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 June 30, 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










Former
name, former address and former fiscal year, if changed since last report:
N/A





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    o 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).    
o
Yes    o 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  o      Accelerated
filer  o      Non-accelerated
filer  o        
Smaller reporting company  x





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





As of
August 13, 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
                  
                  3Item
      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
                  
                  30PART
      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. Removed and Reserved
                  
                  31Item
      6. Exhibits
                  
                  32SIGNATURES
                  
                  33




2





PART
I. FINANCIAL INFORMATION





Item
1.  Financial Statements.





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


CONDENSED
CONSOLIDATED BALANCE SHEETS


June 30, 2010
                                                          (Unaudited)
                                                        
                                                        
                                                        December 31,
                                                          2009AssetsCurrent
      assets:Cash
      and cash equivalents
                                                        
                                                        $
                                                        2,595,071
                                                        
                                                        
                                                        $
                                                        120,493Restricted
      cash
                                                        
                                                        
                                                        1,000,000
                                                        
                                                        
                                                        
                                                        -Accounts
      receivable, net of allowance of $15,000 and $10,000
                                                        
                                                        
                                                        2,768,352
                                                        
                                                        
                                                        
                                                        2,871,005Deferred
      tax asset, net of allowance
                                                        
                                                        
                                                        680,336
                                                        
                                                        
                                                        
                                                        660,170Unbilled
      services
                                                        
                                                        
                                                        631,269
                                                        
                                                        
                                                        
                                                        256,697Prepaid
      expenses and other current assets
                                                        
                                                        
                                                        129,090
                                                        
                                                        
                                                        
                                                        38,534Total
      current assets
                                                        
                                                        
                                                        7,804,118
                                                        
                                                        
                                                        
                                                        3,946,899Property
      and equipment, net
                                                        
                                                        
                                                        751,603
                                                        
                                                        
                                                        
                                                        3,349,556Other
      assets:Intangible
      assets, net
                                                        
                                                        
                                                        258,883
                                                        
                                                        
                                                        
                                                        336,983Capitalized
      software development costs, net
                                                        
                                                        
                                                        679,919
                                                        
                                                        
                                                        
                                                        877,117Other
      assets, net
                                                        
                                                        
                                                        12,752
                                                        
                                                        
                                                        
                                                        24,294Total
      other assets
                                                        
                                                        
                                                        951,554
                                                        
                                                        
                                                        
                                                        1,238,394Total
      assets
                                                        
                                                        $
                                                        9,507,275
                                                        
                                                        
                                                        $
                                                        8,534,849Liabilities
      and  Stockholders’ EquityCurrent
      liabilities:Checks
      issued in excess of bank balance
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        113,048Current
      portion of capital lease obligations
                                                        
                                                        
                                                        3,392
                                                        
                                                        
                                                        
                                                        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
                                                        
                                                        
                                                        1,493,242
                                                        
                                                        
                                                        
                                                        901,213Accrued
      interest – related party
                                                        
                                                        
                                                        27,836
                                                        
                                                        
                                                        
                                                        23,415Accrued
      compensation and benefits
                                                        
                                                        
                                                        685,222
                                                        
                                                        
                                                        
                                                        505,084Other
      accrued liabilities
                                                        
                                                        
                                                        823,513
                                                        
                                                        
                                                        
                                                        747,671Deferred
      revenue
                                                        
                                                        
                                                        244,134
                                                        
                                                        
                                                        
                                                        336,458Total
      current liabilities
                                                        
                                                        
                                                        5,277,339
                                                        
                                                        
                                                        
                                                        4,035,535Long-term
      liabilities:Long-term
      debt, net of current portion
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,412,194Lease
      obligations and other long-term liabilities
                                                        
                                                        
                                                        55,211
                                                        
                                                        
                                                        
                                                        -Tax
      liability – uncertain tax position
                                                        
                                                        
                                                        19,687
                                                        
                                                        
                                                        
                                                        19,687Deferred
      tax liability – long-term
                                                        
                                                        
                                                        563,845
                                                        
                                                        
                                                        
                                                        605,497Total
      long-term liabilities
                                                        
                                                        
                                                        638,743
                                                        
                                                        
                                                        
                                                        3,037,378Total
      liabilities
                                                        
                                                        
                                                        5,916,082
                                                        
                                                        
                                                        
                                                        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, 35,000,000 shares authorized, 16,009,331 issued and
      outstanding at June 30, 2010 and 18,000,000 shares authorized and
      5,686,250 issued and outstanding at December 31, 2009
                                                        
                                                        
                                                        160,093
                                                        
                                                        
                                                        
                                                        56,863Additional
      paid-in capital
                                                        
                                                        
                                                        6,211,009
                                                        
                                                        
                                                        
                                                        1,919,161Accumulated
      deficit
                                                        
                                                        
                                                        (2,747,727
                                                        )
                                                        
                                                        
                                                        (709,393
                                                        )Accumulated
      other comprehensive loss:Foreign
      currency adjustment
                                                        
                                                        
                                                        (21,838
                                                        )
                                                        
                                                        
                                                        (22,896
                                                        )Stockholders’
      equity
                                                        
                                                        
                                                        3,601,537
                                                        
                                                        
                                                        
                                                        1,243,735Non-controlling
      interest in subsidiary
                                                        
                                                        
                                                        (10,344)
                                                        
                                                        
                                                        
                                                        (3,075
                                                        )Non-controlling
      interest in equity affiliate(River
      Valley Business Center, LLC)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        221,276Total
      equity
                                                        
                                                        
                                                        3,591,193
                                                        
                                                        
                                                        
                                                        1,461,936Total
      liabilities and stockholders’ equity
                                                        
                                                        $
                                                        9,507,275
                                                        
                                                        
                                                        $
                                                        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.




