UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q


(Mark
One)


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





For
the quarterly period ended March 31, 2010 or





 ̈
            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: 000-51560


_____________________





Sajan,
Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            41-1881957(State
      of incorporation)
            (I.R.S.
      Employer Identification No.)625
      Whitetail Blvd., River Falls, Wisconsin
            54022(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code: (715) 426-9505





MathStar,
Inc.


19705 NW
Tanasbourne, Suite 200, Hillsboro, Oregon 97124


____________________________





(Former name, former address
and former fiscal year, if changed since last report)





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 the filing
requirements for the past 90 days. x
Yes    ̈
No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, 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    ̈
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 definition of “accelerated filer,” large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
accelerated filer  ̈     Accelerated
filer  ̈     Non-accelerated
filer  ̈Smaller
reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  ̈
Yes   x
No





As of
April 30, 2010, the registrant had 16,009,331 shares of common stock, $0.01 par
value per share, outstanding.





Sajan,
Inc.





Table
of Contents





PagePART
      I. FINANCIAL INFORMATIONItem
      1. Financial Statements
                      
                      2Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                      
                      19Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                      
                      29Item
      4T. Controls and Procedures
                      
                      29PART
      II. OTHER INFORMATIONItem
      1. Legal Proceedings
                      
                      31Item
      1A. Risk Factors
                      
                      31Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                      
                      31Item
      3. Defaults Upon Senior Securities
                      
                      31Item
      4. Reserved
                      
                      31Item
      5. Other Information
                      
                      31Item
      6. Exhibits
                      
                      32SIGNATURES
                      
                      34





PART
I. FINANCIAL INFORMATION





Item
1.  Financial Statements.





Sajan,
Inc., Subsidiaries and Affiliate (River Valley Business Center, LLC) (1)


CONDENSED
CONSOLIDATED BALANCE SHEETS





March 31, 2010
                  (Unaudited)
                
                
                December 31, 2009AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                3,834,618
                
                
                $
                120,493Restricted
      cash
                
                
                1,000,000
                
                
                
                -Accounts
      receivable, net of allowance of $10,000
                
                
                2,340,642
                
                
                
                2,871,005Deferred
      tax asset, net of allowance
                
                
                680,336
                
                
                
                660,170Unbilled
      services
                
                
                289,000
                
                
                
                256,697Prepaid
      expenses and other current assets
                
                
                121,258
                
                
                
                38,534Total
      current assets
                
                
                8,265,854
                
                
                
                3,946,899Property
      and equipment, net
                
                
                747,036
                
                
                
                3,349,556Other
      assets:Intangible
      assets, net
                
                
                296,908
                
                
                
                336,983Capitalized
      software development costs, net
                
                
                773,111
                
                
                
                877,117Other
      assets, net
                
                
                14,481
                
                
                
                24,294Total
      other assets
                
                
                1,084,500
                
                
                
                1,238,394Total
      assets
                
                $
                10,097,390
                
                
                $
                8,534,849Liabilities
      and  Stockholders’ EquityCurrent
      liabilities:Checks
      issued in excess of bank balance
                
                $
                -
                
                
                $
                113,048Current
      portion of capital lease obligations
                
                
                5,033
                
                
                
                10,514Current
      portion of long-term debt
                
                
                -
                
                
                
                105,159Note
      payable – related party
                
                
                1,000,000
                
                
                
                292,973Note
      payable – indemnification escrow
                
                
                1,000,000
                
                
                
                -Line
      of credit
                
                
                -
                
                
                
                1,000,000Accounts
      payable
                
                
                1,326,118
                
                
                
                901,213Accrued
      interest – related party
                
                
                7,890
                
                
                
                23,415Accrued
      compensation and benefits
                
                
                516,323
                
                
                
                505,084Other
      accrued liabilities
                
                
                1,122,979
                
                
                
                747,671Deferred
      revenue
                
                
                353,237
                
                
                
                336,458Total
      current liabilities
                
                
                5,331,580
                
                
                
                4,035,535Long-term
      liabilities:Long-term
      debt, net of current portion
                
                
                -
                
                
                
                2,412,194Lease
      obligations and other long-term liabilities
                
                
                135,673
                
                
                
                -Tax
      liability – uncertain tax position
                
                
                19,687
                
                
                
                19,687Deferred
      tax liability – long-term
                
                
                563,845
                
                
                
                605,497Total
      long-term liabilities
                
                
                719,205
                
                
                
                3,037,378Total
      liabilities
                
                
                6,059,785
                
                
                
                7,072,913Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, $.01 par value, 10,000,000 shares authorized and no shares issued
      and outstanding
                
                
                -
                
                
                
                -Common
      stock, $.01 par value, 18,000,000 shares authorized, 16,009,331 and
      5,686,250 issued and outstanding
                
                
                160,094
                
                
                
                56,863Additional
      paid-in capital
                
                
                6,124,946
                
                
                
                1,919,161Accumulated
      deficit
                
                
                (2,204,602
                )
                
                
                (709,393
                )Accumulated
      other comprehensive loss:Foreign
      currency adjustment
                
                
                (28,112
                )
                
                
                (22,896
                )Stockholders’
      equity
                
                
                4,052,326
                
                
                
                1,243,735Non-controlling
      interest in subsidiary
                
                
                (5,721
                )
                
                
                (3,075
                )Non-controlling
      interest in equity affiliate(River
      Valley Business Center, LLC)
                
                
                -
                
                
                
                221,276Total
      equity
                
                
                4,046,605
                
                
                
                1,461,936Total
      liabilities and stockholders’ equity
                
                $
                10,097,390
                
                
                $
                8,534,849





See
notes to condensed consolidated financial statements.


__________________





(1)
            MathStar
      and Sajan consolidated as of February 24,
  2010.


River
Valley Business Center, LLC deconsolidated as of February 23, 2010.


Sajan
India Software Private Limited consolidated as of June 1, 2009.


2





Sajan,
Inc., Subsidiaries and Affiliate (River Valley Business Center, LLC) (1)


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)





Three months endedMarch 31, 2010
                
                
                March 31, 2009Revenues:Translation
      and consulting income
                
                $
                2,761,835
                
                
                $
                2,769,134Technology
      income
                
                
                301,706
                
                
                
                223,560Product
      income
                
                
                61,205
                
                
                
                8,560Other
      income
                
                
                15,456
                
                
                
                16,786Total
      revenues
                
                
                3,140,202
                
                
                
                3,018,040Cost
      of revenuesCost
      of revenues (exclusive of amortization and depreciation of $245,100 and
      $184,187 included in general and administrative below)
                
                
                1,761,503
                
                
                
                1,682,393Gross
      margin
                
                
                1,378,699
                
                
                
                1,335,647Operating
      expenses:Sales
      and marketing
                
                
                810,944
                
                
                
                934,342Research
      and development
                
                
                568,586
                
                
                
                133,221General
      and administrative
                
                
                1,494,732
                
                
                
                521,817Total
      operating expenses
                
                
                2,874,262
                
                
                
                1,589,380Loss
      from operations
                
                
                (1,495,563
                )
                
                
                (253,733
                )Other
      income (expense):Interest
      expense
                
                
                (45,988
                )
                
                
                (51,578
                )Interest
      and other income
                
                
                2,038
                
                
                
                186Other
      expense
                
                
                (16,088
                )
                
                
                (4,816
                )Total
      other income (expense)
                
                
                (60,038
                )
                
                
                (56,208
                )Net
      loss before income taxes and non-controlling interests in subsidiary and
      affiliate
                
                
                (1,555,601
                )
                
                
                (309,941
                )Income
      tax benefit
                
                
                (62,311
                )
                
                
                (68,187
                )Net
      loss before non-controlling interest
                
                
                (1,493,290
                )
                
                
                (241,754
                )Less
      Non-controlling interest in subsidiary
                
                
                2,646
                
                
                
                -Less
      Non-controlling interest in affiliate (River Valley Business
      Center)
                
                
                (4,565
                )
                
                
                (38,234
                )Net
      loss attributable to Sajan, Inc. and subsidiaries
                
                $
                (1,495,209
                )
                
                $
                (203,520
                )Loss
      per common share – Basic and diluted
                
                $
                (0.13
                )
                
                $
                (0.04
                )Weighted
      average shares outstanding – Basic and diluted
                
                
                11,912,631
                
                
                
                5,686,250





See
notes to condensed consolidated financial statements.


__________________





(1)
            MathStar
      and Sajan consolidated as of February 24,
  2010.


River
Valley Business Center, LLC deconsolidated as of February 23, 2010.


Sajan
India Software Private Limited consolidated as of June 1, 2009.


3


Sajan,
Inc., Subsidiaries and Affiliate (River Valley Business Center, LLC) (1)


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)





Three months endedMarch 31, 2010
                
                
                March 31, 2009Cash
      flows from operating activities:Net
      loss
                
                $
                (1,493,290
                )
                
                $
                (241,754
                )Adjustments
      to reconcile net loss to net cash from operating
      activities:Amortization
      of capitalized software costs
                
                
                134,661
                
                
                
                106,136Amortization
      of license costs and debt issuance costs
                
                
                40,218
                
                
                
                10,765Depreciation
                
                
                70,220
                
                
                
                67,525Stock-based
      compensation expense
                
                
                370,546
                
                
                
                15,994Deferred
      taxes
                
                
                (61,818
                )
                
                
                (68,187
                )Decrease
      (increase) in current assets:Accounts
      receivable
                
                
                394,690
                
                
                
                527,282Prepaid
      expenses and other current assets
                
                
                (74,647
                )
                
                
                (56,998
                )Increase
      (decrease) in current liabilities:Accounts
      payable
                
                
                454,139
                
                
                
                (171,881
                )Accrued
      interest – related party
                
                
                7,921
                
                
                
                -Accrued
      compensation and benefits
                
                
                11,239
                
                
                
                198,463Other
      accrued liabilities
                
                
                (497,223
                )
                
                
                12,565Change
      in unbilled services
                
                
                (32,302
                )
                
                
                -Deferred
      revenue
                
                
                16,779
                
                
                
                (27,742
                )Net
      cash flows provided by (used in) operating activities
                
                
                (658,867
                )
                
                
                372,168Cash
      flows from investing activities:Purchases
      of property and equipment
                
                
                (24,365
                )
                
                
                (40,010
                )Capitalized
      software development costs
                
                
                (30,655
                )
                
                
                (111,064
                )Cash
      acquired in Merger transaction
                
                
                5,472,000
                
                
                
                -Deconsolidation
      of affiliate
                
                
                (98,730
                )
                
                
                -Net
      cash flows provided by (used in) investing activities
                
                
                5,318,250
                
                
                
                (151,074
                )Cash
      flows from financing activities:Checks
      issued in excess of cash
                
                
                (113,048
                )
                
                
                -Net
      (payments) proceeds on line of credit
                
                
                -
                
                
                
                (50,000
                )Payments
      on note payable – related party
                
                
                (285,645
                )
                
                
                (17,710
                )Payments
      on merger costs
                
                
                (540,254
                )
                
                
                -Payments
      on capital lease obligation
                
                
                (5,481
                )
                
                
                (13,071
                )Payments
      on mortgage long-term liability
                
                
                (14,571
                )
                
                
                (21,360
                )Net
      cash flows used in financing activities
                
                
                (958,999
                )
                
                
                (102,141
                )Net
      increase in cash and cash equivalents
                
                
                3,700,384
                
                
                
                118,953Effect
      of exchange rate changes in cash
                
                
                13,741
                
                
                
                -Cash
      and cash equivalents – beginning of period
                
                
                120,493
                
                
                
                381,501Cash
      and cash equivalents – end of period
                
                $
                3,834,618
                
                
                $
                500,454Cash
      paid for interest, net of amortization of loan fees
                
                $
                66,933
                
                
                $
                51,340Non-cash
      investing and financing transactions:Note
      payable – related party acquired in Merger
                
                $
                1,000,000
                
                
                $
                -Short-term
      note payable – indemnification escrow and restricted cashacquired
      in Merger
                
                $
                1,000,000
                
                
                $
                -Reduction
      in line of credit via Merger transaction
                
                $
                1,000,000
                
                
                $
                -Dissenter
      accrual acquired in Merger transaction
                
                $
                364,000
                
                
                $
                -





See
notes to condensed consolidated financial statements.





(1)
            MathStar
      and Sajan consolidated as of February 24,
  2010.


River
Valley Business Center, LLC deconsolidated as of February 23, 2010.


Sajan
India Software Private Limited consolidated as of June 1, 2009.


4


SAJAN,
INC. AND SUBSIDIARIES




NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





March 31,
2010 and 2009





1.
            Nature
      of Business and Summary of Significant Accounting
      Policies –





Nature of Business / Basis
of Presentation





Sajan,
Inc. originally organized as a Wisconsin corporation in March 1998, reorganized
as a Minnesota corporation in October 2001, and reorganized as a Delaware
corporation in February 2010 as part of the Merger (as such term is defined in
Note 2 to the Notes to Condensed Consolidated Financial Statements included in
this Quarterly Report on Form 10-Q).  Sajan, Inc. (the “Company” or
“Sajan”) provides language translation and technology solutions to companies
located throughout the world, particularly in the technology, consumer products,
medical and life sciences, financial services, manufacturing, government, and
retail industries that are selling products into global markets. The Company is
located in River Falls, Wisconsin.  In 2009, we established Sajan Software
Ltd (“Sajan Software”), which is based in Dublin, Ireland. This facility serves
as our global research and development center and as headquarters for our
product business. The European leadership team for our European services and our
company-wide product functions are based at this facility. Sajan India Software
Private Limited (“Sajan – India”), based in Delhi, India, houses our development
center at which we conduct substantially all of our software development
activities. Sajan-India is a majority-owned subsidiary of
Sajan-Ireland.





Interim Financial
Information




The
following condensed consolidated balance sheet as of December 31, 2009, which
has been derived from audited consolidated financial statements, and the
unaudited interim condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
(“GAAP”) and pursuant to the rules and regulations of the Securities and
Exchange Commission (the “SEC”) for interim financial information. Accordingly,
certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with GAAP have been omitted pursuant
to such rules and regulations. Operating results for the three months ended
March 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010 or any other period. The
accompanying consolidated financial statements and related notes should be read
in conjunction with the audited consolidated financial statements of the
Company, and notes thereto, contained in our Current Report on Form 8-K filed
with the SEC on February 24, 2010.  The financial information
furnished in this report is unaudited and reflects all adjustments which are
normal recurring adjustments and, which in the opinion of management, are
necessary to fairly present the results of the interim periods presented in
order to make the consolidated financial statements not misleading.





Principles of
Consolidation





The
accompanying consolidated financial statements include the accounts of Sajan,
Inc. and its wholly-owned subsidiary, Sajan Software, and majority-owned
subsidiary (94% ownership), Sajan - India, from the effective date of their
acquisition or formation during 2009. The non-controlling interest in subsidiary
on the consolidated balance sheets and consolidated statements of operations
represents the 6% of Sajan India  held by third parties. All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.





