weighted average shares outstanding used in computing
per share amounts:Basic
    
    
    20,679
    
    
    
    14,078Diluted
    
    
    21,334
    
    
    
    14,648
 The accompanying notes are an integral part of the financial statements.
  3




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SciQuest, Inc.
 
 Consolidated Statement of Stockholders Equity
 (unaudited)
 (in thousands except share amounts)
 TotalCommon Stock
    
    
    Additional Paid-In
    
    
    Notes Receivable
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    from Stockholders
    
    
    Deficit
    
    
    EquityBalance as of December 31, 2010
    
    
    20,532,443
    
    
    $
    20
    
    
    $
    50,462
    
    
    $
    (15
    )
    
    $
    (16,232
    )
    
    $
    34,235Exercise of common stock options
    
    
    27,664
    
    
    
    1
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    25Issuance of stock in connection
with business acquisition
    
    
    325,203
    
    
    
    
    
    
    
    4,539
    
    
    
    
    
    
    
    
    
    
    
    4,539Exercise of warrants
    
    
    25,928
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments on notes receivable
from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    702
    
    
    
    
    
    
    
    
    
    
    
    702Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    424
    
    
    
    424Balance as of March 31, 2011
    
    
    20,911,238
    
    
    $
    21
    
    
    $
    55,727
    
    
    $
    (10
    )
    
    $
    (15,808
    )
    
    $
    39,930
 The accompanying notes are an integral part of the financial statements.
  4




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SciQuest, Inc.
 
 Consolidated Statements of Cash Flows
 (in thousands)
 Three Months Ended March 31,2011
    
    
    2010(unaudited)Cash flows from operating activitiesNet income
    
    $
    424
    
    
    $
    1,930Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    491
    
    
    
    262Gain on sale of investment
    
    
    
    
    
    
    (1,700
    )Stock-based compensation expense
    
    
    702
    
    
    
    608Deferred taxes
    
    
    539
    
    
    
    1,085Changes in operating assets and liabilities, net of the effects of the acquisition:Accounts receivable
    
    
    1,432
    
    
    
    1,993Prepaid expenses and other current assets
    
    
    242
    
    
    
    207Deferred project costs and other assets
    
    
    (117
    )
    
    
    (540
    )Accounts payable
    
    
    39
    
    
    
    216Accrued liabilities and other
    
    
    (1,216
    )
    
    
    (559
    )Deferred revenues
    
    
    (764
    )
    
    
    (3,134
    )Net cash provided by operating activities
    
    
    1,772
    
    
    
    368Cash flows from investing activitiesBusiness acquisition, net of cash acquired
    
    
    (7,346
    )
    
    
    Addition of capitalized software development costs
    
    
    (195
    )
    
    
    (202
    )Purchase of property and equipment
    
    
    (312
    )
    
    
    (102
    )Purchase of available-for-sale short-term investments
    
    
    (1,790
    )
    
    
    Proceeds from sale of investment
    
    
    
    
    
    
    1,700Restricted cash
    
    
    
    
    
    
    350Net cash (used in) provided by investing activities
    
    
    (9,643
    )
    
    
    1,746Cash flows from financing activitiesPublic offering costs
    
    
    (134
    )
    
    
    Issuance of common and restricted stock
    
    
    
    
    
    
    39Repurchases of restricted stock
    
    
    
    
    
    
    (273
    )Repayment of notes payable
    
    
    
    
    
    
    (350
    )Collection of notes receivable from stockholders
    
    
    5
    
    
    
    4Proceeds from exercise of common stock options
    
    
    25
    
    
    
    3Net cash used in financing activities
    
    
    (104
    )
    
    
    (577
    )Net (decrease) increase in cash and cash equivalents
    
    
    (7,975
    )
    
    
    1,537Cash and cash equivalents at beginning of period
    
    
    17,494
    
    
    
    17,132Cash and cash equivalents at end of period
    
    $
    9,519
    
    
    $
    18,669Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    
    
    
    $
    2Supplemental disclosure of non-cash flow informationDividends on redeemable preferred stock
    
    $
    
    
    
    $
    671
 The accompanying notes are an integral part of the financial statements.
  5




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SciQuest, Inc.
 