3


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


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


Three months ended
              
              
              Six months endedJune 30, 2010
              
              
              June 30, 2009
              
              
              June 30, 2010
              
              
              June 30, 2009Revenues:Translation
      and consulting income
              
              $
              3,818,209
              
              
              $
              2,469,790
              
              
              $
              6,623,583
              
              
              $
              5,238,924Technology
      income
              
              
              327,295
              
              
              
              215,099
              
              
              
              629,001
              
              
              
              438,659Product
      income
              
              
              52,301
              
              
              
              7,256
              
              
              
              69,967
              
              
              
              15,816Other
      income
              
              
              4,515
              
              
              
              16,786
              
              
              
              19,971
              
              
              
              33,572Total
      revenues
              
              
              4,202,320
              
              
              
              2,708,931
              
              
              
              7,342,522
              
              
              
              5,726,971Cost
      of revenuesCost
      of revenues (exclusive of depreciation and amortization included
      below)
              
              
              2,289,126
              
              
              
              1,503,764
              
              
              
              4,050,629
              
              
              
              3,186,157Gross
      margin
              
              
              1,913,194
              
              
              
              1,205,167
              
              
              
              3,291,893
              
              
              
              2,540,814Operating
      expenses:Sales
      and marketing
              
              
              921,544
              
              
              
              883,287
              
              
              
              1,732,488
              
              
              
              1,701,071Research
      and development
              
              
              392,606
              
              
              
              162,034
              
              
              
              961,192
              
              
              
              336,427General
      and administrative
              
              
              927,895
              
              
              
              341,218
              
              
              
              2,177,584
              
              
              
              754,234Depreciation
      and amortization
              
              
              220,696
              
              
              
              239,646
              
              
              
              465,739
              
              
              
              423,833Total
      operating expenses
              
              
              2,462,741
              
              
              
              1,626,185
              
              
              
              5,337,003
              
              
              
              3,215,565Loss
      from operations
              
              
              (549,547
              )
              
              
              (421,018
              )
              
              
              (2,045,110
              )
              
              
              (674,751
              )Other
      income (expense):Interest
      expense
              
              
              (22,428
              )
              
              
              (51,497
              )
              
              
              (68,416
              )
              
              
              (103,075
              )Interest
      and other income
              
              
              25,518
              
              
              
              19,954
              
              
              
              27,556
              
              
              
              20,140Other
      expense
              
              
              (1,291
              )
              
              
              (5,202
              )
              
              
              (17,379
              )
              
              
              (10,018
              )Total
      other income (expense)
              
              
              1,799
              
              
              
              (36,745
              )
              
              
              (58,239
              )
              
              
              (92,953
              )Net
      loss before income taxes and non-controlling interests in subsidiary and
      affiliate
              
              
              (547,748
              )
              
              
              (457,763
              )
              
              
              (2,103,349
              )
              
              
              (767,704
              )Income
      tax benefit
              
              
              -
              
              
              
              (100,707
              )
              
              
              (62,311
              )
              
              
              (168,894
              )Net
      loss before non-controlling interest
              
              
              (547,748
              )
              
              
              (357,056
              )
              
              
              (2,041,038
              )
              
              
              (598,810
              )Less
      Non-controlling interest in subsidiary
              
              
              4,623
              
              
              
              2,131
              
              
              
              7,269
              
              
              
              2,131Less
      Non-controlling interest in affiliate (River Valley Business
      Center)
              
              
              -
              
              
              
              (7,760
              )
              
              
              (4,565
              )
              
              
              30,474Net
      loss attributable to Sajan, Inc. and subsidiaries
              
              $
              (543,125
              )
              
              $
              (362,685
              )
              
              $
              (2,038,334
              )
              
              $
              (566,205
              )Loss
      per common share – Basic and diluted
              
              $
              (0.03
              )
              
              $
              (0.06
              )
              
              $
              (0.15
              )
              
              $
              (0.10
              )Weighted
      average shares outstanding – Basic and diluted
              
              
              16,009,331
              
              
              
              5,686,250
              
              
              
              13,972,298
              
              
              
              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.


4




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


CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)


Six
       months endedJune
      30, 2010
                                          
                                          
                                          June 30, 2009Cash
      flows from operating activities:Net
      loss
                                          
                                          $
                                          (2,041,038
                                          )
                                          
                                          $
                                          (598,808
                                          )Adjustments
      to reconcile net loss to net cash from operating
      activities:Amortization
      of capitalized software costs
                                          
                                          
                                          262,483
                                          
                                          
                                          
                                          238,088Amortization
      of license costs and debt issuance costs
                                          
                                          
                                          80,295
                                          
                                          
                                          
                                          50,696Depreciation
                                          
                                          
                                          122,961
                                          
                                          
                                          
                                          135,049Stock-based
      compensation expense
                                          
                                          
                                          456,610
                                          
                                          
                                          
                                          102,215Deferred
      taxes
                                          
                                          
                                          (61,818
                                          )
                                          
                                          
                                          (168,894
                                          )Change
      in allowance for doubtful accounts
                                          
                                          
                                          5,000
                                          
                                          
                                          
                                          0Decrease
      (increase) in current assets:Accounts
      receivable
                                          
                                          
                                          (19,065
                                          )
                                          
                                          
                                          703,712Change
      in unbilled services
                                          
                                          
                                          (374,572
                                          )
                                          
                                          
                                          (16,580
                                          )Prepaid
      expenses and other current assets
                                          
                                          
                                          (80,752
                                          )
                                          
                                          
                                          (189,015
                                          )Increase
      (decrease) in current liabilities:Accounts
      payable
                                          
                                          
                                          621,265
                                          
                                          
                                          
                                          84,205Accrued
      interest – related party
                                          
                                          
                                          27,867
                                          
                                          
                                          
                                          985Accrued
      compensation and benefits
                                          
                                          
                                          180,137
                                          
                                          
                                          
                                          81,269Other
      accrued liabilities
                                          
                                          
                                          (510,207
                                          )
                                          
                                          
                                          317,478Deferred
      revenue
                                          
                                          
                                          (92,324
                                          )
                                          
                                          
                                          (30,750
                                          )Net
      cash flows provided by (used in) operating activities
                                          
                                          
                                          (1,423,158
                                          )
                                          
                                          
                                          709,650Cash
      flows from investing activities:Purchases
      of property and equipment
                                          
                                          
                                          (81,672
                                          )
                                          
                                          
                                          (161,866
                                          )Purchases
      of intangible assets
                                          
                                          
                                          (2,052
                                          )
                                          
                                          
                                          (354,586
                                          )Capitalized
      software development costs
                                          
                                          
                                          (64,155
                                          )
                                          
                                          
                                          (231,082
                                          )Cash
      acquired in merger transaction
                                          
                                          
                                          5,472,000
                                          
                                          
                                          
                                          -Payment
      of dissenter liability
                                          
                                          
                                          (366,943
                                          )
                                          
                                          
                                          -Deconsolidation
      of affiliate
                                          
                                          
                                          (98,730
                                          )
                                          