River
Valley Business Center, LLC (River Valley), is a limited liability company that
owns real estate leased to Sajan. River Valley is owned by Shannon Zimmerman and
Angela Zimmerman, each of whom is an executive officer and director of the
Company, and beneficial owners of the Company’s outstanding voting common stock.
Prior to the Merger, the consolidated financial statements included both Sajan,
its subsidiaries and River Valley (affiliate) based on a requirement for
variable interest entities to be consolidated by their primary beneficiary when
certain circumstances exist. The primary beneficiary is the entity that holds
the majority of the beneficial interests in the variable interest entity (VIE).
A VIE is a legal entity used for business purposes that either does not have
equity investors with voting rights or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. At
December 31, 2009 and up until the date of the Merger, Sajan was the primary
beneficiary of River Valley, requiring consolidation with the Company. All
significant intercompany accounts and transactions were eliminated in the
consolidation.





The
Merger is a reconsideration event for the lease between Sajan and River
Valley.  Based on the change in ownership, the Company is no longer
considered the primary beneficiary of the lease with River Valley. The pro forma
unaudited consolidated financial statements are presented with the
deconsolidation of the affiliate.  (See Note 2)


5




SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009


Accounts
Receivable





The
Company extends unsecured credit to customers in the normal course of business.
The Company provides an allowance for doubtful accounts when appropriate, the
amount of which is based upon a review of outstanding receivables, historical
collection information, and existing economic conditions, on an individual
customer basis. Normal accounts receivable are due 30 days after issuance of the
invoice. Receivables are written off only after all collection attempts have
failed, and are based on individual credit evaluation and specific circumstances
of the customer. Accounts receivable have been reduced by an allowance for
uncollectible accounts of approximately $10,000 at both March 31, 2010 and
December 31, 2009. Management believes all accounts receivables in excess of the
allowance are fully collectible. The Company does not accrue interest on
accounts receivable.





Loss Per Common
Share





Basic
earnings (loss) per share is computed based on the weighted average number of
common shares outstanding. Diluted earnings (loss) per share is computed based
on the weighted average number of common shares outstanding adjusted by the
number of additional shares that would have been outstanding had the potentially
dilutive common shares been issued. Potentially dilutive shares of common stock
include unexercised stock options and warrants. Basic per share amounts are
computed, generally, by dividing net income (loss) by the weighted average
number of common shares outstanding. Diluted per share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless their effect is anti-dilutive, thereby reducing the loss or increasing
the income per common share. In calculating diluted weighted average shares and
per share amounts, we included stock options and warrants (see Note 9) with
exercise prices below average market prices, for the respective fiscal years in
which they were dilutive, using the treasury stock method. The Company
calculated the number of additional shares by assuming the outstanding stock
options and warrants were exercised and that the proceeds from such exercises
were used to acquire common stock at the average market price during the year.
As of March 31, 2010 and 2009, we excluded options to purchase 1,124,730 and
319,375 shares and warrants to purchase 700,400 and 102,875 shares from the
diluted weighted average share outstanding calculation as the effect of these
options is anti-dilutive. The effect of all options and warrants outstanding
during the three months ended March 31, 2010 was anti-dilutive.





A
reconciliation of the denominator in the basic and diluted income or loss per
share is as follows:





Three Months
                    Ended
                    March 31, 2010
                  
                  
                  Three Months
                    Ended
                    March 31, 2009Numerator:Net
      loss attributable to Sajan, Inc. and Subsidiaries
                  
                  $
                  (1,495,209
                  )
                  
                  $
                  (203,520
                  )Denominator:Weighted
      average common shares outstanding - basic
                  
                  
                  11,912,631
                  
                  
                  
                  5,686,250Weighted
      average common shares outstanding – diluted
                  
                  
                  11,912,631
                  
                  
                  
                  5,686,250Loss
      per common share – basic
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.04
                  )Loss
      per common share – diluted
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.04
                  )





Capitalized Software
Development Costs





Sajan
capitalizes software costs incurred during the application development stage for
software that is internally developed solely to meet the entity’s internal needs
and when no substantive plans exist or are being developed to market the
software externally. Costs capitalized include external direct costs of
materials and services and internal payroll and payroll-related costs. Any costs
during the preliminary project stage or related to training or maintenance are
expensed as incurred. Capitalization ceases when the software project is
substantially complete and ready for its intended use. The capitalization and
ongoing assessment of recoverability of development costs requires considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological and economic feasibility, and estimated economic
life.





When the
projects are ready for their intended use, the Company amortizes such costs over
their estimated useful lives of three years. Estimated amortization expense for
capitalized software costs are approximately $352,400, $316,600, and $102,900
for the years ending December 31, 2010 (remaining), 2011, and 2012,
respectively.


6




SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009


Capitalized
software development costs consist of the following for the three months ended
March 31, 2010 and the year ended December 31, 2009, respectively:





March31,2010
                  
                  
                  December31,2009Capitalized
      software development costs
                  
                  $
                  2,514,011
                  
                  
                  
                  2,483,356Less
      accumulated amortization
                  
                  
                  (1,740,900
                  )
                  
                  
                  (1,606,239
                  )Total
      capitalized software development costs, net
                  
                  $
                  773,111
                  
                  
                  
                  877,117





Stock-Based
Compensation





The
Company measures and recognizes compensation expense for all stock-based
compensation at fair value. The Company recognizes stock-based compensation
costs on a straight-line basis over the requisite service period of the award,
which is generally the option vesting term.  For the three months
ended March 31, 2010 and 2009, total stock-based compensation expense was
approximately $371,000 ($0.03 per share) and $16,000 ($0.00 per share),
respectively.  As of March 31, 2010, there was approximately $801,800
of total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the Company’s 2004 Long-Term Incentive
Plan. That cost is expected to be recognized over a weighted-average period of
four years. This is an estimate based on options currently outstanding, and
therefore this projected expense could be more in the future.





The
Company’s determination of fair value of share-based compensation awards on the
date of grant using an option-pricing model is affected by the Company’s stock
price as well as assumptions regarding a number of variables. These variables
include, but are not limited to, the Company’s expected stock price volatility,
and actual and projected stock option exercise behaviors and forfeitures. An
option’s expected term is the estimated period between the grant date and the
exercise date of the option. As the expected term increases, the fair value of
the option and the compensation cost will also increase. The expected-term
assumption is generally calculated using historical stock option exercise data.
The Company does not have historical exercise data to develop such an
assumption. In cases where companies do not have historical data and where the
options meet certain criteria, SEC Staff Accounting Bulletin 107 (“SAB 107”)
provides the use of a simplified expected-term calculation. Accordingly, the
Company calculated the expected terms using the SAB 107 simplified
method.





In 2009,
the Company calculated expected volatility for stock options and awards using an
industry index and comparable companies, as the Company was a privately owned
company and did not have sufficient information to utilize a historical
volatility. The Company considered specific companies with comparable operations
along with the Dow Jones software and computer services small cap technology
index to be representative of the Company’s size and industry and has used the
historical closing total return values of that index for the three years prior
to the date of grant to estimate volatility.  Subsequent to the Merger
and going forward, the Company calculates expected volatility for stock options
and awards using its own stock price. Management expects and estimates
substantially all director and employee stock options will vest, and therefore
the forfeiture rate used is zero.  The risk-free rates for the
expected terms of the stock options are based on the U.S. Treasury yield curve
in effect at the time of grant.





In
determining the compensation cost of the options granted, the fair value of each
option grant on March 31, 2010 and 2009, respectively, has been estimated on the
date of grant using the Black-Scholes option pricing model, and the weighted
average assumptions used in these calculations are summarized as
follows:





ThreeMonthsEndedMarch31,2010
                        
                        
                        2009Risk-free
      interest rate
                        
                        
                        1.5
                        %
                        
                        
                        2.52
                        %Expected
      life of options granted
                        
                        5.4
      Yrs
                        
                        
                        7
      YrsExpected
      volatility range
                        
                        
                        63.21
                        %
                        
                        
                        24.07
                        %Expected
      dividend yield
                        
                        
                        -
                        %
                        
                        
                        -
                        %





Using the
Black-Scholes option pricing model, management has determined that the options
and warrants issued have a weighted-average grant date fair value for the three
months ended March 31, 2010 and 2009 of $0.80 and $0 per share,
respectively.


7




SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009


Revenue
Recognition





The
Company derives revenues from the sale of software licenses, subscription
hosting services, professional services, maintenance fees or a combination
thereof. The Company has three primary services models, each of which is
described below.





Technology
Enabled Service Model





In our
Technology Enabled Service Model, the Company provides all of the customer’s
language translation requirements. Services within the Technology Enabled
Service Model include: translation. The Company may also provide account
management, graphic design services, technical, consulting and professional
services as requested by our clients on a per hour rate basis.





In
accordance with Financial Accounting Standard Board (“FASB”) and SEC accounting
guidance on revenue recognition, the Company considers revenue earned and
realizable at the time services are performed and amounts are earned. Sajan
considers amounts to be earned when (1) persuasive evidence of an arrangement
has been obtained; (2) services are delivered; (3) the fee is fixed or
determinable; and (4) collectability is reasonably assured. Determination of
criteria (3) and (4) are based on management’s judgments regarding the fixed
nature of the fee charged for services rendered and products delivered and the
collectability of those fees. The Company recognizes revenue for translations
managed on a standard “per word” basis at the time the translation is completed.
The Company recognizes revenue for professional services when the services have
been completed in accordance with the statement of work.





Managed
Service Model





The
managed service model has four elements: license fees, post-contract customer
support, transaction fees, and professional services. We recognize revenue as
earned through transaction fees delivered through the Application Service
Provider (ASP) and associated fees for professional services including,
implementation, training, and project management provided to customers with
installed systems.





For ASP
and other hosting arrangements, the Company evaluates whether the customer has
the contractual right to take possession of the software at any time during the
hosting period without significant penalty and whether the customer can feasibly
maintain the software on the customer’s hardware or enter into another
arrangement with a third party to host the software. If we determine that the
customer has the contractual right to take possession of our software at any
time during the hosting period without significant penalty and can feasibly
maintain the software on the customer’s hardware or enter into another
arrangement with a third party to host the software, we recognize the license,
professional services and hosting services revenues. For ASP and other hosting
arrangements that do not meet the criteria for recognition, the Company accounts
for the elements considering the multiple element arrangements using all
applicable facts and circumstances, including whether (i) the element has
stand-alone value, (ii) there is a general right of return and (iii) the revenue
is contingent on delivery of other elements. The Company allocates revenue to
each element of the arrangement that qualifies for treatment as a separate
element based on vendor-specific objective evidence (“VSOE”), and if VSOE is not
available, third party evidence, and if third party evidence is unavailable,
estimated selling price. For professional services associated with ASP and
hosting arrangements the Company determines do not have stand-alone value to the
customer or are contingent on delivery of other elements, the Company recognizes
the services revenue ratably over the term of the applicable
agreement.





The
Company bills service fees either on a time and materials basis or on a
fixed-price schedule. In general, the Company’s consulting services are not
essential to the functionality of the software. The Company’s software products
are fully functional upon delivery and implementation and generally do not
require any significant modification or alteration for customer use. Customers
purchase the Company’s consulting services to facilitate the adoption of the
Company’s technology and may dedicate personnel to participate in the services
being performed, but may also decide to use their own resources or appoint other
professional service organizations to provide these services. Software products
are billed separately from professional services. The Company recognizes revenue
from consulting services as services are performed.





Licensed
Software Model





In the
Licensed Software Model, clients utilize GCMS, Authoring Coach, X-Content, or a
combination thereof, to self-perform their translation services.  This
technology-only solution provides the Company’s clients with the ability to
independently operate translation services without assistance from the Company’s
professionals.  The Licensed Software Model has two elements: (1)
license fees, and (2) post-contract customer support (maintenance).





The
Company recognizes revenue from license fees, based on VSOE when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is
fixed or determinable, and collectability is probable at the time the software
application is shipped to the client.


8




SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009


The
Company’s customers typically purchase maintenance
annually.  Maintenance prices are based on a percentage of the product
license fee. Customers purchasing maintenance receive product upgrades,
Web-based technical support and telephone hot-line support. Unspecified product
upgrades are not provided without the purchase of maintenance. The Company
typically has not granted specific upgrade rights in its license agreements.
Specified undelivered elements are allocated a relative fair value amount within
a license agreement and the revenue allocated for these elements is deferred
until delivery occurs.





Other





Sajan’s
agreements with its customers may informally provide the customer with a limited
time period following delivery during which the Company will attempt to address
any non-conformity to previously agreed upon objective specifications relating
to the work. Revenue is recognized as services are delivered in accordance with
the terms of the agreement with the customer, are not contingent, and are
earned.





Revenues
recognized in excess of billings are recorded as unbilled services. Billings in
excess of revenues recognized are recorded as deferred revenues until revenue
recognition criteria are met.





Cost of
Revenues





Cost of
revenues, excluding depreciation and amortization of approximately $245,000 and
$184,000, which is included in general and administrative expenses, for the
three months ended March 31, 2010 and 2009, respectively, consists primarily of
expenses incurred for translation services provided by third parties as well as
salaries and associated employee benefits for personnel related to client
projects.





Foreign Currency
Translation





The
functional currency for payment of accounts receivable for certain of the
Company’s foreign customers is the local currency of the country in which the
customer’s operations are based. Realized foreign currency translations gains or
losses arising from exchange rate fluctuations on balances denominated in
foreign currencies and unrealized foreign currency transaction gains or losses
relating to accounts receivable balances were not material for the three months
ended March 31, 2010 and 2009.  Foreign assets and liabilities are
translated using the year end exchange rates. Results of operations are
translated using average rates throughout the year. Translation gains and losses
are accumulated as a separate component of equity.





Income
Tax





Current
income taxes are recorded based on statutory obligations for the current
operating period for the various countries in which the Company has
operations.





Deferred
taxes are provided on an asset and liability method whereby deferred tax assets
are recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.





River
Valley is a limited liability company, and, in lieu of corporate income taxes,
the members will separately account for their pro rata shares of River Valley’s
income, losses, deductions and credits. Accordingly, no provision for River
Valley for federal or Wisconsin income taxes was recorded for the three months
ended March 31, 2010 and 2009.  As of the date of the Merger, River
Valley was deconsolidated.





Use of
Estimates





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.


9




SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009


Recent Accounting
Pronouncements





In
February 2010, we adopted changes issued by the FASB to consolidation accounting
and reporting. These changes establish accounting and reporting for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This guidance defines a noncontrolling interest, previously called a
minority interest, as the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. These changes require, among other items,
that a noncontrolling interest be included in the consolidated statement of
financial position within equity separate from the parent’s equity; that
consolidated net income be reported at amounts inclusive of both the parent’s
and noncontrolling interest’s shares and, separately, that the amounts of
consolidated net income attributable to the parent and noncontrolling interest
be included on the consolidated statement of operations; and if a subsidiary is
deconsolidated, that any retained noncontrolling equity investment in the former
subsidiary be measured at fair value and a gain or loss be recognized in net
income based on such fair value. Other than the change in presentation of
noncontrolling interests, the adoption of these changes had no impact on the
consolidated financial statements. The presentation and disclosure requirements
of these changes were applied retrospectively.