 Notes to Consolidated Financial Statements
 (In thousands except share and per share amounts)
 1. Description of Business
  2. Summary of Significant Accounting Policies
 Basis of presentation
  Principles of Consolidation
  Use of Estimates
  Revenue Recognition
     6




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Cost of Revenues
  Deferred Project Costs
  Cash and Cash Equivalents
  Short-Term Investments
   7




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##### Table of Contents



Accounts Receivable
  Property and Equipment
  Software Development Costs
   Goodwill
  Stock-Based Compensation
   Segment Data
   8




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Income Per Share
   Three Months Ended March 31,2011
    
    
    2010Basic:Net income
    
    $
    424
    
    
    $
    1,930Less: Dividends on redeemable preferred stock
    
    
    
    
    
    
    (671
    )Net income attributable to common stockholders
    
    $
    424
    
    
    $
    1,259Weighted average common shares, basic
    
    
    20,679,416
    
    
    
    14,077,821Basic net income attributable to common
stockholders per share
    
    $
    0.02
    
    
    $
    0.09Diluted:Net income attributable to common stockholders
    
    $
    424
    
    
    $
    1,259Weighted average common shares, basic
    
    
    20,679,416
    
    
    
    14,077,821Dilutive effect of:Options to purchase common stock
    
    
    507,445
    
    
    
    302,179Warrants to purchase common stock
    
    
    
    
    
    
    218,283Nonvested shares of restricted stock
    
    
    147,107
    
    
    
    49,741Weighted average common shares, diluted
    
    
    21,333,968
    
    
    
    14,648,024Diluted net income attributable to common
stockholders per share
    
    $
    0.02
    
    
    $
    0.09
  Income Taxes
    3. Business Combinations
    9




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Cash
    
    $
    9,256Fair value of common stock
    
    
    4,539Total purchase consideration
    
    $
    13,795Cash acquired
    
    
    1,910Net purchase consideration
    
    $
    11,885
   Estimated
    
    
    EstimatedUseful Life
    
    
    Fair ValueAccounts receivable
    
    
    
    
    
    $
    831Prepaid expenses and other current assets
    
    
    
    
    
    
    174Property and equipment
    
    
    
    
    
    
    82Deferred tax asset
    
    
    
    
    
    
    1,414Covenant not to compete
    
    5 years
    
    
    51Acquired technology
    
    7 years
    
    
    1,176Customer relationships
    
    10 years
    
    
    4,200Goodwill
    
    
    
    
    
    
    8,954Accrued expenses
    
    
    
    
    
    
    (524
    )Deferred tax liability
    
    
    
    
    
    
    (2,111
    )Deferred revenues
    
    
    
    
    
    
    (2,362
    )Total purchase consideration
    
    
    
    
    
    $
    11,885
  For the ThreeMonths EndedMarch 31, 2010Pro forma revenue
    
    $
    11,204Pro forma net income
    
    $
    1,626Pro forma net income per share, basic
    
    $
    0.11Pro forma net income per share, diluted
    
    $
    0.11
  10




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##### Table of Contents



4. Cash Equivalents and Short-Term Investments
  March 31, 2011
    
    
    December 31, 2010Fair Market
    
    
    
    
    
    
    Fair MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueCash Equivalents
    
    $
    7,209
    
    
    $
    7,209
    
    
    $
    8,755
    
    
    $
    8,755Short-term investments
    
    
    21,790
    
    
    
    21,790
    
    
    
    20,000
    
    
    
    20,000Total
    
    $
    28,999
    
    
    $
    28,999
    
    
    $
    28,755
    
    
    $
    28,755
  5. Fair Value Measurements
  
    
    Level 1  Valuations based on quoted prices in active markets for identical
instruments that the Company is able to access. Since valuations are based on quoted
prices that are readily and regularly available in an active market, valuation of these
products does not entail a significant degree of judgment.
 
    
    Level 2  Valuations based on quoted prices in active markets for instruments that
are similar, or quoted prices in markets that are not active for identical or similar
instruments, and model-derived valuations in which all significant input and significant
value drivers are observable in active markets.
 
    
    Level 3  Valuations based on inputs that are unobservable and significant to the
overall fair value measurement.
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash Equivalents
    
    $
    7,209
    
    
    $
    7,209
    
    
    
    
    
    
    
    Short-term investments
    
    
    21,790
    
    
    
    21,790
    
    
    
    
    
    
    
    Total
    
    $
    28,999
    
    
    $
    28,999
    
    
    
    
    
    
    
    
 6. Property and Equipment
  As of
    
    
    As ofMarch 31,
    
    
    December 31,2011
    
    
    2010Furniture and equipment
    
    $
    838
    
    
    $
    605Computer software and equipment
    
    
    5,135
    
    
    
    4,821Leasehold improvements
    
    
    293
    
    
    
    251Total costs
    
    
    6,266
    
    
    
    5,677Less accumulated depreciation and amortization
    
    
    (3,924
    )
    