                                          
                                          -Net
      cash flows provided by (used in) investing activities
                                          
                                          
                                          4,858,448
                                          
                                          
                                          
                                          (747,534
                                          )Cash
      flows from financing activities:Checks
      issued in excess of cash
                                          
                                          
                                          (113,048
                                          )
                                          
                                          
                                          -Net
      proceeds on line of credit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          150,000Payments
      on note payable – related party
                                          
                                          
                                          (285,645
                                          )
                                          
                                          
                                          (17,710
                                          )Payments
      on merger costs
                                          
                                          
                                          (540,254
                                          )
                                          
                                          
                                          -Payments
      on capital lease obligation
                                          
                                          
                                          (7,122
                                          )
                                          
                                          
                                          (26,439
                                          )Payments
      on mortgage long-term liability
                                          
                                          
                                          (14,571
                                          )
                                          
                                          
                                          (42,721
                                          )Net
      cash flows provided by (used in) financing activities
                                          
                                          
                                          (960,640
                                          )
                                          
                                          
                                          63,130Net
      increase in cash and cash equivalents
                                          
                                          
                                          2,474,650
                                          
                                          
                                          
                                          25,246Effect
      of exchange rate changes in cash
                                          
                                          
                                          (72
                                          )
                                          
                                          
                                          -Cash
      and cash equivalents – beginning of period
                                          
                                          
                                          120,493
                                          
                                          
                                          
                                          381,501Cash
      and cash equivalents – end of period
                                          
                                          $
                                          2,595,071
                                          
                                          
                                          $
                                          406,747Cash
      paid for interest, net of amortization of loan fees
                                          
                                          $
                                          69,409
                                          
                                          
                                          $
                                          101,614Non-cash
      investing and financing transactions:Note
      payable – related party acquired in merger
                                          
                                          $
                                          1,000,000
                                          
                                          
                                          $
                                          -Short-term
      note payable – indemnification escrow and restricted cash acquired 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.




5




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





Nature of Business / Basis
of Presentation





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. The Ireland facility serves as both a Global
Language Service Center and is home to Sajan Software Ltd, the producer of
Sajan’s technology tools. Sajan India Software Private Limited (“Sajan –
India”), based in Delhi, India, houses one of our development centers at which
we conduct substantially all of our software development activities. Sajan-India
is a majority-owned subsidiary of Sajan Software.





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).





Interim Financial
Information




The
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 and six months
ended June 30, 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)





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 $15,000
at June 30, 2010 and $10,000 at 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.




6




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.  For both the three months and six months ended June 30, 2010
and 2009, we excluded options to purchase 1,110,062 and 729,375 shares and
warrants to purchase 628,008 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 and six months ended June 30, 2010 and 2009 was
anti-dilutive.





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





Three Months
                          Ended
                          June 30, 2010
                        
                        
                        Three Months
                          Ended
                          June 30, 2009Numerator:Net
      loss attributable to Sajan, Inc. and Subsidiaries
                        
                        $
                        (543,125
                        )
                        
                        $
                        (362,685
                        )Denominator:Weighted
      average common shares outstanding - basic
                        
                        
                        16,009,331
                        
                        
                        
                        5,686,250Weighted
      average common shares outstanding – diluted
                        
                        
                        16,009,331
                        
                        
                        
                        5,686,250Loss
      per common share – basic
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.06
                        )Loss
      per common share – diluted
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.06
                        )





Six Months
                        Ended
                        June 30, 2010
                      
                      
                      Six Months
                        Ended
                        June 30, 2009Numerator:Net
      loss attributable to Sajan, Inc. and Subsidiaries
                      
                      $
                      (2,038,334
                      )
                      
                      $
                      (566,205
                      )Denominator:Weighted
      average common shares outstanding - basic
                      
                      
                      13,972,298
                      
                      
                      
                      5,686,250Weighted
      average common shares outstanding – diluted
                      
                      
                      13,972,298
                      
                      
                      
                      5,686,250Loss
      per common share – basic
                      
                      $
                      (0.15
                      )
                      
                      $
                      (0.10
                      )Loss
      per common share – diluted
                      
                      $
                      (0.15
                      )
                      
                      $
                      (0.10
                      )





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.




7




When the
projects are ready for their intended use, the Company amortizes such costs over
their estimated useful lives of three years. Capitalized software amortization
expense for the three and six months ended June 30, 2010 was $127,822 and
$262,483, respectively, and for the three and six months ended June 30, 2009 was
$131,952 and $238,088, respectively.  Estimated amortization expense
for capitalized software costs are expected to be approximately $231,840 for the
remainder of 2010 and, $328,900, and $117,700 for the years ending December 31,
2011, and 2012, respectively.





Capitalized
software development costs consist of the following as of June 30, 2010 and
December 31, 2009, respectively:





June 30,
                        2010
                      
                      
                      December 31,
                        2009Capitalized
      software development costs
                      
                      $
                      2,548,641
                      
                      
                      
                      2,483,356Less
      accumulated amortization
                      
                      
                      (1,868,722
                      )
                      
                      
                      (1,606,239
                      )Total
      capitalized software development costs, net
                      
                      $
                      679,919
                      
                      
                      
                      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 and six
months ended June 30, 2010, total stock-based compensation expense was
approximately $87,000 ($0.01 per share) and $457,000 ($0.03 per share),
respectively.  For the three and six months ended June 30, 2009, total
stock-based compensation expense was approximately $64,000 ($0.01 per share) and
$102,000 ($0.01 per share), respectively.   As of June 30, 2010,
there was approximately $700,000 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 three 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;
however the Company does not have historical exercise data to develop such an
assumption. As a result, the Company determined the expected term assumption
using the simplified expected-term calculation as provided in SEC Staff
Accounting Bulletin 107.





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 in the quarter ended June 30, 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:





Three Months Ended June 30,2010
                      
                      
                      2009Risk-free
      interest rate
                      
                      
                      1.3
                      %
                      
                      
                      2.52
                      %Expected
      life of options granted
                      
                      5 Yrs
                      
                      
                      7
      YrsExpected
      volatility range
                      
                      
                      63.34
                      %
                      
                      
                      24.07
                      %Expected
      dividend yield
                      
                      
                      0
                      %
                      
                      
                      0
                      %





Using the
Black-Scholes option pricing model, management has determined that the options
issued have a weighted-average grant date fair value for the three months ended
June 30, 2010 and 2009 of $0.75 and $1.06 per share, respectively.