In
January 2010, the FASB issued amendments to guidance on fair value measurements
and disclosures that will require inclusion of the amount of significant
transfers in and out of levels 1 and 2 fair value measurements and the
reasons for the transfers. In addition, the reconciliation for level 3
activity will be required on a gross rather than net basis. An amendment related
to the level of disaggregation in determining classes of assets and liabilities
and disclosures about inputs and valuation techniques was also issued. The
amendments are effective for annual or interim reporting periods beginning after
December 15, 2009, except for the requirement to provide the reconciliation
for level 3 activity on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010. The Company is currently assessing
the impact of the amendments and does not expect the adoption of this amendment
guidance to have a material impact on its consolidated financial
statements.





In
October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (605), Multiple
Deliverable Arrangements, a consensus of the FASB Emerging Issues Task
Force, which addresses the accounting for products or services
(deliverables) separately rather than as a combined unit.  ASU 2009-13
also changes the definitions of VSOE.  The effective date for ASU
2009-13 is June 30, 2010, although early adoption is permitted.  The
Company adopted ASU 2009-13 on January 1, 2010.  There was not a
material impact on the Company’s consolidated financial statements.





2.           Reverse
Merger Transaction –





Pursuant
to an Agreement and Plan of Merger (the “Merger Agreement”) dated January 8,
2010, by and among MathStar, Inc., a Delaware corporation, and Sajan, Inc. a
privately held Minnesota corporation whose business is providing language
translation technology and service; Garuda Acquisition, LLC, a wholly-owned
subsidiary of MathStar, now known as Sajan, LLC; and Thomas Magne, solely in his
capacity as agent for the holders of common stock of Sajan,
Inc.  Sajan, Inc. was merged with and into Garuda Acquisition, LLC,
(the “Merger”).   Garuda Acquisition, LLC (“Garuda”) was the
surviving entity in the Merger and subsequently changed its name to Sajan, LLC.
As a result of the Merger, Sajan became a wholly-owned subsidiary of MathStar.
MathStar will continue the business of Sajan and operate as a provider of
language translation technology and service under the Sajan name. The Merger was
closed and effective on February 23, 2010.





At
closing, MathStar paid $6,100,000 in cash, of which $5,100,000 was paid to
existing stockholders of Sajan.   The merger agreement provided
for the remaining $1 million to be placed in an escrow account with an escrow
agent, which funds would be utilized to fulfill the indemnification obligations
of the pre-Merger Sajan stockholders through February 23, 2011.  This
amount is presented as restricted cash and a note payable – indemnification
escrow of $1 million on the consolidated balance sheets.  The Company may
request claims against the escrow as defined in the escrow agreement.  The
remaining balance of the $1 million escrow at February 23, 2011 will be
distributed to the pre-Merger Sajan stockholders as defined in the escrow
agreement and the merger agreement.





In
exchange for the acquisition by MathStar of all outstanding capital stock of
Sajan, MathStar issued a total of approximately 7,000,000 shares of MathStar
common stock to former Sajan stockholders at the closing, and MathStar reserved,
as of the closing, approximately 945,000 shares of MathStar common stock for
issuance upon the exercise of options and warrants pursuant to the
Merger.





As a
result of the Merger, Sajan’s 5,573,742 shares of common stock were exchanged
for 6,827,734 shares of MathStar common stock, or an exchange of 1 MathStar
common share for 1.225 Sajan common shares. Options to purchase Sajan common
stock issued under Sajan’s 2001 Plan and certain non-plan options and warrants
were converted into options and warrants to purchase MathStar common stock and
will remain outstanding as options and warrants to purchase shares of MathStar
common stock.  Immediately after the closing of the Merger, the former
stockholders of Sajan, Inc. owned approximately 43% of the outstanding shares of
MathStar common stock. At the time of Merger, 112,500 shares, valued at $364,000
per management’s determination of fair value at the time of the Merger, were
recorded for dissenter shares.  (See Note 11)





Pursuant
to the Merger, Sajan merged with and into Garuda, with Garuda as the surviving
entity. For accounting purposes, Sajan is treated as the continuing reporting
entity that acquired MathStar because Sajan obtained effective control of
MathStar as a result of the Merger. This determination was based on the
following facts: Sajan stockholders will have a large minority interest in the
combined entity, the governing board will consist of a majority of Sajan board
members, and the composition of the senior management will be Sajan’s management
team. Under this method of accounting, the recognition and measurement
provisions of the accounting guidance for business combinations do not apply
and, therefore, there is no recognition of goodwill or other intangible assets.
Instead, the acquisition has been treated as the equivalent of Sajan issuing
stock for the net monetary assets of MathStar, primarily cash, which are stated
at their carrying value. Because of the Merger, the historical results in this
and future Quarterly Reports on Form 10-Q and future Annual Reports on Form 10-K
will represent those of Sajan.


10




SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009





At the
time of the Merger, the following amounts are being allocated from MathStar’s
net monetary assets and liabilities at the date of the Merger to Sajan, as
follows:





Cash
      and cash equivalents
                  
                  $
                  5,472,000Restricted
      cash
                  
                  
                  1,000,000Prepaid
      expenses and other assets
                  
                  
                  22,000Accounts
      payable and accrued liabilities
                  
                  
                  (652,000
                  )Notes
      payable – related party
                  
                  
                  (1,000,000
                  )Net
      monetary assets
                  
                  $
                  4,842,000





Cash and cash equivalents,
restricted cash, prepaid expenses and other assets, accounts
payable: The tangible assets and liabilities were valued at their
respective carrying amounts by MathStar, except for adjustments to accrued lease
obligations, necessary to state such amounts at their estimated fair values at
the effective date of the Merger.





Accrued
liabilities: Sajan retains the accrued lease obligations under
MathStar’s non-cancellable operating leases, pursuant to which total rent
expense is projected to be $358,000 and $257,000 for the years ending December
31, 2010 and 2011, respectively.   In addition, Sajan retains
MathStar’s non-cancellable long-term commitment with Synopsys, Inc. for the
purchase of design tools. Payments under this agreement will be $151,000 during
the year ending December 31, 2010.





Merger transaction costs: In
connection with the Merger, MathStar incurred transaction costs of $543,000,
including financial advisory, legal, accounting and due diligence costs, were
recorded as Merger transaction expenses on the consolidated statement of
operations for the year ended December 31, 2009.  Sajan allocated
approximately $540,000 of merger-related costs which were allocated to
additional paid-in capital for the three months ended March 31,
2010.





Change in
Control





Upon
consummation of the Merger, MathStar experienced a change in control, with the
former stockholders of Sajan, Inc. acquiring approximately 43% ownership of the
outstanding shares of MathStar common stock.  MathStar was
incorporated under Minnesota law in April 1997, and was reincorporated under
Delaware law on June 14, 2005. During the three months ended June 30, 2008,
MathStar curtailed its operations as its Board of Directors evaluated strategic
alternatives. Immediately before the effective date of the Merger, MathStar was
a “shell company,” as defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended, having no or nominal operations, and assets consisting solely
of cash and cash equivalents.  The Merger had the effect of causing
MathStar to cease being a shell company as of the effective date of the
Merger.





Pro Forma Financial
Statements





Since the
Merger was effective February 23, 2010, there is not a change in the March 31,
2010 balance sheet and not a material change in the income statement for the
three months ended March 31, 2010.  The unaudited pro forma
information for the year ended December 31, 2009 does not purport to represent
what the Company’s results of operations would actually have been if such
transactions in fact had occurred at such date or to project the Company’s
results of future operations.





The
accompanying unaudited pro forma consolidated combined financial statements are
presented as if Sajan and MathStar had been operating as a combined entity. The
unaudited pro forma combined consolidated balance sheet as of December 31, 2009
presents the financial position assuming the Merger had occurred on December 31,
2009. The unaudited pro forma combined consolidated statement of operations for
the year ended December 31, 2009 presents the results of operations assuming the
acquisition had occurred on January 1, 2009. All material adjustments to reflect
the acquisition are set forth in the column “Pro Forma Adjustments”. The pro
forma data is for informational purposes only and may not necessarily reflect
future results of operations and financial position or what the results of
operations or financial position would have been had Sajan and MathStar been
operating as a combined entity for the specific periods. (in
thousands)


11


SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009
 SAJAN,
      INC., SUBSIDIARIES AND AFFILIATE
                    (RIVER VALLEY BUSINESS CENTER, LLC)UNAUDITED
      PRO FORMA COMBINED BALANCE SHEETS(in
      thousands, except per share data)December 31,
2009
 
 Sajan,Inc.,
                                                                                                                                                                Subsidiaries,and
                                                                                                                                                                Affiliate
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Deconsolidationof
                                                                                                                                                                RiverValley
                                                                                                                                                                BusinessCenter,
                                                                                                                                                                LLC
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Sajan,Inc.and
                                                                                                                                                                Subsidiaries
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              MathStar,Inc.
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              CashPayOut
                                                                                                                                                                Adjustments
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              ProForma
                                                                                                                                                                Adjustments
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              RecordMathStarNet
                                                                                                                                                                AssetsAdjustments
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              UnauditedPro
                                                                                                                                                                FormaTotalAssetsCurrent
      assets:Cash
      and cash equivalents
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              120
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              91
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              29
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              13,050
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              A
                                                                                                                                                              $
                                                                                                                                                              61
                                                                                                                                                              
                                                                                                                                                              B,C
                                                                                                                                                              $
                                                                                                                                                              5,472
                                                                                                                                                              
                                                                                                                                                              F,J
                                                                                                                                                              $
                                                                                                                                                              5,562Restricted
      cash
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,000
                                                                                                                                                              
                                                                                                                                                              E
                                                                                                                                                              
                                                                                                                                                              1,000Accounts
      receivable, net of allowance of $10,000
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,871
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              30
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,841
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,841Deferred
      tax asset
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              660
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              660
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              660Unbilled
      services
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              257
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              257
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              257Other
      current assets
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              39
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              110
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (71
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              54
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              7
                                                                                                                                                              
                                                                                                                                                              F
                                                                                                                                                              
                                                                                                                                                              (64
                                                                                                                                                              )Total
      current assets
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,947
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              231
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,716
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              13,104
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              61
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              6,479
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              10,256Property
      and equipment, net
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,350
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,571
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              779
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              779Other
      assets:Intangible
      assets, net
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              337
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              337
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              337Capitalized
      software development costs, net
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              877
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              877
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              877Other
      assets, net
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              24
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              24
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              16
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              15
                                                                                                                                                              
                                                                                                                                                              F
                                                                                                                                                              
                                                                                                                                                              15Total
      other assets
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,238
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              24
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,214
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              16
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              15
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,229Total
      assets
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              8,535
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              2,826
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              5,709
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              13,120
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              61
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              6,494
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              12,264Liabilities
      and Stockholders' EquityCurrent
      liabilities:Checks
      issued in excess of bank balance
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              113
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              113
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              113Current
      portion of capital lease obligations
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              11
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              11
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              11Current
      portion of long-term debt
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              105
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              105
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -Cash
      paid out at closing
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              A
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -Note
      payable - related party
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              293
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              31
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              262
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (262
                                                                                                                                                              )
                                                                                                                                                              C
                                                                                                                                                              
                                                                                                                                                              1,000
                                                                                                                                                              
                                                                                                                                                              E
                                                                                                                                                              
                                                                                                                                                              1,000Note
      payable - indemnification
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,000
                                                                                                                                                              
                                                                                                                                                              E
                                                                                                                                                              
                                                                                                                                                              1,000Line
      of credit
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,000
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,000
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1,000
                                                                                                                                                              )
                                                                                                                                                              J
                                                                                                                                                              
                                                                                                                                                              -Accounts
      payable
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              901
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              51
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              850
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              37
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              28
                                                                                                                                                              
                                                                                                                                                              F
                                                                                                                                                              
                                                                                                                                                              878Accrued
      interest - related party
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              23
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              23
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (23
                                                                                                                                                              )
                                                                                                                                                              C
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -Accrued
      compensation and benefits
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              505
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              505
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              505Other
      accrued liabilities
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              748
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              748
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              702
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (461
                                                                                                                                                              )
                                                                                                                                                              D
                                                                                                                                                              
                                                                                                                                                              775
                                                                                                                                                              
                                                                                                                                                              F,K
                                                                                                                                                              
                                                                                                                                                              1,062Deferred
      revenue
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              337
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              6
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              331
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              331Total
      current liabilities
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              4,036
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              193
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,843
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              739
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (746
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,803
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              4,900Long-term
      liabilities:Long-term
      debt, net of current portion
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,412
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,412
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -Other
      long-term liability
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              20
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              20
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              213
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              213
                                                                                                                                                              
                                                                                                                                                              F
                                                                                                                                                              
                                                                                                                                                              233Deferred
      tax liabilities
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              605
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              605
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              605Total
      long-term liabilities
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,037
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,412
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              625
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              213
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              213
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              838Total
      liabilities
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              7,073
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,605
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              4,468
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              952
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (746
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,016
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              5,738Stockholders'
      equity:Common
      stock
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              57
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              57
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              92
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              103
                                                                                                                                                              
                                                                                                                                                              F,K
                                                                                                                                                              
                                                                                                                                                              160Additional
      paid-in capital
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,919
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,919
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              155,940
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              263
                                                                                                                                                              
                                                                                                                                                              H,I
                                                                                                                                                              
                                                                                                                                                              4,375
                                                                                                                                                              
                                                                                                                                                              F,K
                                                                                                                                                              
                                                                                                                                                              6,557Accumulated
      deficit
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (709
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (709
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (143,864
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              544
                                                                                                                                                              
                                                                                                                                                              B,D,H,I
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (165
                                                                                                                                                              )Accumulated
      other comprehensive loss:Foreign
      currency adjustment
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (23
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (23
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (23
                                                                                                                                                              )Stockholders'
      equity
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,244
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,244
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              12,168
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              807
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              4,478
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              6,529Non-controlling
      interest in subsidiary
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3
                                                                                                                                                              )Non-controlling
      interest in equity of affiliate
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              221
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              221
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -(River
      Valley Business Center, LLC)Total
      equity
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,462
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              221
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              1,241
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              12,168
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              807
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              4,478
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              6,526Total
      liabilities and stockholders' equity
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              8,535
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              2,826
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              5,709
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              13,120
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (5,100
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              61
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              6,494
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              12,264
 
 Sajan,
Inc., subsidiaries and affiliate (River Valley Business Center,
LLC)
 Common
stock, $.01 par value, 18,000 shares authorized, 9,181 (pre merger) and 16,009
(pro forma) issued and outstanding at December 31, 2009
 Preferred
stock, $.01 par value, 10,000 shares authorized, no shares issued and
outstanding at December 31, 2009
 
 SEE NOTES
TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
  12
  SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009
  SAJAN,
INC., SUBSIDIARIES AND AFFILIATE
 (RIVER
VALLEY BUSINESS CENTER, LLC)
 UNAUDITED PRO FORMA COMBINED STATEMENTS
OF OPERATIONS
 (in thousands, except per share
data)
 For the year ended December 31, 2009
 
 Sajan,Inc.,
                            Subsidiaries,and
                            Affiliate
                          
                          
                          Deconsolidation
                            ofRiverValley
                            BusinessCenter,
                            LLC
                          
                          
                          Adjustments
                          
                          
                          Sajan,Inc.and
                            Subsidiaries
                          
                          
                          MathStar,Inc.
                          