    
    (3,684
    )Property and equipment, net
    
    $
    2,342
    
    
    $
    1,993
  11




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7. Goodwill and Other Intangible Assets
   Balance as of December 31, 2010
    
    $
    6,765Goodwill acquired
    
    
    8,954Balance as of March 31, 2011
    
    $
    15,719
  March 31, 2011Weighted Average
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmortization Period
    
    
    Amount
    
    
    Amortization
    
    
    AmountAcquired technology
    
    7 years
    
    $
    9,276
    
    
    $
    (8,142
    )
    
    $
    1,134Customer relationships
    
    10 years
    
    
    9,400
    
    
    
    (4,798
    )
    
    
    4,602Covenant not to compete
    
    5 years
    
    
    51
    
    
    
    (2
    )
    
    
    49Trademarks
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    430Total
    
    
    
    
    
    $
    19,157
    
    
    $
    (12,942
    )
    
    $
    6,215
 December 31, 2010Weighted Average
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmortization Period
    
    
    Amount
    
    
    Amortization
    
    
    AmountAcquired technology
    
    
    
    
    
    $
    8,100
    
    
    $
    (8,100
    )
    
    $
    Customer relationships
    
    10 years
    
    
    5,200
    
    
    
    (4,591
    )
    
    
    609Covenant not to compete
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Trademarks
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    430Total
    
    
    
    
    
    $
    13,730
    
    
    $
    (12,691
    )
    
    $
    1,039
   2011 (remaining nine months)
    
    $
    7542012
    
    
    9782013
    
    
    9512014
    
    
    7982015
    
    
    607Thereafter
    
    
    1,697$
    5,785
  12




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8. Debt
  9. Stockholders Equity (Deficit)
 Stock Incentive Plan
   Restricted Stock
   Weighted-Average GrantNumber of Shares
    
    
    Date Fair ValueNonvested as of December 31, 2010
    
    
    174,288
    
    
    $
    1.66Issued
    
    
    
    
    
    
    Vested
    
    
    (21,753
    )
    
    
    1.69Nonvested as of March 31, 2011
    
    
    152,535
    
    
    $
    1.66
      13




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##### Table of Contents



Stock Options
  Weighted-
    
    
    AggregateAverage
    
    
    Intrinsic ValueWeighted-
    
    
    Remaining
    
    
    as ofNumber of Options
    
    
    Average
    
    
    Contractual
    
    
    March 31,Outstanding
    
    
    Exercise Price
    
    
    Term (In Years)
    
    
    2011 (Unaudited)Balance as of December 31, 2010
    
    
    733,651
    
    
    $
    2.76
    
    
    
    7.7
    
    
    $
    7,515Options granted
    
    
    418,524
    
    
    $
    13.50Options exercised
    
    
    (27,664
    )
    
    $
    0.88Options canceled
    
    
    (10,318
    )
    
    $
    8.48Balance as of March 31, 2011
    
    
    1,114,193
    
    
    $
    6.79
    
    
    
    8.5
    
    
    $
    8,617Vested and expected to vest at March 31, 2011
    
    
    967,525
    
    
    $
    6.41
    
    
    
    8.3
    
    
    $
    8,317Exercisable as of March 31, 2011
    
    
    380,853
    
    
    $
    1.95
    
    
    
    6.8
    
    
    $
    4,787
    Options Exercisable atOptions Outstanding at March 31, 2011
    
    
    March 31, 2011Weighted-AverageRemaining
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Range of
    
    
    
    
    
    Contractual Life
    
    
    Average
    
    
    
    
    
    
    AverageExercise Price
    
    Number
    
    
    (Yrs.)
    
    
    Exercise Price
    
    
    Number
    
    
    Exercise Price$0.08   $0.14
    
    
    150,115
    
    
    
    4.5
    
    
    $
    0.10
    
    
    
    149,113
    
    
    $
    0.10$0.14   $1.90
    
    
    15,540
    
    
    
    7.8
    
    
    
    1.50
    
    
    
    9,351
    
    
    
    1.23$2.04   $3.16
    
    
    426,514
    
    
    
    8.3
    
    
    
    2.16
    
    
    
    194,552
    
    
    
    2.12$8.18  $12.91
    
    
    102,000
    
    
    
    9.2
    
    
    
    9.21
    
    
    
    13,591
    
    
    
    8.18$13.00  $16.02
    
    
    420,024
    
    
    
    9.9
    
    
    
    13.50
    
    
    
    14,246
    
    
    
    13.46Total
    
    
    1,114,193
    
    
    
    7.7
    
    
    $
    6.79
    
    
    