8




In
determining the compensation cost of the options granted, the fair value of each
option grant in the six months ended June 30, 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:





Six
      Months Ended June 30,2010
                      
                      
                      2009Risk-free
      interest rate
                      
                      
                      1.5
                      %
                      
                      
                      2.52
                      %Expected
      life of options granted
                      
                      5.39 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
issued have a weighted-average grant date fair value for the six months ended
June 30, 2010 and 2009 of $0.80 and $1.06 per share, respectively.




Revenue
Recognition





The
Company derives revenues from language translation services, 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: language translation, account management, graphic design
services, technical, consulting and professional services.  Language
translation services are generally billed on a “per word” basis and other
services are billed 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 five elements: language translation services, software
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.




9




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.





Cost of
Revenues





Cost of
revenues 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. Cost of revenues excludes depreciation
and amortization which is included in general and administrative
expenses.  Depreciation and amortization expense for the three and six
months ended June 30, 2010 was $220,639 and $465,739, respectively, and for the
three and six months ended June 30, 2009 was $239,646 and $423,833,
respectively.





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 and six
months ended June 30, 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 June 30, 2010 and 2009.  As of the date of the Merger, River
Valley was deconsolidated.





10




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.





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.





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 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.  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.





11




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





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 payments are
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, which
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 and six months ended June 30, 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)




12




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
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                Deconsolidation of
                                                                                                                                                                                                                                                                                                                  River Valley
                                                                                                                                                                                                                                                                                                                  Business Center,
                                                                                                                                                                                                                                                                                                                  LLC
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                Sajan, Inc.and
                                                                                                                                                                                                                                                                                                                  Subsidiaries
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                MathStar,Inc.
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                Cash PayOut
                                                                                                                                                                                                                                                                                                                  Adjustments
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                
                                                                                                                                                                                                                                                                                                                Pro Forma
                                                                                                                                                                                                                                                                                                                  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




13




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
                                                    of River Valley
                                                    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




14





NOTES
TO UNAUDITED PRO FORMA 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.





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 June 30, 2010, three customers accounted
for 14.71%, 11.85%, and 10.30% of the accounts receivable and as of December 31,
2009, one customer accounted for 37% of the accounts receivable.




15




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.





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 $0 and $16,800 for the three months ended June
30, 2010 and 2009, respectively and $10,200 and $33,600 for the six months ended
June 30, 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)





Three Months Ended June 30,2010
                          
                          
                          2009Sales
                          
                          
                          Percent
                          
                          
                          Sales
                          
                          
                          PercentUnited
      States
                          
                          $
                          3,371,659
                          
                          
                          
                          80.23
                          %
                          
                          $
                          2,072,585
                          
                          
                          
                          76.99
                          %International
                          
                          
                          830,661
                          
                          
                          
                          19.77
                          %
                          
                          
                          619,546
                          
                          
                          
                          23.01
                          %Total
      Sales
                          
                          $
                          4,202,320
                          
                          
                          
                          100.00
                          %
                          
                          $
                          2,692,131
                          
                          
                          
                          100.00
                          %





Six Months Ended June
      30,2010
                          
                          
                          2009Sales
                          
                          
                          Percent
                          
                          
                          Sales
                          
                          
                          PercentUnited
      States
                          
                          $
                          5,775,095
                          
                          
                          
                          78.76
                          %
                          
                          $
                          4,733,672
                          
                          
                          
                          83.14
                          %International
                          
                          
                          1,557,227
                          
                          
                          
                          21.24
                          %
                          
                          
                          959,699
                          
                          
                          
                          16.86
                          %Total
      Sales
                          
                          $
                          7,332,322
                          
                          
                          
                          100.00
                          %
                          
                          $
                          5,693,371
                          
                          
                          
                          100.00
                          %





The
Company’s largest two customers accounted for 11.4% and 10.4% of net revenues
for the three months ended June 30, 2010 and three customers accounted for
13.1%, 11.2%, and 10% of net revenues for the three months ended June 30,
2009.  There were no customers greater than 10% for the six months
ended June 30, 2010 and one customer accounted for 18.6% of net revenues for the
six months ended June 30, 2009.





No
individual foreign country accounted for 10% of consolidated revenue in any
period presented.




5.
            Related
      Party Transactions –





Notes
Payable





Notes
payable and accrued interest to related party was approximately $1,028,000 and
$316,000 at June 30, 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.  Accrued interest was approximately $28,000 as of
June 30, 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.





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 $0 and $84,700 has been eliminated from the consolidated financial
statements for the three months ended June 30, 2010 and 2009, respectively, and
$51,400 and $169,400 has been eliminated from the consolidated financial
statements for the six months ended June 30, 2010 and 2009,
respectively.  Payment of rent under these leases is secured by goods,
chattels, fixtures and personal property of the Company.





16




6.
            Debt
      –





Line of
Credit





The
Company had $0 and $650,000 outstanding at June 30, 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.   The line of
credit was paid in full and closed on February 23, 2010.




7.
            Other
      Accrued Liabilities –





Other
accrued liabilities of the following at:


June 30,2010
                      
                      
                      December 31,2009Legal
      and professional services
                      
                      $
                      61,425
                      
                      
                      $
                      184,497Professional
      translator services
                      
                      
                      423,720
                      
                      
                      
                      418,243Accrued
      lease obligations
                      
                      
                      305,279
                      
                      
                      
                      -Other
                      
                      
                      33,089
                      
                      
                      
                      144,931Total
                      
                      $
                      823,513
                      
                      
                      $
                      747,671





8.
            Non-controlling
      Interest –





Summary
of activity in non-controlling interest:


June 30,2010
                        
                        
                        December 31,2009Equity
      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
      loss attributable to non-controlling interest in
subsidiary
                        
                        
                        (7,269
                        )
                        
                        
                        (4,061
                        ))Non-controlling
      interest in subsidiary, ending balance
                        
                        $
                        (10,344
                        )
                        
                        $
                        (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 Stock Option 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 June 10, 2010, the stockholders of Sajan approved an
amendment to increase the number of shares reserved for issuance by 1.0 million
shares.  The total number of shares reserved under the Plan as of June
30, 2010 is 2,200,000.





On June
30, 2010, 1,110,062 options in the Plan were outstanding with a weighted average
exercise price of $2.14.