                          
                          Pro
Forma
                            Adjustments
                          
                          
                          UnauditedPro
                            FormaTotalRevenues:Translation
      and consulting
      income
                          
                          $
                          11,640
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          11,640
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          11,640Technology
      income
                          
                          
                          1,019
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,019
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,019Rental
      income
                          
                          
                          67
                          
                          
                          
                          406
                          
                          
                          
                          339
                          G
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Other
      revenue
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          95
                          
                          
                          
                          -
                          
                          
                          
                          95Total
      revenues
                          
                          
                          12,726
                          
                          
                          
                          406
                          
                          
                          
                          339
                          
                          
                          
                          12,659
                          
                          
                          
                          95
                          
                          
                          
                          -
                          
                          
                          
                          12,754Operating
      expenses:Cost
      of revenues (exclusive of amortization and depreciation included in
      general and administrative
      below)
                          
                          
                          7,002
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          7,002
                          
                          
                          
                          105
                          
                          
                          
                          -
                          
                          
                          
                          7,107Sales
      and
      marketing
                          
                          
                          3,414
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          3,414
                          
                          
                          
                          -
                          
                          
                          
                          158
                          I
                          
                          
                          3,572Research
      and
      development
                          
                          
                          596
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          596
                          
                          
                          
                          36
                          
                          
                          
                          3
                          I
                          
                          
                          635General
      and
      administrative
                          
                          
                          2,875
                          
                          
                          
                          246
                          
                          
                          
                          339
                          G
                          
                          
                          2,968
                          
                          
                          
                          2,200
                          
                          
                          
                          (705
                          )H
                          
                          
                          4,463Restructuring
      and impairment
      charges
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          593
                          
                          
                          
                          -
                          
                          
                          
                          593Total
      operating
      expenses
                          
                          
                          13,887
                          
                          
                          
                          246
                          
                          
                          
                          339
                          
                          
                          
                          13,980
                          
                          
                          
                          2,934
                          
                          
                          
                          (544
                          )
                          
                          
                          16,370Income
      (loss) from
      operations
                          
                          
                          (1,161
                          )
                          
                          
                          160
                          
                          
                          
                          -
                          
                          
                          
                          (1,321
                          )
                          
                          
                          (2,839
                          )
                          
                          
                          544
                          
                          
                          
                          (3,616
                          )Other
      income
      (expense):Interest
      expense
                          
                          
                          (209
                          )
                          
                          
                          (165
                          )
                          
                          
                          -
                          
                          
                          
                          (44
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (44
                          )Interest
      and other
      income
                          
                          
                          4
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4
                          
                          
                          
                          88
                          
                          
                          
                          -
                          
                          
                          
                          92Other
      expense
                          
                          
                          (38
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (38
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (38
                          )Total
      other income
      (expense)
                          
                          
                          (243
                          )
                          
                          
                          (165
                          )
                          
                          
                          -
                          
                          
                          
                          (78
                          )
                          
                          
                          88
                          
                          
                          
                          -
                          
                          
                          
                          10Net
      loss before income taxes and non-controlling interests in subsidiary and
      affiliate
                          
                          
                          (1,404
                          )
                          
                          
                          (5
                          )
                          
                          
                          -
                          
                          
                          
                          (1,399
                          )
                          
                          
                          (2,751
                          )
                          
                          
                          544
                          
                          
                          
                          (3,606
                          )Income
      tax
      benefit
                          
                          
                          (308
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (308
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (308
                          )Net
      loss before non-controlling
      interest
                          
                          
                          (1,096
                          )
                          
                          
                          (5
                          )
                          
                          
                          -
                          
                          
                          
                          (1,091
                          )
                          
                          
                          (2,751
                          )
                          
                          
                          544
                          
                          
                          
                          (3,298
                          )Less
      Non-controlling interest in
      subsidiary
                          
                          
                          (4
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (4
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (4
                          )Less
      Non-controlling interest in affiliate (River Valley Business
      Center)
                          
                          
                          (5
                          )
                          
                          
                          (5
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      loss attributable to Sajan, Inc. and
      subsidiaries
                          
                          $
                          (1,087
                          )
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (1,087
                          )
                          
                          $
                          (2,751
                          )
                          
                          $
                          544
                          
                          
                          $
                          (3,294
                          )Loss
      per common share - Basic and
      diluted
                          
                          $
                          (0.19
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          (0.19
                          )
                          
                          $
                          (0.30
                          )
                          
                          
                          
                          
                          
                          $
                          (0.21
                          )Weighted
      average shares outstanding - Basic and
      diluted
                          
                          
                          5,686
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          5,686
                          
                          
                          
                          9,181
                          
                          
                          
                          
                          
                          
                          
                          16,009
 
 SEE NOTES TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
  13
  SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009





NOTES
TO UNAUDITED PRO FROM FINANCIAL STATEMENTS (in thousands)





The
Merger is a reconsideration event for the lease between Sajan and River Valley
Business Center, LLC (affiliate). Based on the change in ownership, the Company
is no longer considered the primary beneficiary of the lease with River Valley
Business Center, LLC (affiliate). The pro forma unaudited financial statements
are presented with the deconsolidation of the affiliate.





A
            Merger
      document notes cash of $5,100 paid at the time of closing to the
      stockholders of Sajan.





B
              ·
              Transaction
      costs of $261 related fees and expenses by
  MathStar.


·
              Transaction
      costs of $85 related fees and expense by
Sajan.





C
            Payment
      of note payable – related party of $262 and accrued interest – related
      party of $23 as required by the Merger
  Agreement.





D
              ·
              Transaction
      costs accrued of $282 related fees and expenses by
    MathStar.


·
              Transaction
      costs accrued of $179 related fees and expenses by
  Sajan.





E
              ·
              Merger
      agreement provides for a note payable for one year of $1,000 to the
      majority stockholders of
Sajan.


·
              Merger
      agreement provides for $1,000 to be placed in escrow for the
      indemnification obligations.





F
            Record
      net monetary assets of MathStar of $4,842 for the issuance of 9,181 shares
      of common stock and the conversion of Sajan shares at 1.225 per
      share.





G
            Rent
      expense paid by Sajan to River Valley Business Center, LLC which will no
      longer be accounted for as a variable interest
  entity.





H
              ·
              Transaction
      costs of $543 related fees and expenses by
  MathStar.


·
              Transaction
      costs of $264 related fees and expenses by
  Sajan.


·
              Stock
      options and warrants repriced based on terms of Merger
      document.  Expense of $102 for the modification for vested
      equity instruments.


Additional
expense to be recorded for the modifications in the years ending December
31:





2010
                        
                        $
                        172011
                        
                        
                        162012
                        
                        
                        162013
                        
                        
                        16$
                        65


I
              Stock
      options and warrants repriced based on terms of Merger
      document.  Expense of $161 for the modification for vested
      equity instruments.
 Additional
expense to be recorded for the modifications in the years ending December
31:


2010
                      
                      $
                      1562011
                      
                      
                      802012
                      
                      
                      77$
                      313





J
            Pay
      off of line of credit of $1,000.





K
            Accrual
      for 113 dissenter’s common shares with a fair value of
    $364.





3.  
          Concentrations of
Credit Risk –





Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents and accounts
receivable.





Cash Concentration –Cash and
cash equivalents include all highly liquid investment assets with a maturity of
ninety days or less at the time of purchase. The Company places its cash at
financial institutions with balances that, at times, may exceed federally
insured limits. The Company evaluates the creditworthiness of these financial
institutions in determining the risk associated with these deposits. The Company
has not experienced any losses on such accounts.





14


SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009




Sales concentration– The
Company’s largest customer accounted for 11% of net revenues for the three
months ended March 31, 2010 and 25% of net revenues for the three months ended
March 31, 2009.





Accounts receivable concentration –Concentrations of credit risk with respect to trade accounts receivable
are limited due to the dispersion of customers across different industries and
geographic regions.  As of March 31, 2010, one customer accounted for
10% of the accounts receivable and as of December 31, 2009, one customer
accounted for 37% of the accounts receivable.





4.      
      Segment Information and Major Customers
–





The
Company views its operations and manages its business as one reportable segment,
providing language translation solutions to a variety of companies, primarily in
its targeted vertical markets.  Factors used to identify the Company’s
single operating segment include the financial information available for
evaluation by the chief operating decision maker in making decisions about how
to allocate resources and assess performance.  The Company markets its
products and services through its headquarters in the United States and its
wholly-owned subsidiaries operating in Ireland and India.





The
Company’s revenue is derived from many customers.  During the three
months ended March 31, 2010, there was one customer with outstanding accounts
receivable greater than 10%.  Their associated sales were less than
10% of total sales.  During the three months ended March 31, 2009, we
had one customer with both sales and accounts receivable greater than
10%.





Net sales
per geographic region, based on the billing location of end customer, are
summarized below.  For comparative purposes, we have omitted the
rental income of approximately $10,200 and $16,800 for the three months ended
March 31, 2010 and 2009, respectively, derived from the River Valley affiliate
for income through the effective date of the Merger and $5,300 in other revenue
generated from our MathStar subsidiary, for which operations were ceased prior
to the Merger.  (See Note 1)





ThreeMonthsEndedMarch31,2010
                    
                    
                    2009Sales
                    
                    
                    Percent
                    
                    
                    Sales
                    
                    
                    PercentUnited
    States
                    
                    $
                    2,681,000
                    
                    
                    
                    85.80
                    %
                    
                    $
                    2,772,000
                    
                    
                    
                    92.37
                    %International
                    
                    
                    444,000
                    
                    
                    
                    14.20
                    %
                    
                    
                    229,000
                    
                    
                    
                    7.63
                    %Total Sales
                    
                    $
                    3,125,000
                    
                    
                    
                    100.00
                    %
                    
                    $
                    3,001,000
                    
                    
                    
                    100.00
                    %





Net sales
within the United States and internationally are concentrated within a few
states and a few countries.  Sales within those concentrated regions
are summarized as follows:





UnitedStatesThreeMonthsEndedMarch31,2010
                    
                    
                    2009Sales
                    
                    
                    Percent
                    
                    
                    Sales
                    
                    
                    PercentCalifornia
                    
                    $
                    298,100
                    
                    
                    
                    11.12
                    %
                    
                    $
                    345,600
                    
                    
                    
                    12.47
                    %Illinois
                    
                    
                    *
                    
                    
                    
                    *
                    %
                    
                    
                    299,800
                    
                    
                    
                    10.82
                    %Minnesota
                    
                    
                    978,400
                    
                    
                    
                    36.50
                    %
                    
                    
                    532,800
                    
                    
                    
                    19.22
                    %Rhode
Island
                    
                    
                    *
                    
                    
                    
                    *
                    %
                    
                    
                    *
                    
                    
                    
                    *
                    %Texas
                    
                    
                    392,100
                    
                    
                    
                    14.63
                    %
                    
                    
                    *
                    
                    
                    
                    *
                    %Wisconsin
                    
                    
                    *
                    
                    
                    
                    *
                    %
                    
                    
                    745,300
                    
                    
                    
                    26.89
                    %Other
States
                    
                    
                    1,012,400
                    
                    
                    
                    37.75
                    %
                    
                    
                    848,500
                    
                    
                    
                    30.60
                    %Total Sales
                    
                    $
                    2,681,000
                    
                    
                    
                    100.00
                    %
                    
                    $
                    2,772,000
                    
                    
                    
                    100.00
                    %


____________________


* Denotes
less than 10%





15


SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009


InternationalThreeMonthsEndedMarch31,2010
                    
                    
                    2009Sales
                    
                    
                    Percent
                    
                    
                    Sales
                    
                    
                    PercentBelgium
                    
                    $
                    159,400
                    
                    
                    
                    35.90
                    %
                    
                    $
                    *
                    
                    
                    
                    *
                    %Germany
                    
                    
                    *
                    
                    
                    
                    *
                    %
                    
                    
                    31,800
                    
                    
                    
                    13.89
                    %Spain
                    
                    
                    231,700
                    
                    
                    
                    52.18
                    %
                    
                    
                    131,500
                    
                    
                    
                    57.42
                    %Switzerland
                    
                    
                    *
                    
                    
                    
                    *
                    %
                    
                    
                    32,000
                    
                    
                    
                    13.97
                    %Other
      International
                    
                    
                    52,900
                    
                    
                    
                    11.92
                    %
                    
                    
                    33,700
                    
                    
                    
                    14.72
                    %Total
      Sales
                    
                    $
                    444,000
                    
                    
                    
                    100.00
                    %
                    
                    $
                    229,000
                    
                    
                    
                    100.00
                    %


____________________


* Denotes
less than 10%





5.       
     Related Party Transactions –





Notes
Payable





Notes
payable and accrued interest to related party was approximately $1,008,000 and
$316,000 at March 31, 2010 and December 31, 2009, respectively, related to two
notes payable to officers and stockholders of the Company, Shannon and Angela
Zimmerman.  The majority of the note payable as of December 31, 2009
was paid as of the date of the Merger.  On February 23, 2010, the
Company issued a Promissory Note to Shannon and Angela Zimmerman as part of the
Merger consideration.  The Promissory Note documents the Company’s
obligation to pay $1 million of the pro rata amount of the cash Merger
consideration to the Zimmermans. The Promissory Note has a term of one year and
provides for an interest rate of 8% per year to be accrued until payment of the
Promissory Note.  Our accrued interest was approximately $8,000 for
the three months ended March 31, 2010.  Upon the occurrence of an
“event of default,” as defined in the Promissory Note, and at any time
thereafter, the unpaid principal balance, plus accrued interest, plus all other
amounts due under the Promissory Note will, at the option of the Zimmermans, be
immediately due and payable, without notice or demand. The obligations of the
Company under the Promissory Note are unsecured.  (See Note
2)





Interest
expense for the three months ended March 31, 2010 and 2009 was approximately
$45,800 and $51,300, respectively.





Lease





Sajan
leases its office space from River Valley under two non-cancelable operating
leases. The first lease was entered into during 2005 and expires in January
2026. The second lease was entered into during 2008 and expires in January 2026.
In February 2010, the lease terms were amended to expire on January 31, 2017 and
reduce the monthly lease payments by $1,766 per month. These lease agreements
require the Company to pay a minimum monthly rental plus certain operating
expenses. Related party rental income and expense for the office leases of
approximately $51,400 and $84,700 has been eliminated from the consolidated
financial statements for the three months ended March 31, 2010 for rental income
through the effective date of the Merger and for the three months ended March
31, 2009.  Payment of rent under these leases is secured by goods,
chattels, fixtures and personal property of the Company.