    380,853
    
    
    $
    1.95
  Three Months Ended March 31,2011
    
    
    2010Estimated dividend yield
    
    
    0
    %
    
    
    0
    %Expected stock price volatility
    
    
    90.00
    %
    
    
    100.00
    %Weighted-average risk-free interest rate
    
    
    2.4
    %
    
    
    2.6
    %Expected life of options (in years)
    
    
    6.25
    
    
    
    6.25
    14




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##### Table of Contents



Warrants
  10. Income Taxes
  11. Commitments and Contingencies
 Legal Contingencies
   Warranties and Indemnification
   12. Subsequent Event
 Secondary Offering
   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
   Key Financial Terms and Metrics
 Managements Discussion and Analysis of Financial
Condition and Results of OperationsFinancial Terms and Metrics
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Critical Accounting Policies
   
    
    revenue recognition;
 
    
    stock-based compensation;
 
    
    deferred project costs;
 
    
    goodwill; and
 
    
    income taxes.
 Critical Accounting
Policies
 Results of Operations
  Three Months Ended March 31,2011
    
    
    2010Revenues
    
    $
    12,524
    
    
    $
    10,126Cost of revenues (1) (2)
    
    
    2,827
    
    
    
    2,109Gross profit
    
    
    9,697
    
    
    
    8,017Operating expenses: (1)Research and development
    
    
    2,753
    
    
    
    2,037Sales and marketing
    
    
    3,784
    
    
    
    3,138General and administrative
    
    
    2,116
    
    
    
    1,380Amortization of intangible assets
    
    
    209
    
    
    
    76Total operating expenses
    
    
    8,862
    
    
    
    6,631Income from operations
    
    
    835
    
    
    
    1,386Interest and other income, net
    
    
    36
    
    
    
    1,687Income before income taxes
    
    
    871
    
    
    
    3,073Income tax expense
    
    
    (447
    )
    
    
    (1,143
    )Net income
    
    $
    424
    
    
    $
    1,930
 (1)
    
    Amounts include stock based compensation expense, as follows:
 Three Months Ended March 31,2011
    
    
    2010Cost of revenues
    
    $
    47
    
    
    $
    11Research and development
    
    
    242
    
    
    
    153Sales and marketing
    
    
    266
    
    
    
    97General and administrative
    
    
    147
    
    
    
    347$
    702
    
    
    $
    608
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(2)
    
    Cost of revenues includes amortization of capitalized software development costs of:
 Three Months Ended March 31,2011
    
    
    2010Amortization of capitalized software development costs
    
    $
    72
    
    
    $
    48Amortization of acquired software
    
    
    42
    
    
    
    $
    114
    
    
    $
    48
  Three Months Ended March 31,2011
    
    
    2010Revenues
    
    
    100
    %
    
    
    100
    %Cost of revenues (1) (2)
    
    
    23
    
    
    
    21Gross profit
    
    
    77
    
    
    
    79Operating expenses: (1)Research and development
    
    
    22
    
    
    
    20Sales and marketing
    
    
    30
    
    
    
    31General and administrative
    
    
    17
    
    
    
    14Amortization of intangible assets
    
    
    1
    
    
    
    1Total operating expenses
    
    
    70
    
    
    
    66Income from operations
    
    
    7
    
    
    
    13Interest and other income, net
    
    
    
    
    
    
    17Income before income taxes
    
    
    7
    
    
    
    30Income tax expense
    
    
    (4
    )
    
    
    (11
    )Net income
    
    
    3
    %
    
    
    19
    %
 Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
 Revenues.
 Cost of Revenues.
 Research and Development Expenses.
 Sales and Marketing Expenses.
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General and Administrative Expenses.
 Amortization of Intangible Assets.
 Interest and Other Income.
 Income Tax Expense.
 Liquidity
 Net Cash Flows from Operating Activities
     Net Cash Flows from Investing Activities
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Net Cash Flows from Financing Activities
   Off-Balance Sheet Arrangements
  Capital Resources
     Contractual and Commercial Commitment Summary
 Managements Discussion and
Analysis of Financial Condition and Results of OperationsContractual and Commercial Commitment
Summary
 Seasonality
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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
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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
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  ITEM 4.
    
    (REMOVED AND RESERVED)
 
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 ExhibitNumber
    
    Description31.1
    *
    
    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.
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SCIQUEST, INC.
 
 SIGNATURE
  SCIQUEST, INC.
(Registrant)By:
    /s/ Rudy C. HowardRudy C. HowardChief Financial Officer

(Principal Financial and Accounting Officer)   23