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 June 30, 2010 and
December 31, 2009, was approximately $680,000 and $660,000,
respectively.   Our current deferred tax liability as of June 30,
2010 and December 31, 2009 was $564,000 and $605,000, respectively.




17





The
cumulative net operating loss available to offset future income was $31.6
million as of June 30, 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 June 30,
2010, represent federal and state amounts of $3.2 million with expiration dates
in calendar years 2020 through 2028). 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.




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 $16,627,000 and $0 as of June
30, 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.





On May
13, 2010, the Company tendered a check to the plaintiffs in the amount of
$366,942 in payment of the fair value of the shares of Sajan tendered by the
plaintiff in connection with the exercise of dissenters’ rights related to the
Company’s merger effected in February 2010.  On June 8, 2010, the Company
received a letter which asserted that the fair value was $495,372.  The
Company is required to take action with respect to this supplemental claim by
August 6, 2010.  The Company may dispute the amount claimed by the
plaintiff or pay the plaintiff the amount they desire or a different
amount.   The action to dispute this amount may include filing a
petition requesting the court to determine the fair value of the shares. 
On August 3, 2010, the parties agreed to suspend the August 6, 2010 deadline to
take action indefinitely and have agreed to mediate this claim on September 9,
2010, where the issues related to the fair value of the shares will be
discussed.





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 - Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934 (“  Securities Exchange Act
”).   Forward-looking statements reflect the current view about future
events.   When used in this Quarterly Report on Form 10 - Q the words
“anticipate,” “will,” “believe,” “estimate,” “expect,” “future,” “intend,”
“plan” and similar expressions or the negative of these terms as they relate to
Sajan , 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 management with respect to
future events and are subject to risks, uncertainties, assumptions and other
factors (including the risks contained in the section of Annual Report on Form
10 -K entitled “Risk Factors” filed with the SEC on March 31, 2010) 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 and effectively 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 of conducting 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;





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





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





·
            other risk factors included under
      “Risk Factors” in our Annual Report on Form 10 -K filed with the SEC on
      March 31, 2010 .





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 Annual Report Form on 10-K filed
with the SEC on March 31, 2010.


19




Recent
Events





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.





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 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.  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.





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.


20





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





Sajan
provides  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.





In 2009,
we established Sajan Software Ltd (“Sajan Software”), which is based in Dublin,
Ireland. The Ireland facility serves as both a Global Language Service Center
and is home to Sajan Software Ltd, the producer of Sajan’s technology tools.
Sajan India Software Private Limited (“Sajan – India”), based in Delhi, India,
houses one of 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 language translation services, 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 services, account management, graphic
design services, technical, consulting and professional services as requested by
our clients on a per hour rate basis.


21


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 five elements: language translation services, software
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.





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.


22





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 June
30, 2010, we have an accumulated NOL carryforward of approximately $31.6
million, which includes approximately $29.1 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.





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.





Prior to
the Merger, we calculated 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
proprietary TMate search algorithm has 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 Translation Memory. 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 software platform by
our product customers.


23





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 utilization of our
GCMS platform.





Sales and Marketing
Expenses





Sales and
marketing expense consists primarily of advertising and promotional costs, wages
and benefits for sales and marketing personnel, sales 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 Translation Memory 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 Software. 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, 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.


Depreciation and
Amortization
  Depreciation
and amortization consist of the expense related to property and equipment,
capitalized software development costs and software license costs that are being
depreciated over the estimated useful lives of the assets using the
straight-line method.


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 or six
months ended June 30, 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 June 30, 2010 Compared to Three Months Ended
June 30, 2009





For the
three-month period ended June 30, 2010, net loss attributable to stockholders
was $.54 million compared to net loss of $.36 million for the three months ended
June 30, 2009. Operating results for the quarter reflect increased revenues and
cost of revenues from additional translation services which resulted in an
increase in gross margin of $.7 million.  This was offset by an increase in
operating expenses related to nonrecurring legal, accounting and tax costs
related to the Merger; increased sales and marketing costs related to higher
commissions and costs related to our Ireland office as well as additional
investment in research and development.





Net loss
related to our non-controlling interest in our Sajan – India subsidiary was
approximately $5,000 for the three months ended June 30, 2010 compared to $2,000
for the three months ended June 30, 2009.  Our investment in Sajan – India
occurred in June 2009.  Net loss related to our non-controlling interest in
our affiliate was $0 for the three months ended June 30, 2010 and approximately
$8,000 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.


24





The major components of revenues, cost
of revenue, operating expenses, other income (expense), and income tax benefit
are discussed below.





ThreeMonthsEndedItem
                            
                            6/30/2010
                            
                            
                            6/30/2009
                            
                            
                            % Change
                              (Year Over Year)Revenues
                            
                            $
                            4,202,320
                            
                            
                            $
                            2,708,931
                            
                            
                            
                            55.1
                            %Cost
      of Revenues
                            
                            
                            2,289,126
                            
                            
                            
                            1,503,764
                            
                            
                            
                            52.2
                            %Operating
      Expenses:Sales
      and Marketing
                            
                            
                            921,544
                            
                            
                            
                            883,287
                            
                            
                            
                            4.3
                            %Research
      and Development
                            
                            
                            392,606
                            
                            
                            
                            162,034
                            
                            
                            
                            142.3
                            %General
      and Administrative
                            
                            
                            927,895
                            
                            
                            
                            341,218
                            
                            
                            
                            171.9
                            %Depreciation
      and amortization
                            
                            
                            220,696
                            
                            
                            
                            239,646
                            
                            
                            
                            (7.9
                            )%Other
      Income (Expense):Interest
      expense
                            
                            
                            (22,428
                            )
                            
                            
                            (51,497
                            )
                            
                            
                            (56.5
                            )%Interest
      and other income
                            
                            
                            25,518
                            
                            
                            
                            19,954
                            
                            
                            
                            27.9
                            %Other
      expense
                            
                            
                            (1,291
                            )
                            
                            
                            (5,202
                            )
                            
                            
                            (75.2
                            )%Income
      tax benefit
                            
                            
                            -
                            
                            
                            
                            100,707
                            
                            
                            
                            (100.0
                            )%Net
      loss before non-controlling interest
                            
                            
                            (547,748
                            )
                            
                            
                            (357,056
                            )
                            
                            
                            53.4
                            %Less
      non-controlling interest in subsidiary
                            
                            
                            4,623
                            
                            
                            
                            2,131
                            
                            
                            
                            116.9
                            %Less
      non-controlling interest in affiliate
                            