6.       
     Debt –





Line of
Credit





The
Company had $0 and $650,000 outstanding at March 31, 2010 and December 31, 2009,
respectively under a $1,000,000 bank line of credit. The line of credit due in
December 2009 was extended to mature in March 2010.  Interest is
payable monthly at the prime rate, not to exceed 8% or go below
5%.   As of March 31, 2010, the line of credit was paid in full
and closed.





16


SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009




7.      
      Other Accrued Liabilities –





Other
accrued liabilities of the following at:





March31,2010
                    
                    
                    December31,2009Dissenter
      accrual
                    
                    $
                    364,000
                    
                    
                    $
                    -Legaland professional
      services
                    
                    
                    66,555
                    
                    
                    
                    184,497Professional translator
      services
                    
                    
                    331,232
                    
                    
                    
                    418,243Accrued lease
      obligations
                    
                    
                    312,478
                    
                    
                    
                    -Other
                    
                    
                    48,714
                    
                    
                    
                    144,931Total
                    
                    $
                    1,122,979
                    
                    
                    $
                    747,671





8.     
       Non-controlling Interest
–





Summary
of activity in non-controlling interest:





March31,2010
                    
                    
                    December31,2009Equity of non-controlling interest
      in subsidiary:Non-controlling interest in
      subsidiary, beginning balance
                    
                    $
                    (3,075
                    )
                    
                    $
                    -Purchase of 94% of Sajan India
      Software Private, Ltd.on June 1,
      2009
                    
                    
                    -
                    
                    
                    
                    986Net income (loss) attributable to
      non-controlling interest in subsidiary
                    
                    
                    (2,646
                    )
                    
                    
                    (4,061
                    )Non-controlling interest in
      subsidiary, ending balance
                    
                    $
                    (5,721
                    )
                    
                    $
                    (3,075
                    )





9.      
      Options and Warrants –





Amended and Restated 2004
Long-Term Incentive Plan





In
October 2004, MathStar adopted and in June 2005 its stockholders approved the
Amended and Restated 2004 Long-Term Incentive Plan (the “Plan”). Under the Plan,
1,333,334 shares of the Company's common stock were reserved for the issuance of
restricted stock and incentive and nonqualified stock options to directors,
officers and employees of and advisors to the Company at exercise prices as
determined by the Board of Directors on the dates of grants. With the approval
of stockholders at the 2006 and 2007 annual meetings, 300,000 and 1,366,666
additional shares were reserved, respectively, under the Plan.  With
the approval of stockholders at the 2008 annual meeting, 3,000,000 additional
shares were reserved under the Plan and a one-for-five reverse stock split of
its common stock was approved, which in effect, reduced the number of shares
reserved under the Plan to 1,200,000.





As a
result of the Merger, Sajan adopted the Plan and converted the options
outstanding in their 2001 Plan for 1.225 options of MathStar common
stock.  Options to purchase Sajan common stock issued under Sajan’s
2001 Stock Option Plan and certain non-plan options and warrants were converted
into options and warrants to purchase MathStar common stock and will remain
outstanding as options and warrants to purchase shares of MathStar common stock.
(See Note 2)





On March
31, 2010, 1,124,730 options in the Plan were outstanding with a weighted average
exercise price of $3.68.





10.           Income
Taxes –





Our
deferred income tax assets and liabilities are recognized for the differences
between the financial statement and income tax reporting basis of assets and
liabilities based on currently enacted rates and laws.  These
differences include depreciation, net operating loss carryforwards, capital loss
carryforwards, allowance for accounts receivable, stock options and warrants,
prepaid expenses, unrealized loss on securities, capitalized software costs,
cash  to accrual  conversion, and accrued
liabilities.  Our current deferred tax asset as of March 31, 2010 and
December 31, 2009, was approximately $680,000 and $660,000,
respectively.   Our current deferred tax liability as of March
31, 2010 and December 31, 2009 was $564,000 and $605,000,
respectively.


The
cumulative net operating loss available to offset future income was $31,072,000
as of March 31, 2010.  The Company's federal and state net operating
loss carryforwards expire in various calendar years from 2015 through
2029.  (Available research and development credit carryforwards at
March 31, 2010, represent federal and state amounts of $3,231,000, with
expiration dates in calendar years 2020 through 2028). The net operating loss
carryforwards have been reduced by $92,668,000, to reflect limitations under the
provisions of the Internal Revenue Code, Section 382 resulting from certain
changes in ownership. Future utilization of available net operating loss
carryforwards may be limited under Internal Revenue Code Section 382 as a
result of significant changes in ownership. These limitations could result in
reduction of these net operating loss carryforwards before they are
utilized.





17


SAJAN,
INC. AND SUBSIDIARIES
  NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 March 31,
2010 and 2009




In
assessing the recovery of the deferred tax assets, management considers whether
it is more likely than not that a portion or all of the deferred tax assets will
not be realized.  The ultimate realization of deferred tax assets is
dependent upon the generations of future taxable income in the periods in which
those temporary differences become deductible.  Management considers
the scheduled reversals of future deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.   As such, the Company has recorded a valuation
allowance to offset a portion of its deferred taxes.  The valuation
allowance was $16,410,000 and $0 as of March 31, 2010 and December 31, 2009,
respectively.





On
February 25, 2010, the Company entered into the Tax Benefit Preservation Plan
and Rights Agreement (the “Plan”) with Wells Fargo Shareowner Services, a
division of Wells Fargo Bank, National Association, as Rights Agent. The
Company’s board of directors adopted the Plan in an effort to protect against a
possible limitation on the ability to use its net operating losses under the
Internal Revenue Code of 1986, as amended (the “Code”), and rules promulgated by
the Internal Revenue Service.  Under the Plan, beginning March 12,
2010, for each share of the Company’s common stock held, the holder of the
common stock has the right to purchase one one-millionth of a share of a new
series of preferred stock of the Company.





We file a
consolidated U.S. federal tax return.  As a result of the adoption of
ASC 740 – Income Taxes,
effective October 1, 2007, we applied the requirements of ASC 740 to all tax
positions for which the statute of limitations remained open.  ASC 740
was issued to address the non-comparability in reporting tax assets and
liabilities resulting from a lack of specific guidance in prior standards on
consistent recognition threshold and a measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return.  ASC 740 also provides related guidance on
derecognition, classification, interest and penalties, accounting interim
periods, disclosures and transition.  To the extent interest and
penalties would be assessed by taxing authorities on any underpayment of income
taxes, such amounts would be accrued and classified as a component of income tax
expenses on the consolidated statement of operations.





11.           Legal
Proceedings –





In the
ordinary course of business, the Company is subject to legal proceedings and
claims. In the opinion of management, the amount of ultimate liability with
respect to these actions may or may not materially affect the financial position
of the Company nor can an estimate be made. The Company expenses legal costs
during the period incurred.





Tiberius
Litigation





As
reported in our Annual Report on Form 10-K for the year ended December 31, 2009,
filed with the SEC on March 31, 2010, on October 14, 2009, the Company filed a
Complaint against Tiberius Capital, LLC (“Tiberius”) in the United States
District Court for the District of Minnesota captioned “MathStar, Inc., Feltl
and Company, Inc., Sajan, Inc., Perkins Capital Management, Inc., Richard C.
Perkins, Merrill A. McPeak, Benno G. Sand, John C. Feltl and Joseph P. Sullivan,
Plaintiffs, v. Tiberius Capital II, LLC, Defendant” charging Tiberius with
threatening to bring a class action lawsuit against the Company
and  tortious interference with prospective economic
advantage.  On November 9, 2009, Tiberius served and filed its Answer
and asserted certain counterclaims.





On April
26, 2010, the United States District Court, District of Minnesota granted the
Company’s motion to dismiss all counterclaims asserted by
Tiberius.  Tiberius retains certain rights to amend its counterclaims
and to appeal this decision.  The Company believes that the Tiberius
claims are without merit and that it is not liable for any of these
claims.





Litigation by Sajan, Inc.
Stockholder (Natzel)





On
February 11, 2010, Mary Jo Natzel, a stockholder of Sajan, Inc., initiated a
lawsuit against Shannon Zimmerman and Angel Zimmerman (the “Zimmermans”) and
Sajan, Inc. in the Minnesota District Court, Hennepin County, Fourth Judicial
District. Ms. Natzel seeks declaratory, injunctive and monetary relief in an
amount in excess of $50,000 against Sajan, Inc. and the Zimmermans in connection
with the alleged underpayment to Ms. Natzel of distributions made by Sajan, Inc.
while it was a corporation taxed under Subchapter S of the Internal Revenue Code
and representations by the Zimmermans with respect to the amount of money
invested in Sajan, Inc. We believe the claims are without merit and intend to
vigorously defend this lawsuit.  A complete summary of the litigation
is included in our Annual Report on Form 10-K for the year ended December 31,
2009, filed with the SEC on March 31, 2010.





18





Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





Forward-Looking
Statements




This Quarterly Report on Form
10-Qcontains 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
(“Securities Exchange Act”).Forward-looking statements reflect the
current view about future events.When used in thisQuarterlyReport on Form10-Q, the words “anticipate,”“will,”“believe,” “estimate,” “expect,”
“future,” “intend,” “plan”and similar expressionsor the negative of these terms as they
relate toSajan, Inc.(the “Company” or “Sajan”), its subsidiaries or its management
identify forward-looking statements.Forward-looking statements are based on
information available at the time the statements are made and involve known and
unknown risks, uncertainties and other factors that may cause our results,
levels of activity, performance or achievements to be materially different from
the information expressed or implied by the forward-looking statements.Such statements reflect the current
view of our
managementwith respect to
future events and are subject to risks, uncertainties, assumptions and other
factors (including the risks contained in the section ofourCurrent Report on Form 8-K and our
AnnualReport on Form10-K entitled “Risk Factors” filed with the SEC on
February 24, 2010 and March 31, 2010, respectively) relating to the
Company’s industry, its
operations and results of operations, and any businesses that may be acquired by
it.These factors
include:





·
            our rate of growth in the global
      multi-lingual content delivery industry, especially for
      software-as-a-service solutions within this
    industry;





·
            changes
      in the utilization of our software and services by our
      customers;





·
            lack
      of acceptance of any existing or new solutions we
  offer;





·
            our
      ability to continue increasing the number of our customers or the revenues
      we derive from our recurring revenue
customers;





·
            continued
      economic weakness and constrained globalization spending by businesses
      operating in international markets;





·
            our
      ability to effectively develop new solutions that compete effectively with
      the solutions that our current and future competitors
    offer;





·
            risk
      of increased regulation of the Internet and business conducted via the
      Internet;





·
            our
      ability to identify
      attractive acquisition opportunities, successfully negotiate acquisition terms
      andeffectively
      integrate any acquired companies or
  businesses;





·
            our
      ability to effectively manage our
growth;





·
            availability
      of capital on acceptable terms to finance our continued
      growth;





·
            risks
      ofconducting international commerce,
      including foreign currency exchange rate fluctuations, changes in
      government policies or regulations, longer payment cycles, trade
      restrictions, economic or political instability in foreign countries where
      we may increase our business and reduced protection of our intellectual
      property;





·
            ourability to add sales and
      marketing, research and development or other key personnel who are able to
      successfully sell or develop our
  solutions;





·
            our ability tooperate as a public company and
      comply with applicable disclosure and other requirements and to hire
      additional personnel with public company compliance
      experience; and





·
            otherrisk factors included under “Risk
      Factors” inour
      Current Report on Form 8-K and ourAnnualReport on Form10-Kfiled with the Securities and
      Exchange Commission on February 24, 2010 and March 31, 2010,
      respectively.





Should
one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or planned.
Although our management believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, Sajan does
not intend to update any of the forward-looking statements to conform these
statements to actual results. The following discussion should be read in
conjunction with the financial statements and the related notes and the pro
forma financial information included in our Current Report on Form 8-K and our
Annual Report Form on 10-K filed with the SEC on February 24, 2010 and March 31,
2010, respectively.





19





Recent
Events





Chief Accounting Officer
Resignation





On
February 4, 2010, the former Chief Accounting Officer for MathStar
resigned.





Merger
Transaction





Pursuant
to the Merger Agreement, by and among MathStar, a Delaware corporation, and
Sajan, a privately held Minnesota corporation whose business is providing
language translation technology and service; Garuda, a wholly-owned subsidiary
of MathStar, now known as Sajan, LLC; and Thomas Magne, solely in his capacity
as agent for the holders of common stock of Sajan, Inc., Sajan, Inc. was merged
with and into Garuda.  Garuda was the surviving entity in the Merger
and subsequently changed its name to Sajan, LLC.  As a result of the
Merger, Sajan became a wholly-owned subsidiary of MathStar. MathStar will
continue the business of Sajan and operate as a provider of language translation
technology and service under the Sajan name.  The Merger was closed
and effective on February 23, 2010.





At
closing, MathStar paid $6,100,000 in cash, of which $5,100,000 was paid to
existing stockholders of Sajan.   The merger agreement provided
for the remaining $1 million to be placed in an escrow account with an escrow
agent, which funds would be utilized to fulfill the indemnification obligations
of the pre-Merger Sajan stockholders through February 23, 2011.  This
amount is presented as restricted cash and a note payable – indemnification
escrow of $1 million on the consolidated balance sheets.  The Company may
request claims against the escrow as defined in the escrow agreement.  The
remaining balance of the $1 million escrow at February 23, 2011 will be
distributed to the pre-Merger Sajan stockholders as defined in the escrow
agreement and the merger agreement.





In
exchange for the acquisition by MathStar of all outstanding capital stock of
Sajan, MathStar issued a total of approximately 7,000,000 shares of MathStar
common stock to former Sajan stockholders at the closing, and MathStar reserved,
as of the closing, approximately 945,000 shares of MathStar common stock for
issuance upon the exercise of options and warrants pursuant to the
Merger.





As a
result of the Merger, Sajan’s 5,573,742 shares of common stock were exchanged
for 6,827,734 shares of MathStar common stock, or an exchange of 1 Sajan common
share for 1.225 MathStar common shares. Options to purchase Sajan common stock
issued under Sajan’s 2001 Plan and certain non-plan options and warrants were
converted into options and warrants to purchase MathStar common stock and will
remain outstanding as options and warrants to purchase shares of MathStar common
stock.  Immediately after the closing of the Merger, the former
stockholders of Sajan, Inc. owned approximately 43% of the outstanding shares of
MathStar common stock.  At the time of Merger, 112,500 shares, valued
at $364,000 per management’s determination of fair value at the time of the
Merger, were recorded for dissenter shares.  (See Note
11)





Pursuant
to the Merger, Sajan merged with and into Garuda, with Garuda as the surviving
entity. For accounting purposes, Sajan is treated as the continuing reporting
entity that acquired MathStar because Sajan obtained effective control of
MathStar as a result of the Merger. This determination was based on the
following facts: Sajan stockholders will have a large minority interest in the
combined entity, the governing board will consist of a majority of Sajan board
members, and the composition of the senior management will be Sajan’s management
team. Under this method of accounting, the recognition and measurement
provisions of the accounting guidance for business combinations do not apply
and, therefore, there is no recognition of goodwill or other intangible assets.
Instead, the acquisition has been treated as the equivalent of Sajan issuing
stock for the net monetary assets of MathStar, primarily cash, which are stated
at their carrying value. Because of the Merger, the historical results in this
and future Quarterly Reports on Form 10-Q and future Annual Reports on Form 10-K
will represent those of Sajan.