                            
                            -
                            
                            
                            
                            (7,760
                            )
                            
                            
                            (100.0
                            )%Net
      loss attributable to Sajan, Inc. and subsidiaries
                            
                            $
                            (543,125
                            )
                            
                            $
                            (362,685
                            )
                            
                            
                            49.8
                            %





Revenues





Revenues
totaled $4.2 million for the three months ended June 30, 2010 compared to $2.7
million for the three months ended June 30, 2009. This $1.5 million or 55.1%
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 June 30, 2010
and 2009, respectively:




Three Months Ended
                            June 30,
                          
                          
                          Three Months Ended
                            June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009(percentage of revenues)Translation
      and consulting income
                          
                          $
                          3,818,209
                          
                          
                          $
                          2,469,790
                          
                          
                          
                          90.86
                          %
                          
                          
                          91.17
                          %Technology
      income
                          
                          
                          327,295
                          
                          
                          
                          215,099
                          
                          
                          
                          7.79
                          %
                          
                          
                          7.94
                          %Product
      income
                          
                          
                          52,301
                          
                          
                          
                          7,256
                          
                          
                          
                          1.24
                          %
                          
                          
                          0.27
                          %Other
      income
                          
                          
                          4,515
                          
                          
                          
                          16,786
                          
                          
                          
                          0.11
                          %
                          
                          
                          0.62
                          %Total
                          
                          $
                          4,202,320
                          
                          
                          $
                          2,708,931
                          
                          
                          
                          100.00
                          %
                          
                          
                          100.00
                          %





Cost of
Revenues





Cost of
revenues increased $.79 million, or 52.2% for the three months ended June 30,
2010 compared to the three months ended June 30, 2009.   As a
percentage of revenue, cost of revenues was 54.5% for the three months ended
June 30, 2010 compared to 55.5% for the same interim period in 2009. The
increase in dollar terms resulted from additional costs to process the
additional words translated, as well as additional costs associated with an
increase in the operations staff in River Falls in support of anticipated
growth. The cost of revenues as a percentage of revenue improved slightly over
the prior year as increased economies of scale associated with a larger revenue
base offset costs associated with 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 $.22 million and $.24 million for the three
months ended June 30, 2010 and June 30, 2009, respectively, which are included
in operating expenses.


25





Operating
Expenses





Total
operating costs for the three months ended June 30, 2010 were $2.46 million
compared to $1.63 million for the three months ended June 30, 2009. For the
three months ended June 30, 2010, the major components of these costs were sales
and marketing, research and development and general and administrative expenses.
A discussion of the various components of our operating costs for the three
months ended June 30, 2010 and 2009 appears below:





Sales and
Marketing. Sales and marketing expense of approximately $.922 million for the
three months ended June 30, 2010 increased 4% from sales and marketing expense
of approximately $.883 million for the three months ended June 30, 2009. The
increase in our expenses between the interim periods is the result of an
increase in commission expense in the quarter due to a higher level of revenue,
offset by a reduction in salaries and wages and lower stock based compensation
expense.   As a percentage of revenue, sales and marketing expense was
approximately 22% for the three months ended June 30, 2010, a decrease from
approximately 32.6% for the same interim period in 2009, reflecting the
economies of scale that result from an increase in revenues and management’s
intentional restraint on discretionary marketing spending.





Research
and Development.  Research and development expense of approximately $.39
million grew $.23 million or 142.3% for the three months ended June 30, 2010
over research and development expense of $.16 million for the three months ended
June 30, 2009.  The increase for the three months ended June 30, 2010 is
comprised of additional investments in our Sajan – India subsidiary, increased
salaries and benefits expense from addition of staff in Europe, and
approximately $.18 million of additional development expenses related to our
enterprise technology product, Global Communication Management System
(“GCMS”).  As a percentage of revenue, research and development expense
increased to 9.34% for the three months ended June 30, 2010 compared to 5.98%
for the three months ended June 30, 2009.





General
and Administrative.  General and administrative expense was $.93 million
and $.34 million for the three months ended June 30, 2010 and 2009,
respectively, an increase of approximately $.59 million, or 171.9%.  As a
percentage of revenue, general and administrative expense was 22.1% for the
three months ended June 30, 2010 as compared with 12.6% for the three months
ended June 30, 2009.  This increase principally reflects legal and
accounting fees associated with the preparation and filing of periodic reports
with the SEC under the Securities Exchange Act and costs associated with the
salary and benefits of certain executives that were reclassified from sales and
marketing in prior years.   As we seek to comply with the various
legal, accounting and governance rules and regulations applicable to public
reporting companies, we anticipate our general and administrative expenses will
remain at these levels during the remainder of fiscal 2010.




Depreciation
and Amortization.  Depreciation and amortization expense was $.22
million and $.24 million for the three months ended June 30, 2010 and 2009,
respectively, a decrease of $19,000.  As a percentage of revenue,
depreciation and amortization expense was 5.3% for the three months ended June
30, 2010 as compared to 8.8% for the three months ended June 30,
2009.


Other
Income (Expense).  Interest expenses for
three months ended June 30, 2010 of approximately $22,000 decrease from $52,000
for the three months ended June 30, 2009 as a result of the elimination of the
mortgage interest expense that related to the buildings owned by River Valley
Business Center, LLC and leased by Sajan.  The interest expense was
discontinued as a result of the deconsolidation on February 23, 2010. 
Interest and other income for the three months ended June 30, 2010 was
approximately $25,000 compared to $20,000 for the three months ended June 30,
2009.  The increase in interest income is a result of increased cash and
cash equivalents.





Income Tax
Benefit





Income
tax benefit for the three months ended June 30, 2010 was zero compared to income
tax benefit of $.10 million for the three months ended June 30,
2009.





Results
of Operations - Six Months Ended June 30, 2010 Compared to Six Months Ended June
30, 2009





For the
six-months ended June 30, 2010, net loss attributable to stockholders was $2.04
million compared to net loss of $.56 million for the six months ended June 30,
2009. Operating results for the quarter reflect increased revenues and cost of
revenues from additional translation services which resulted in an increase in
gross margin of $.75 million.  This was offset by an increase in operating
expenses related to  nonrecurring legal, accounting, tax and investment
banking fees related to the Merger, increased stock compensation expenses,
increased insurance expenses, increased sales and marketing costs related to our
Ireland office as well as additional investment in research and
development.





Net loss
related to our non-controlling interest in our Sajan – India subsidiary was
approximately $7,000 for the six months ended June 30, 2010 compared to $2,000
for the six months ended June 30, 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.


26





The major
components of revenues, cost of revenue, operating expenses, other income
(expense), and income tax benefit are discussed below.





SixMonthsEndedItem
                            
                            6/30/2010
                            
                            
                            6/30/2009
                            
                            
                            % Change
                              (Year Over Year)Revenues
                            
                            $
                            7,342,522
                            
                            
                            $
                            5,726,971
                            
                            
                            
                            28.2
                            %Cost
      of Revenues
                            
                            
                            4,050,629
                            
                            
                            
                            3,186,157
                            
                            
                            
                            27.1
                            %Operating
      Expenses:Sales
      and Marketing
                            
                            
                            1,732,488
                            
                            
                            
                            1,701,071
                            
                            
                            
                            1.9
                            %Research
      and Development
                            
                            
                            961,192
                            
                            
                            
                            336,427
                            
                            
                            
                            185.7
                            %General
      and Administrative
                            
                            
                            2,177,584
                            
                            
                            
                            754,234
                            
                            
                            
                            188.7
                            %Depreciation
      and amortization
                            
                            
                            465,739
                            
                            
                            
                            423,833
                            
                            
                            
                            9.9
                            %Other
      Income (Expense):Interest
      expense
                            
                            
                            (68,416
                            )
                            
                            
                            (103,075
                            )
                            
                            
                            (33.6
                            )%Interest
      and other income
                            
                            
                            27,556
                            
                            
                            
                            20,140
                            
                            
                            
                            36.8
                            %Other
      expense
                            
                            
                            (17,379
                            )
                            
                            
                            (10,018
                            )
                            
                            
                            73.5
                            %Income
      tax benefit
                            
                            
                            (62,311
                            )
                            
                            
                            (168,894
                            )
                            
                            
                            (63.1
                            )%Net
      loss before non-controlling interest
                            
                            
                            (2,041,038
                            )
                            
                            
                            (598,810
                            )
                            
                            
                            240.9
                            %Less
      non-controlling interest in subsidiary
                            
                            
                            7,269
                            
                            
                            
                            2,131
                            
                            
                            
                            241.1
                            %Less
      non-controlling interest in affiliate
                            
                            
                            (4,565
                            )
                            
                            
                            30,474
                            
                            
                            
                            (115.0
                            )%Net
      loss attributable to Sajan, Inc. and subsidiaries
                            
                            $
                            (2,038,334
                            )
                            
                            $
                            (566,205
                            )
                            
                            
                            260.0
                            %





Revenues





Revenues
totaled $7.4 million for the six months ended June 30, 2010 compared to $5.7
million for the six months ended June 30, 2009. This $1.6 million or 28.5%
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 six months ended June 30, 2010
and 2009, respectively:




Six Months Ended
                            June 30,
                          
                          
                          Six Months Ended
                            June 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009(percentage of revenues)Translation
      and consulting income
                          
                          $
                          6,623,583
                          
                          
                          $
                          5,238,924
                          
                          
                          
                          90.21
                          %
                          
                          
                          91.48
                          %Technology
      income
                          
                          
                          629,001
                          
                          
                          
                          438,659
                          
                          
                          
                          8.57
                          %
                          
                          
                          7.65
                          %Product
      income
                          
                          
                          69,967
                          
                          
                          
                          15,816
                          
                          
                          
                          0.95
                          %
                          
                          
                          0.28
                          %Other
      income
                          
                          
                          19,971
                          
                          
                          
                          33,572
                          
                          
                          
                          0.27
                          %
                          
                          
                          0.59
                          %Total
                          
                          $
                          7,342,522
                          
                          
                          $
                          5,726,971
                          
                          
                          
                          100.00
                          %
                          
                          
                          100.00
                          %


Cost of
Revenues





Cost of
revenues increased $.86 million, or 27% for the six months ended June 30, 2010
compared to the six months ended June 30, 2009.   As a percentage of
revenue, cost of revenues was 55.2% for the six months ended June 30, 2010
compared to 55.6% for the same interim period in 2009. Cost of revenue excludes
depreciation and amortization of $.46 million and $.42 million for the six
months ended June 30, 2010 and June 30, 2009, respectively, which are included
in operating expenses.


27





Operating
Expenses





Total
operating costs for the six months ended June 30, 2010 were $5.34 million
compared to $3.22 million for the six months ended June 30, 2009. For the six
months ended June 30, 2010, the major components of these costs were sales and
marketing, research and development and general and administrative expenses. A
discussion of the various components of our operating costs for the six months
ended June 30, 2010 and 2009 appears below:





Sales and
Marketing. Sales and marketing expense of approximately $1.73 million for the
six months ended June 30, 2010 increased $.031 million, or 2%, over sales and
marketing expense of approximately $1.70 million for the six months ended June
30, 2009. The slight increase  in our expenses between the interim periods
primarily relates to an  increase in sales commissions related to the
higher revenue levels in 2010, offset in part by a decrease in salaries and
wages for the six month period.  As a percentage of revenue, sales and
marketing expense was approximately 23.6% for the six months ended June 30, 2010
as compare to approximately 29.7% for the same interim period in 2009, 
reflecting the economies of scale that result from an increase in revenues and
management’s intentional restraint on discretionary marketing
spending.





Research
and Development.  Research and development expense of approximately $.96
million grew $.62 million or 186% for the six months ended June 30, 2010 over
research and development expense of $.34 million for the six months ended June
30, 2009.  The increase for the six months ended June 30, 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”) and an increase in
stock compensation expense for the six months ended June 30, 2010. 
 As a percentage of revenue, research and development expense increased to
13.1% for the six months ended June 30, 2010 compared to 5.9% for the six months
ended June 30, 2009.





General
and Administrative.  General and administrative expense was $2.18 million
and $.75 million, an increase of approximately $1.42 million, or 188.7%, for the
six months ended June 30, 2010 and 2009, respectively.  As a percentage of
revenue, general and administrative expense was 29.7% for the six months ended
June 30, 2010, compared to 13.2% for the six months ended June 30,
2009.  This increase principally reflects non-recurring 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
an analysis of our net operating loss carryforward, and three years of financial
audits required as part of the Merger, an increase in stock compensation expense
and incremental insurance costs.  As we seek to comply with the
various legal, accounting and governance rules and regulations applicable to
public reporting companies, we anticipate our general and administrative
expenses will remain at approximately these levels for the remainder of fiscal
2010.