Chief Executive Officer
Resignation





On
February 23, 2010, the former Chief Executive Officer and Chief Financial
Officer of MathStar resigned in connection with the Merger.





20





Tax Benefit Preservation
Plan and Rights Agreement





On
February 25, 2010, we entered into the Tax Benefit Preservation Plan and Rights
Agreement (the “Preservation Plan”) with Wells Fargo Shareowner Services, a
division of Wells Fargo Bank, National Association, as Rights Agent. Our Board
of Directors adopted the Preservation Plan in an effort to protect against a
possible limitation on the ability to use the Company’s net operating losses
(“NOL”) under the Internal Revenue Code of 1986, as amended (the “Code”), and
rules promulgated by the Internal Revenue Service.





In
connection with the Preservation Plan, our Board of Directors authorized a
series of 25 shares of Preferred Stock designated as Series A Preferred Stock,
with a par value of $0.001 per share.  The Series A Preferred Stock
issuable upon the exercise of the rights under the Plan, would be non-redeemable
and rank junior to all other series of our preferred stock.  Each
whole share of Series A Preferred Stock would be entitled to dividends, upon
declaration by the Board of Directors, and entitled to receive a preferential
liquidation of $1 per whole share.





Under the
Preservation Plan, beginning March 12, 2010, for each share of common stock
held, the holder of the common stock has the right to purchase one one-millionth
of a share of Series A Preferred Stock at an exercise price of
$8.50.  The rights expire in five years unless the Board of Directors
redeems or exchanges the rights; the tax law related to limitation on the
ability to use NOL is repealed; the NOL can no longer be carried forward; or the
Board of Director decides to extend the term of the Preservation
Plan.





The
rights distributed on February 25, 2010, cannot be exercised until one of two
triggering events occurs as defined in the Preservation Plan.





Upon a
triggering event occurring related to the exercise of the right, we would
account for the value of rights as a dividend and record a charge to retained
earnings (accumulated deficit) and additional paid-in capital.  Upon
completion of the Merger, there were 16,009,331 common shares outstanding
resulting in 1.6 shares of Series A Preferred Stock purchase
rights.





Name and Trading Symbol
Change





On
February 26, 2010, the corporate name was changed from MathStar, Inc. to Sajan,
Inc.  On April 22, 2010, our trading symbol changed from “MATH.PK” to
“SAJA.PK”.  The Company continues to trade on the Pink Sheets
markets.





General
Overview





Upon
effectiveness of the Merger, we provide, under the SajanTM name,
on-demand language translation solutions to customers selling products into
global markets. These customers use our solutions to translate product manuals,
instructions, warnings, and other product information into numerous languages.
We combine our internally developed proprietary technology and high quality
translation services to provide language translation solutions that are fast,
reliable, and user-friendly. By utilizing an integrated technology and a
service-based approach to language translation, we offer comprehensive solutions
that allow customers to rely upon a single provider to meet all of their
language translation needs. Our hosted technology system delivers a secure
online solution that can be offered on a modular basis, which makes it
attractive in both small business settings and in large enterprise
environments.





We offer
our customers the ability to utilize our solutions under three different
models:





·
            Technology Enabled Service Model:
      we provide all of the customer’s language translation
      requirements;





·
            Managed Service Model: customers
      use our technology and operations staff to manage translators;
      and





·
            Licensed Software Model: a
      technology-only solution that is independently operated by our
      customers.





Our
solutions are used to manage the end-to-end process of content globalization,
which is the project, process and delivery management of content translated and
localized into multiple languages across the enterprise. Content is localized
across the enterprise for a wide variety of high value-added purposes and uses,
most notably, product sales and marketing, packaging, user manuals, technical
support and training, as well as internal requirements.





Our
corporate offices are located in River Falls, Wisconsin, which is located
approximately 30 miles east of Minneapolis, Minnesota. Our River Falls corporate
offices contain our core Global Language Service operations, our administrative,
product management, marketing, sales, and professional services functions. Our
offices are located at 625 Whitetail Blvd., River Falls, Wisconsin 54022, and
our telephone number is (715) 426-9505.





21





In 2009,
we established Sajan Software Ltd. (“Sajan Software”), which is a wholly-owned
subsidiary based in Dublin, Ireland. This facility serves as our global research
and development center and as headquarters for our product business. Our
leadership team for Sajan Software consists of our Chief Marketing Officer/Sajan
Software President, based at the corporate facility in the United States and
responsible for our product function, and our General Manager – Europe, based at
our location in Ireland and responsible for managing our language
services.  Sajan-India Software Private Limited (“Sajan-India”), a
majority-owned subsidiary of Sajan Software based in New Delhi, India, houses
our development center at which we conduct substantially all of our software
development activities. Sajan-India is a majority-owned subsidiary of Sajan
Software.





Discussion
of Critical Accounting Policies and Estimates




Discussion
of the financial condition and results of our operations is based upon our
consolidated financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, costs and expenses, and related disclosures. On
an ongoing basis, we evaluate our estimates and judgments, including those
discussed below. These estimates are based on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. The results of our analysis form the basis for making assumptions
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions, and the impact of such differences
may be material to the consolidated financial statements.





Management
believes the following critical accounting policies involve significant
judgments and estimates in the preparation of our consolidated financial
statements:





Revenue
Recognition





The
Company derives revenues from the sale of software licenses, subscription
hosting services, professional services, maintenance fees or a combination
thereof.  The Company has three primary services models, each of which
is described below.





Technology
Enabled Service Model





In our
Technology Enabled Service Model, the Company provides all of the customer’s
language translation requirements.  Services within the Technology
Enabled Service Model include:  translation.  The Company
may also provide account management, graphic design services, technical,
consulting and professional services as requested by our clients on a per hour
rate basis.





In
accordance with Financial Accounting Standard Board (“FASB”) and
SEC accounting guidance on revenue recognition, the Company considers
revenue earned and realizable at the time services are performed and amounts are
earned.  Sajan considers amounts to be earned when (1) persuasive
evidence of an arrangement has been obtained; (2) services are delivered;
(3) the fee is fixed or determinable; and (4) collectability is
reasonably assured. Determination of criteria (3) and (4) are based on
management’s judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectability of those fees.
The Company recognizes revenue for translations managed on a standard “per word”
basis at the time the translation is completed.  The Company
recognizes revenue for professional services when the services have been
completed in accordance with the statement of work.





Managed
Service Model





The
managed service model has four elements: license fees, post-contract customer
support, transaction fees, and professional services.  We recognize
revenue as earned through transaction fees delivered through the Application
Service Provider (ASP) and associated fees for professional services including,
implementation, training, and project management provided to customers with
installed systems.





For ASP
and other hosting arrangements, the Company evaluates whether the customer has
the contractual right to take possession of the software at any time during the
hosting period without significant penalty and whether the customer can feasibly
maintain the software on the customer’s hardware or enter into another
arrangement with a third party to host the software. If we determine that the
customer has the contractual right to take possession of our software at any
time during the hosting period without significant penalty and can feasibly
maintain the software on the customer’s hardware or enter into another
arrangement with a third party to host the software, we recognize the license,
professional services and hosting services revenues.  For ASP and
other hosting arrangements that do not meet the criteria for recognition, the
Company accounts for the elements considering the multiple element arrangements
using all applicable facts and circumstances, including whether (i) the
element has stand-alone value, (ii) there is a general right of return and
(iii) the revenue is contingent on delivery of other elements. The Company
allocates revenue to each element of the arrangement that qualifies for
treatment as a separate element based on vendor-specific objective evidence
(“VSOE”), and if VSOE is not available, third party evidence, and if third party
evidence is unavailable, estimated selling price. For professional services
associated with ASP and hosting arrangements the Company determines do not have
stand-alone value to the customer or are contingent on delivery of other
elements, the  Company recognizes the services revenue ratably over
the term of the applicable agreement.





22





The
Company bills service fees either on a time and materials basis or on a
fixed-price schedule. In general, the Company’s consulting services are not
essential to the functionality of the software. The Company’s software products
are fully functional upon delivery and implementation and generally do not
require any significant modification or alteration for customer use. Customers
purchase the Company’s consulting services to facilitate the adoption of the
Company’s technology and may dedicate personnel to participate in the services
being performed, but may also decide to use their own resources or appoint other
professional service organizations to provide these services. Software products
are billed separately from professional services. The Company recognizes revenue
from consulting services as services are performed.





Licensed
Software Model





In the
Licensed Software Model, clients utilize GCMS, Authoring Coach, X-Content, or a
combination thereof, to self-perform their translation services.  This
technology-only solution provides the Company’s clients with the ability to
independently operate translation services without assistance from the Company’s
professionals.  The Licensed Software Model has two elements: (1)
license fees, and (2) post-contract customer support (maintenance).





The
Company recognizes revenue from license fees, based on VSOE when persuasive
evidence of an arrangement exists, delivery has occurred, the sales price is
fixed or determinable, and collectability is probable at the time the software
application is shipped to the client.





The
Company’s customers typically purchase maintenance
annually.  Maintenance prices are based on a percentage of the product
license fee. Customers purchasing maintenance receive product upgrades,
Web-based technical support and telephone hot-line support. Unspecified product
upgrades are not provided without the purchase of maintenance. The Company
typically has not granted specific upgrade rights in its license agreements.
Specified undelivered elements are allocated a relative fair value amount within
a license agreement and the revenue allocated for these elements is deferred
until delivery occurs.





Other





Sajan’s
agreements with its customers may informally provide the customer with a limited
time period following delivery during which the Company will attempt to address
any non-conformity to previously agreed upon objective specifications relating
to the work. Revenue is recognized as services are delivered in accordance with
the terms of the agreement with the customer, are not contingent, and are
earned.





Revenues
recognized in excess of billings are recorded as unbilled services. Billings in
excess of revenues recognized are recorded as deferred revenues until revenue
recognition criteria are met.





Income
Taxes





Income
taxes are provided for tax effects of transactions reported in the consolidated
financial statements and consist of income taxes currently due plus deferred
income taxes related to timing differences between the basis of certain assets
and liabilities for financial statements and income tax reporting. Deferred
taxes are determined based on the difference between the financial statement and
tax basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. A valuation allowance
for the net deferred tax assets is provided if, based upon the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.





On March
31, 2010, we have an accumulated NOL carryforward of approximately $31.9
million, which includes approximately $27.1 million as a result of the
Merger.  The NOL carryforward may be used to offset future income tax
liabilities, subject to limitations as provided in Section 382 of the Code, as
amended, and will continue to be available provided there is no change of
control, as defined in Section 382 of the Code. Based upon the provisions of
Section 382 of the Code, an amount of up to 4.14% of the available NOL is
available on an annual basis. The Company is allowed to issue shares in each
year subsequent to the effective date of the Merger in an amount not to exceed
10% of the share count at the beginning of such year without violating the
Section 382 of the Code change of control limitations, even if such issuance
were to constitute a change of control as defined in Section 382 of the
Code.





23





Software Development
Costs





We
capitalize software costs incurred during the software application development
stage when the software is internally developed solely to meet the entity’s
internal needs and no substantive plans exist or are being developed to market
the software externally. Costs capitalized include external direct costs of
materials and services and internal payroll and payroll-related costs. Any costs
during the preliminary project stage or related to training or maintenance are
expensed as incurred. Capitalization ceases when the software project is
substantially complete and ready for its intended use. The capitalization and
ongoing assessment of recoverability of development costs requires considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological and economic feasibility and estimated economic
life.  When a project is ready for its intended use, we amortize such
costs over the estimated useful life of three years.





Stock-based
Compensation





We
measure and recognize compensation expense for all stock-based compensation at
fair value. Our determination of fair value of share-based compensation awards
on the date of grant using an option-pricing model is affected by our stock
price as well as assumptions regarding a number of variables. These variables
include, but are not limited to, expected stock price volatility and actual and
projected stock option exercise behaviors and forfeitures. An option’s expected
term is the estimated period between the grant date and the exercise date of the
option. As the expected term increases, the fair value of the option and the
compensation cost will also increase. The expected-term assumption is generally
calculated using historical stock option exercise data. We do not have
historical exercise data to develop such an assumption. In cases where companies
do not have historical data and where the options meet certain criteria, SEC
Staff Accounting Bulletin 107 (“SAB 107”) provides the use of a simplified
expected-term calculation. Accordingly, Sajan calculated the expected terms
using the SAB 107 simplified method.





We
calculate expected volatility for stock options and awards using an industry
index and comparable companies, as we were recently a privately owned company
and did not have sufficient information to utilize a historical volatility. We
consider specific companies with comparable operations along with the Dow Jones
software and computer services small cap technology index to be representative
of our size and industry and have used the historical closing total return
values of that index for the three years prior to the date of grant to estimate
volatility. Management expects and estimates that substantially all employee
stock options will vest, and therefore the forfeiture rate used was
zero.





The
risk-free rates for the expected terms of the stock options are based on the
U.S. Treasury yield curve in effect at the time of grant.





Source of
Revenues





We
generate revenues by providing language translation services to customers for
which we are paid based upon the number of words translated and by the languages
involved. The price charged per word per language varies depending upon the
language, the availability of translator resources and the extent to which our
TM algorithms have been applied to reuse prior translation work. We break out
for financial reporting purposes revenues for which we incurred direct cost of
revenues with linguists versus revenues where the translation is machine-based
from TM. In late 2010, we expect that we will begin generating revenue on a
product only basis, for which we will also receive revenue on a per word basis
similar to our services business model based upon the number of words processed
through our GCMS platform by our product customers.





Operating
Expenses





We
allocate certain occupancy and general office related expenses, such as rent,
utilities and office supplies, to cost of revenues and operating expense
categories based upon headcount.





Cost of
Revenue





Cost of
revenue is highly variable based upon the volume of translation services
revenue. We work with freelance linguists who complete the actual language
translation, and they are paid on a per word basis. The fixed component of cost
of revenue is comprised of the global operations staff located principally in
our River Falls, Wisconsin location and also in our Dublin, Ireland location,
who are responsible for project and process management, quality control,
operational integration, vendor management and production operations. Over the
long term, we expect cost of revenue will grow in absolute dollars, as we expect
to continue to grow our revenue, but decrease as a percentage of revenue due to
economies of scale, more efficient sourcing and operational efficiencies from
ongoing investment in our GCMS platform.





24


Sales and Marketing
Expenses





Sales and
marketing expense consists primarily of advertising and promotional costs, wages
and benefits for sales and marketing personnel, commissions and partner referral
fees. Advertising costs consist of pay-per-click payments to search engines and
print advertisements in trade journals. Advertising costs are expensed as
incurred. Promotional costs consist primarily of public relations, memberships
and event costs. As we move into full commercial launch of our product solution
throughout 2010, we expect advertising and marketing expense to increase
proportionally faster than product sales during the year, but to decrease
slightly as a percentage of total sales.





Research and Development
Expenses





Research
and development expenses consist primarily of wages and benefits for product
strategy and development personnel. We have focused our research and development
efforts more recently on the industrialization of the GCMS platform and its
component modules for general release and independent use by the various
participants involved in the content globalization process and for the ability
to host GCMS utilizing cloud computing methodologies. Functional development has
continued in parallel on improving ease of use, functionality, scalability and
efficiency of TM processing.





We
capitalize development costs and amortize such costs over 36 months, with such
amortization reflected in general and administrative costs, as noted below. The
research and development organization is located principally at Sajan-India and
at Sajan-Ireland. We expect that on an annual basis, research and development
expenses will increase in absolute dollars as we continue to enhance and expand
our product offerings, but decrease as a percentage of revenues as we expect to
continue to grow our revenues at a faster rate.





General and Administrative
Expenses





General
and administrative expenses consist primarily of wages and benefits for
administrative, human resources, internal information technology support,
finance and accounting personnel, depreciation and amortization, professional
fees, certain taxes and other corporate expenses. We expect that general and
administrative expenses will increase as we continue to add personnel in
connection with the anticipated growth of our business and incur costs related
to operating as a public company. We expect that our general and administrative
expenses will increase in absolute dollars and on a percentage basis throughout
2010 reflecting the cost of being public and subsequently increase in absolute
dollars but, decrease on a percentage basis as sales increase.




Foreign Currency
Translation





The
functional currency for payment of accounts receivable for certain of the
Company’s foreign customers is the local currency of the country in which the
customer’s operations are based. Realized foreign currency translations gains or
losses arising from exchange rate fluctuations on balances denominated in
foreign currencies and unrealized foreign currency transaction gains or losses
relating to accounts receivable balances were not material for the three months
ended March 31, 2010 and 2009.  Foreign assets and liabilities are
translated using the year end exchange rates. Results of operations are
translated using average rates throughout the year. Translation gains and losses
are accumulated as a separate component of equity.





Results
of Operations - Three Months Ended March 31, 2010 Compared to Three Months Ended
March 31, 2009





For the
three-month period ended March 31, 2010, net loss attributable to stockholders
was $1.49 million compared to net loss of $.24 million for the three months
ended March 31, 2009. The increase in our net loss attributable to stockholders
primarily related to nonrecurring costs related to the Merger, including:
professional fees for legal, accounting and tax; increased insurance costs;
investment banking fees; stock compensation expenses as well as additional
investment in research and development.





Net loss
related to our non-controlling interest in our Sajan – India subsidiary was
approximately $3,000 for the three months ended March 31, 2010 compared to $0
for the three months ended March 31, 2009.  Our investment in Sajan –
India occurred in June 2009.  Net loss related to our non-controlling
interest in our affiliate of approximately $5,000 is related to River Valley’s
operations through the date of the Merger.  The Merger is a
reconsideration event between Sajan and River Valley, thus financial results for
River Valley were deconsolidated on the date of the Merger and will not be
presented in future periods.





During
the three months ended March 31, 2010, loss from operations before income taxes
and non-controlling interests in subsidiary and affiliate was $1.56 million
compared to $.31 million for the three months ended March 31, 2009. The major
components of revenues, store expenses, general and administrative expenses,
total operating expenses and income tax expense from continuing operations are
discussed below.


25





ThreeMonthsEndedItem
                        
                        3/31/10
                        
                        
                        3/31/09
                        
                        
                        % Change
                          (Year Over Year)
                        
                        
                        % of 2010
                          Net Loss
                        
                        
                        %of2009
                          NetLossRevenues
                        
                        $
                        3,140,202
                        
                        
                        $
                        3,018,040
                        
                        
                        
                        4.05
                        %
                        
                        
                        (210.02
                        )%
                        
                        
                        (1,482.92
                        )%Cost
      of Revenues
                        
                        
                        1,761,503
                        
                        
                        
                        1,682,393
                        
                        
                        
                        4.70
                        %
                        
                        
                        117.81
                        %
                        
                        
                        826.65
                        %Operating
      Expenses:Sales
      and Marketing
                        
                        
                        810,944
                        
                        
                        
                        934,342
                        
                        
                        
                        (13.21
                        )%
                        
                        
                        54.24
                        %
                        
                        
                        459.09
                        %Research
      and Development
                        
                        
                        568,586
                        
                        
                        
                        133,221
                        
                        
                        
                        326.80
                        %
                        
                        
                        38.03
                        %
                        
                        
                        65.46
                        %Other
      General and Administrative
                        
                        
                        1,494,732
                        
                        
                        
                        521,817
                        
                        
                        
                        186.45
                        %
                        
                        
                        99.97
                        %
                        
                        
                        256.40
                        %Other
      Income (Expense):Interest
      expense
                        
                        
                        (45,988
                        )
                        
                        
                        (51,578
                        )
                        
                        
                        (10.84
                        )%
                        
                        
                        (3.08
                        )%
                        
                        
                        25.34
                        %Interest
      and other income
                        
                        
                        2,038
                        
                        
                        
                        186
                        
                        
                        
                        995.70
                        %
                        
                        
                        (0.14
                        )%
                        
                        
                        (0.09
                        )%Other
      expense
                        
                        
                        (16,088
                        )
                        
                        
                        (4,816
                        )
                        
                        
                        234.05
                        %
                        
                        
                        1.08
                        %
                        
                        
                        2.37
                        %Income
      tax benefit
                        
                        
                        (62,311
                        )
                        
                        
                        (68,187
                        )
                        
                        
                        (8.62
                        )%
                        
                        
                        (4.17
                        )%
                        
                        
                        (33.50
                        )%Net
      loss before non-controlling interest
                        
                        
                        (1,493,290
                        )
                        
                        
                        (241,754
                        )
                        
                        
                        517.69
                        %Less
      non-controlling interest in subsidiary
                        
                        
                        2,646
                        
                        
                        
                        -
                        
                        
                        
                        N/A
                        %
                        
                        
                        (0.18
                        )%
                        
                        
                        -
                        %Less
      non-controlling interest in affiliate
                        
                        
                        (4,565
                        )
                        
                        
                        (38,234
                        )
                        
                        
                        (88.06
                        )%
                        
                        
                        0.31
                        %
                        
                        
                        (18.79
                        )%Net
      loss attributable to Sajan, Inc. and subsidiaries
                        
                        $
                        (1,495,209
                        )
                        
                        $
                        (203,520
                        )
                        
                        
                        635.65
                        %
                        
                        
                        100
                        %
                        
                        
                        100
                        %





Revenues





Revenues totaled $3.14 million for the three months ended March
31, 2010 compared to $3.02 million for the three months ended March 31, 2009.
This $.12 million or 4.05% increase resulted from an increase in the number of
customers, the growth of business with existing customers, and the introduction
of new products and services.





The
following table summarizes our revenues for the three months ended March 31,
2010 and 2009, respectively:




Three Months Ended
                    March 31,
                  
                  
                  Three Months Ended
                    March 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  2009(percentage of revenues)Translation
      and consulting income
                  
                  $
                  2,761,835
                  
                  
                  $
                  2,769,134
                  
                  
                  
                  87.95
                  %
                  
                  
                  91.75
                  %Technology
      income
                  
                  
                  301,706
                  
                  
                  
                  223,560
                  
                  
                  
                  9.61
                  %
                  
                  
                  7.41
                  %Product
      income
                  
                  
                  61,205
                  
                  
                  
                  8,560
                  
                  
                  
                  1.95
                  %
                  
                  
                  0.28
                  %Other
      income
                  
                  
                  15,456
                  
                  
                  
                  16,786
                  
                  
                  
                  0.49
                  %
                  
                  
                  0.56
                  %Total
                  
                  $
                  3,140,202
                  
                  
                  $
                  3,018,040
                  
                  
                  
                  100.00
                  %
                  
                  
                  100.00
                  %





Cost of
Revenues





Cost of
revenues increased $.08 million, or 4.7% for the three months ended March 31,
2010 compared to the three months ended March 31, 2009.   As a
percentage of revenue, cost of revenues was 56.1% for the three months ended
March 31, 2010 compared to 55.7% for the same interim period in 2009. The
increase resulted from growth in words processed of approximately 4%; investment
in the launch of Sajan-Ireland of approximately $40,000, as well as the
associated facilities and operational costs; and investment in the operations
staff in River Falls in support of anticipated growth. The increase in cost of
revenues as a percentage of revenue reflects market conditions that led to
increasingly competitive bids for business and the initiation of a contract for
a major customer that was purposefully bid with sub-standard margins to break
into the account and position us for future opportunities. Cost of revenue
excludes depreciation and amortization of $.25 million and $.18 million for the
three months ended March 31, 2010 and March 31, 2009, respectively, which are
included in general and administrative expenses.





Total
general and administrative costs for the three months ended March 31, 2010 were
$2.87 million compared to $1.60 million for the period ended March 31, 2009. For
the three months ended March 31, 2010, the major components of these costs were
sales and marketing, research and development and other general and
administrative expenses. A discussion of the various components of our general
and administrative costs for the three months ended March 31, 2010 and 2009
appears below:


26


Sales and
Marketing. Sales and marketing expense of approximately $.81 million for the
three months ended March 31, 2010 decreased $.12 million, or 13.2%, over sales
and marketing expense of approximately $.93 million for the three months ended
March 31, 2009. The decline in our expenses between the interim periods
primarily related to a categorization change of executive employee compensation
and benefits from sales and marketing to general and administrative and a
reduction in sales commissions.  Stock compensation expense for the
three months ended March 31, 2010 was $.03 million compared to $.02 million for
the three months ended March 31, 2009.  As a percentage of revenue,
sales and marketing expense was approximately 25.8% for the three months ended
March 31, 2010, a 5.2% increase from approximately 31.0% for the same interim
period in 2009, reflecting management’s intentional restraint on discretionary
marketing spending in light of the lower gross margin resulting from the
increase in cost of revenue as a percentage of revenue as described
above.





Research
and Development.  Research and development expense of approximately
$.57 million grew $.44 million or 326.8% for the three months ended March 31,
2010 over research and development expense of $.13 million for the three months
ended March 31, 2009.  The increase for the three months ended March
31, 2010 is comprised of additional investments in our Sajan – India subsidiary,
increased salaries and benefits expense from addition of staff in Europe,
approximately $.18 million of additional development expenses related to our
enterprise technology product, Global Communication Management System
(“GCMS”).  The increase also included $.02 million in stock
compensation expense for the three months ended March 31, 2010 compared to $0
for the three months ended March 31, 2009.  As a percentage of
revenue, research and development expense increased to 18.1% for the three
months ended March 31, 2010 compared to 4.6% for the three months ended March
31, 2009, reflecting expanded sales and marketing efforts in the United States,
launching of sales and marketing in Ireland and increased investment in our
subsidiary in India.





Other
General and Administrative.  Other general and administrative expense
was $1.49 million and $.52 million, an increase of approximately $.97 million,
or 186.5%, for the three months ended March 31, 2010 and 2009,
respectively.  As a percentage of revenue, general and administrative
expense was 47.4% for the three months ended March 31, 2010, or a 30.1% increase
over 17.3% for the three months ended March 31, 2009.  This increase
principally reflects non-recurring advisor, legal and accounting fees associated
with the preparation and filing of periodic reports with the SEC under the
Securities Exchange Act, professional services related to our net operating loss
carryforward, and three years of financial audits required as part of the
Merger.  In addition, we re-categorized certain ongoing executive
employee compensation and benefits expenses to general and administrative from
sales and marketing and an increase in insurance expenses.  Further,
our stock compensation expense for the three months ended March 31, 2010 was
$.13 million compared to $0 for the three months ended March 31,
2009.  As we seek to comply with the various legal, accounting and
governance rules and regulations applicable to public reporting companies, we
anticipate our professional fees expenses will increase during fiscal
2010.





Other
Income (Expense).Other expense was
approximately $.06 million for the three months ended March 31, 2010 and
2009.  Interest expenses for three months ended March 31, 2010 and
2009 of approximately $46,000 and $51,600 were related to the mortgage on the
buildings owned by River Valley Business Center, LLC and leased by Sajan and
decreased through deconsolidation on February 23, 2010.  Interest and
other income for the three months ended March 31, 2010 was approximately $2,000
compared to $200 for the three months ended March 31, 2009.  The
increase in interest income is a result of increased cash and cash
equivalents.  Other expenses for the three months ended March 31, 2010
were approximately $16,000 compared to $5,000 for the three months ended March
31, 2009.  The increase in other expenses was related to fluctuations
in foreign currency.





Income Tax
Benefit





Income
tax benefit for the three months ended March 31, 2010 was $.06 million compared
to income tax benefit of $.07 million for the three months ended March 31, 2009,
resulted because of our net operating loss carryforward as a result of the
Merger.




Liquidity
and Capital Resources





Summary
cash flow data is as follows:




Three Months Ended March 31,2010
                  
                  
                  2009Cash
      flows provided (used) by :Operating
      activities
                  
                  $
                  (658,867
                  )
                  
                  $
                  372,168Investing
      activities
                  
                  
                  5,318,250
                  
                  
                  
                  (151,074
                  )Financing
      activities
                  
                  
                  (958,999
                  )
                  
                  
                  (102,141
                  )Net
      increase in cash
                  
                  
                  3,700,384
                  
                  
                  
                  118,953Effect
      of exchange rate changes in cash
                  
                  
                  13,741
                  
                  
                  
                  -Cash,
      beginning of period
                  
                  
                  120,493
                  
                  
                  
                  381,501Cash,
      end of period
                  
                  $
                  3,834,618
                  
                  
                  $
                  500,454


27


Net
Cash (Used in) Provided by Operating Activities





Net cash
used in operating activities for the three months ended March 31, 2010 was $.66
million and was used to fund our operations and expand our operations
internationally.  Net cash provided by operating activities for the
three months ended March 31, 2009 was a result of a significantly lower net
loss, an increase in accounts receivable and accounts payable offset by a
reduction in our accrued liabilities and reduction in deferred
revenues.





Net
Cash (Used in) Provided by Investing Activities





Net cash
of $5.3 million provided by investing activities for the three months ended
March 31, 2010 primarily related to cash acquired in the Merger
transaction.  Net cash of $.15 million used in investing activities
for the three months ended March 31, 2009 related to purchases of property and
equipment and capitalization of software development costs.





Net
Cash Used in Financing Activities





Net cash
of $.96 million used in financing activities for the three months ended March
31, 2010 primarily related to payments for merger-related costs and short-term
debt.  Net cash of $.10 million used in financing activities for the
three months ended March 31, 2009 related to payments on short- and long-term
debts.





Sources of
Capital





For the
three months ended March 31, 2010, our principal source of liquidity was funds
generated from operations and cash received as part of the Merger.





Uses of
Capital





Sajan’s
primary uses of capital resources for the three months ended March 31, 2010 have
been to fund operating activities, expand business operations internationally,
and make nonrecurring payments for professional fees related to the
Merger.  The capital obtained by way of the Merger will be used to
grow and support the business in a variety of different ways, including
increased investments in research and development.  This will
help extend our differentiation and provide greater value to our global
clients.  We have a product roadmap influenced heavily by voice of market
and will seek to accelerate key feature releases.  We also intend to use
this capital for purchasing strategic companies which add ongoing benefit to our
Company operations and clients.  This may include both language translation
service companies and technology companies.  Finally, we will invest in
more aggressive sales and marketing initiatives to assist in overall business
growth.





Since the
Merger and in the immediate future, we anticipate that we will generate positive
cash flow from operations, but we may require investment capital to fund monthly
cash flow requirements, investments in our organizational infrastructure for the
launch of our business products and, potentially, for acquisitions. This was a
primary motivation for the Merger, in addition to providing access to public
market securities for the liquidity of former stockholders and also access to
capital on an efficient basis.





Following
the completion of the Merger, we believe that our cash, cash equivalents and
marketable securities and operating cash flows will be sufficient to meet our
working capital and capital expenditure requirements for at least the next 12
months. Thereafter, we may need to raise additional funds through public or
private financings or borrowings to fund our operations, to develop or enhance
products, to fund expansion, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If required, additional
financing may not be available on terms that are favorable to us, if at all. If
we raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced and
these securities might have rights, preferences and privileges senior to those
of our current stockholders or we may be subject to covenants that restrict how
we conduct our business. No assurance can be given that additional financing
will be available or that, if available, such financing can be obtained on terms
favorable to our stockholders and us.





Off-Balance
Sheet Arrangements




The
Company had no off-balance sheet arrangements as of March 31, 2010.


28


Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Not
applicable.




Item 4T. Controls and
Procedures





Evaluation of Disclosure
Controls and Procedures




On March
31, 2010, our Chief Executive Officer and Interim Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures (as defined in Exchange Rule 13a-15(e)),
and concluded that our disclosure controls and procedures were not effective and
designed to ensure that material information relating to the Company and our
consolidated subsidiaries would be made known to them by others within the
Company.  This conclusion was based primarily on the facts identified in
our Annual Report on Form 10-K for fiscal year ended December 31, 2009, filed
with the SEC on March 31, 2010.





Changes in Internal Control
over Financial Reporting




There
were no changes in our internal controls over financial reporting that occurred
during the fiscal quarter covered by this report that materially affected, or
were reasonably likely to materially affect such controls, except as described
below.





In our
Annual Report on Form 10-K for the year ended December 31, 2009, we identified
material weaknesses in internal control over financial reporting and a related
remediation plan.  We are still in the process of remediating our material
weaknesses.  However, to date, we believe we have made progress
towards remediation, including taking steps to:





·
            increase
      the oversight performed by our Board of Directors through expansion of our
      Board of Directors to seven members and expansion of our Audit Committee
      to four members.


·
            increase
      our Audit Committee’s oversight role, including
      providing  additional oversight of the Company’s internal
      controls, more formal review of our consolidated financial statements,
      reviewing management’s analysis of actual expenditures compared to its
      approved budget, reviewing expense reports and supporting documentation
      for reimbursements to our Chief Executive Officer, monitoring the interim
      management reports on the effectiveness of our internal controls,
      discussing complex or unusual accounting transactions with management and
      our independent registered public accounting firm, and reviewing the draft
      periodic reports we file with the
SEC;


·
            design
      and implement robust corporate governance including: (1) direct oversight
      of our internal controls by the Audit Committee of our Board of Directors;
      (2) review of our Annual Report on Form 10-K and Quarterly Reports on Form
      10-Q by the Audit Committee of our Board of Directors prior to filing with
      the SEC; (3) adoption and communication of our Code of Business Conduct
      and Ethics to our employees and consultants; (4) adoption and
      communication of our Policy on Insider Trading to our employees and
      consultants; (5) revision of policies within our employee handbook to
      ensure that appropriate disciplinary actions may be taken in the event an
      employee fails to properly perform their responsible internal controls or
      intentionally overrides any internal control and completion of employee
      training on the policy revisions; (6) adoption of charters for our Audit,
      Compensation, Governance and Nominating Committees of our Board of
      Directors; (7) adoption and training for our employees on our
      Whistleblower Policy, which includes our anonymous reporting system; (8)
      adoption of our policy on reporting and investigating complaints regarding
      accounting, internal accounting controls or auditing matters and concerns
      regarding questionable accounting or auditing matters; (9) communication
      to our global workforce by our Chief Executive Officer and Interim Chief
      Financial Officer on the importance of internal control compliance and
      reporting of noncompliance; and (10) adoption of our operating budget and
      our strategic plan by our Board of
Directors;


·
            secure
      the administrator passwords for the financial application, the servers and
      other devices used to support and backup the financial application, and
      replicate backup files to our corporate location to complete a validation
      of their integrity;


·
            utilize
      our internal control specialist to develop and assist us with the design,
      implementation and assessment of the design and operating effectiveness of
      our internal controls as well as design of remediation efforts as
      necessary for proper compliance, provide our internal audit consultant
      with direct access to our Audit Committee chairperson, and include our
      internal audit consultant in quarterly meetings of our audit committee to
      provide a status update on the effectiveness of our internal
      controls;


·
            design
      and implement a formalized financial reporting process that includes
      properly prepared, supported and reviewed balance sheet reconciliations;
      properly prepared, supported and reviewed journal entries; properly
      segregated duties, and properly completed and approved financial close
      checklist and financial reporting
calendar;


·
            design
      a mechanism to capture costs related to our internally developed
      software;


29


·
            begin
      a formal feasibility assessment of implementing an Enterprise Resource
      Planning (“ERP”) system to replace our current financial software
      application, including ensuring access rights within our new financial
      software application comply with designated roles and responsibilities and
      support the proper segregation of duties;
and


·
            begin
      assessing the feasibility of generating consolidated financial statements
      directly from the new ERP financial application and eliminate our current
      manual consolidation process.





Despite
the progress we believe we have made, we were unable to conclude that the
material weaknesses described in our Annual Report on Form 10-K for the year
ended December 31, 2009 were effectively remediated as of March 31, 2010, due to
the fact that (i) less than the entire remediation plan has been implemented and
(ii) an insufficient period of time has passed for management to test and
document the effectiveness of those controls which have been altered or newly
created as part of the remediation plan (as summarized above).  For
further information, please see our Annual Report on Form 10-K for fiscal year
ended December 31, 2009.


30


PART
II. OTHER INFORMATION




Item 1. Legal
Proceedings





On April
26, 2010, the United States District Court for the District of Minnesota granted
the Company’s motion to dismiss all counterclaims asserted by Tiberius Capital
II, LLC (“Tiberius”) in the action captioned “MathStar, Inc., Feltl and Company,
Inc., Sajan, Inc., Perkins Capital Management, Inc., Richard C. Perkins, Merrill
A. McPeak, Benno G. Sand, John C. Feltl and Joseph P. Sullivan, Plaintiffs, v.
Tiberius Capital II, LLC, Defendant”.  Tiberius retains certain rights
to amend its counterclaim and to appeal this decision.  A complete
summary of this litigation is included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2009, filed with the SEC on March 31,
2010.





Item 1A. Risk
Factors





There
have been no material changes to the Company’s Risk Factors as disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2009, as filed with
the SEC on March 31, 2010.




Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds





The
information required by this Item is included in the Company’s Current Report on
Form 8-K filed with the SEC on February 24, 2010 and is incorporated by
reference herein.





Item 3. Defaults upon
Senior Securities





None.





Item 4.
Reserved





Item 5.
Other Information





On April
22, 2010, our trading symbol changed from “MATH.PK” to “SAJA.PK”.  The
Company continues to trade on the Pink Sheets markets.


31




Item 6.
Exhibits





Exhibit No.
                
                
                Description2.1
                
                Agreement
      and Plan of Merger, dated January 8, 2010, among MathStar, Inc., Sajan,
      Inc., Garuda Acquisition, LLC, and Thomas Magne (incorporated by reference
      to Exhibit 2.1 to the Current Report on Form 8-K filed with the
      Securities and Exchange Commission (“SEC ”) on January
      11, 2010).3.1
                
                Certificate
      of Incorporation of MathStar, Inc. (incorporated by reference to
      Exhibit 3.1 to the Registration Statement on Form S-1 filed by
      MathStar, Inc. with the SEC on August 3, 2005, Registration
      No. 333-127164 {“Registration Statement”}).3.2
                
                Certificate
      of Amendment of the Certificate of Incorporation of MathStar, Inc.
      filed with the Delaware Secretary of State on May 23, 2008
      (incorporated by reference to Exhibit 3.1 to the Current Report on
      Form 8-K filed with the SEC on May 23, 2008).3.3
                
                Certificate
      of Designation of Series A Preferred Stock filed with the Secretary of
      State of the State of Delaware on February 25, 2010 (incorporated by
      reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated
      February 25, 2010 filed with the SEC).3.4
                
                Certificate
      of Ownership and Merger merging Sajan, Inc. into MathStar, Inc. filed with
      the Securities and Exchange Commission on March 3, 2010 (incorporated by
      reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the
      SEC on March 3, 2010).3.5
                
                Bylaws
      of MathStar, Inc. (incorporated by reference to Exhibit 3.2 to
      the Registration Statement).4.1
                
                Form
      of common stock certificate of MathStar, Inc. (incorporated by
      reference to Exhibit 4.1 to the Registration
    Statement).4.2
                
                Tax
      Benefit Preservation Plan and Rights Agreement, dated as of February 25,
      2010, between MathStar, Inc. and Wells Fargo Shareowner Services, a
      division of Wells Fargo Bank, National Association, as Rights Agent,
      together with the following exhibits thereto: Exhibit A - Form of
      Certificate of Designation of Series A Preferred Stock of MathStar,
      Inc.; Exhibit B — Form of Right Certificate; Exhibit C — Summary
      of Rights to Purchase Shares of Preferred Stock of MathStar, Inc.
      (incorporated by reference to Exhibit 4.1 of the Company’s Current Report
      on Form 8-K dated February 25, 2010 filed with the Securities and Exchange
      Commission).10.1
                
                MathStar,
      Inc. 2004 Amended and Restated Long-Term Incentive Plan (incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
      SEC on May 17, 2007).10.2
                
                Form
      of Incentive Stock Option Agreement (incorporated by reference to Exhibit
      10.2 to the Current Report on Form 8-K filed with the SEC on February 24,
      2010).10.3
                
                Form
      of Non-Statutory Stock Option Agreement for Vern
      Hanzlik (incorporated by reference to Exhibit 10.3 to the Current
      Report on Form 8-K filed with the SEC on February 24,
    2010).10.4
                
                Form
      of Incentive Stock Option Agreement for Peter Shutte (incorporated by
      reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the
      SEC on February 24, 2010).10.5
                
                Form
      of Non-Statutory Stock Option Agreement for non-employee
      directors (incorporated by reference to Exhibit 10.5 to the Current
      Report on Form 8-K filed with the SEC on February 24,
    2010).


32





10.6
            
            Form
      of Common Stock Purchase Warrant (incorporated by reference to
      Exhibit 10.6 to the Current Report on Form 8-K filed with the SEC on
      February 24, 2010).10.7
            
            Employment
      Agreement, dated May 19, 2006, and as amended on February 1, 2010, between
      Sajan, Inc. and Angela Zimmerman (incorporated by reference to
      Exhibit 10.8 to the Current Report on Form 8-K filed with the SEC on
      February 24, 2010).10.8
            
            Employment
      Agreement, dated May 19, 2006, and as amended on February 1, 2010, between
      Sajan, Inc. and Shannon Zimmerman (incorporated by reference to
      Exhibit 10.8 to the Current Report on Form 8-K filed with the SEC on
      February 24, 2010).10.9
            
            Employment
      Agreement, dated January 1, 2007, and as amended on June 2, 2009 and
      February 1, 2010, between Sajan, Inc. and Vern Hanzlik (incorporated
      by reference to Exhibit 10.9 to the Current Report on Form 8-K filed with
      the SEC on February 24, 2010).10.10
            
            Employment
      Offer Letter, dated January 9, 2009, and as amended June 3, 2009, between
      Sajan, Inc. and Peter Shutte (incorporated by reference to Exhibit
      10.10 to the Current Report on Form 8-K filed with the SEC on February 24,
      2010).10.11
            
            Office
      Lease Agreement dated June 1, 2005, as amended on September 23, 2005,
      and as further amended on July 24, 2007 by and between Mark Tanasbourne,
      LLC and MathStar, Inc. (incorporated by reference to
      Exhibit 10.12 to the Registration Statement).10.12
            
            Standard
      Office Lease Agreement (No. 1) between Sajan, Inc. and River Valley
      Business Center, LLC, dated February 1, 2010 (incorporated by
      reference to Exhibit 10.12 to the Current Report on Form 8-K filed with
      the SEC on February 24, 2010).10.13
            
            Standard
      Office Lease Agreement (No. 2) between Sajan, Inc. and River Valley
      Business Center, LLC, dated February 1, 2010 (incorporated by
      reference to Exhibit 10.13 to the Current Report on Form 8-K filed with
      the SEC on February 24, 2010).10.14
            
            Promissory
      Note, dated February 23, 2010, in the original principal amount of
      $1,000,000 issued by MathStar, Inc. to Shannon and Angel
      Zimmerman (incorporated by reference to Exhibit 10.14 to the Current
      Report on Form 8-K filed with the SEC on February 24,
    2010).10.15
            
            Escrow
      Agreement, dated February 23, 2010, among MathStar, Inc., Sajan, LLC and
      Thomas Magne, as representative for the shareholders of Sajan,
      Inc. (incorporated by reference to Exhibit 10.15 to the Current
      Report on Form 8-K filed with the SEC on February 24,
    2010).10.16
            
            Form
      of Lock-Up Agreement (incorporated by reference to Exhibit 10.16 to
      the Current Report on Form 8-K filed with the SEC on February 24,
      2010).14.1
            
            Code
      of Ethics adopted March 30, 2010 (incorporated by reference to Exhibit
      14.1 to the Annual Report on Form 10-K filed with the SEC on March 31,
      2010).16.1
            
            Letter
      from HLB Tautges Redpath, Ltd. (incorporated by reference to Exhibit
      16.1 to the Current Report on Form 8-K filed with the SEC on February 24,
      2010).16.2
            
            Letter
      from PricewaterhouseCoopers, LLP (incorporated by reference to Exhibit
      16.2 to the Current Report on Form 8-K filed with the SEC on February 24,
      2010).21.1
            
            Subsidiaries
      of Sajan, Inc. (incorporated by reference to Exhibit 21.1 to the Annual
      Report on Form 10-K filed with the SEC on March 31,
  2010).31.1
            
            Certification
      of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a)
      (filed
      herewith)


33





31.2
            
            Certification
      of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a)
      (filed
      herewith)32
            
            Certification
      of principal executive officer and principal financial officer pursuant to
      18 U.S.C. 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (filed
      herewith)





SIGNATURES




Pursuant
to the requirements of the Securities and Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Dated:
      May 17, 2010
            Sajan,
      Inc.(Registrant)By:
            /s/ Shannon ZimmermanShannon
      ZimmermanChief
      Executive Officer, President and
              Interim
      Chief Financial Officer


34