Depreciation
and Amortization.  Depreciation and amortization expense was $.46
million and $.42 million for the six months ended June 30, 2010 and 2009,
respectively, an increase of $42,000.  This increase is primarily the
result of higher amortization of capitalized software costs in
2010.  As a percentage of revenue, depreciation and amortization
expense was 6.3% for the three months ended June 30, 2010 as compared to 7.4%
for the three months ended June 30, 2009.


Other
Income (Expense).  Interest expenses for
six months ended June 30, 2010 and 2009 of approximately $68,000 and $103,000
were related to the mortgage on the buildings owned by River Valley Business
Center, LLC and leased by Sajan.  The decrease is the result of the
deconsolidation of this entity on February 23, 2010.  Interest and other
income for the six months ended June 30, 2010 was approximately $28,000 compared
to $20,000 for the six months ended June 30, 2009.  The increase in
interest income is a result of increased cash and cash equivalents.  Other
expenses for the six months ended June 30, 2010 were approximately $17,000
compared to $10,000 for the six months ended June 30, 2009.  The increase
in other expenses was related to fluctuations in foreign currency.





Income Tax
Benefit





Income
tax benefit for the six months ended June 30, 2010 was $.06 million compared to
income tax benefit of $.17 million for the six months ended June 30,
2009.





Liquidity
and Capital Resources





Summary
cash flow data is as follows:




Six Months Ended June 30,2010
                    
                    
                    2009Cash flows provided (used) by :Operating
      activities
                    
                    $
                    (1,423,158
                    )
                    
                    $
                    709,650Investing
      activities
                    
                    
                    4,858,448
                    
                    
                    
                    (747,534
                    )Financing
      activities
                    
                    
                    (960,640
                    )
                    
                    
                    63,130Net
      increase in cash
                    
                    
                    2,474,650
                    
                    
                    
                    25,246Effect
      of exchange rate changes in cash
                    
                    
                    (72
                    )
                    
                    
                    -Cash,
      beginning of period
                    
                    
                    120,493
                    
                    
                    
                    381,501Cash,
      end of period
                    
                    $
                    2,595,071
                    
                    
                    $
                    406,747


28





Net
Cash (Used in) Provided by Operating Activities





Net cash
used in operating activities for the six months ended June 30, 2010 was $1.42
million and was used to fund our operations and expand our operations
internationally.  Net cash provided by operating activities for the six
months ended June 30, 2009 was a result of a significantly lower net loss, a
decrease in accounts receivable and an increase in accrued liabilities, offset
by a reduction in deferred revenues.





Net
Cash (Used in) Provided by Investing Activities





Net cash
of $4.9 million provided by investing activities for the six months ended June
30, 2010 primarily related to cash acquired in the Merger transaction.  Net
cash of $.75 million used in investing activities for the six months ended June
30, 2009 related to purchases of property and equipment, acquisition of
specialized software and capitalization of software development
costs.





Net
Cash Used in Financing Activities





Net cash
of $.96 million used in financing activities for the six months ended June 30,
2010 primarily related to payments for merger-related costs and short-term
debt.  Net cash of $63,000 provided by financing activities for the six
months ended June 30, 2009 related to amounts advanced on short -term debt
facilities.





Sources of
Capital





For the
six months ended June 30, 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 six months ended June 30, 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 the Company’s
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.





We
anticipate that we will generate positive cash flow from operations in the
second half of 2010, 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.





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 June 30, 2010.





Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Not
applicable.




29




Item 4T. Controls and
Procedures





Evaluation of Disclosure
Controls and Procedures


On June
30, 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;


·
            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 June 30, 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.





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.  On May 13, 2010, the Company tendered a check to
the plaintiffs in the amount of $366,942 in payment of the fair value of the
shares of Sajan tendered by the plaintiff in connection with the exercise of
dissenters’ rights related to the Company’s merger effected in February
2010.  On June 8, 2010, the Company received a letter which asserted that
the fair value was $495,372.  The Company is required to take action with
respect to this supplemental claim by August 6, 2010.  The Company may
dispute the amount claimed by the plaintiff or pay the plaintiff the amount they
desire or a different amount.   The action to dispute this amount may
include filing a petition requesting the court to determine the fair value of
the shares. On August
3, 2010, the parties agreed to suspend the August 6, 2010 deadline to take
action indefinitely and have agreed to mediate this claim on September 9, 2010,
where the issues related to the fair value of the shares will be
discussed.





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.





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





None.





Item 3. Defaults upon
Senior Securities





None.





Item 4.  Removed
and Reserved





Removed and
Reserved.


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 Company’s Current Report on Form 8-K filed
      with the SEC on January 11, 2010).3.1
              
              Certificate
      of Incorporation of MathStar, Inc. (incorporated by reference to
      Exhibit 3.1 to the Company’s 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 Company’s 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 to 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 SEC on March 3, 2010 (incorporated by reference to Exhibit 3.1 to the
      Company’s Current Report on Form 8-K filed with the SEC on March 3,
      2010).3.5
              
              Certificate
      of Amendment to Amended Certificate of Incorporation of Sajan, Inc.
      filed with the Secretary of State of the State of Delaware on June 15,
      2010 (incorporated by reference to Exhibit 3.4 to the Company’s Form
      8-A12G/A filed with the SEC on June 23, 2010).3.6
              
              Bylaws
      of MathStar, Inc. (incorporated by reference to Exhibit 3.2 to
      the Registration Statement).4.1
              
              Form
      of common stock certificate of Sajan, Inc. (incorporated by reference
      to Exhibit 4.2 to the Company’s Form 8-A/A filed with the SEC on June
      23, 2010).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
      (incorporated by reference to Exhibit 4.1 of the Company’s Current Report
      on Form 8-K dated February 25, 2010 filed with the
SEC).31.1
              
              Certification
      of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) (
      filed
      herewith).31.2
              
              Certification
      of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) (
      filed
      herewith).32.1
              
              Certification
      of principal executive officer pursuant to 18 U.S.C. 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ( filed
      herewith).32.2
              
              Certification
      of 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).


32


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:
      August 13, 2010
              Sajan,
      Inc.(Registrant)By:
              /s/ Shannon ZimmermanShannon
      ZimmermanChief
      Executive Officer and PresidentBy:
              /s/ Timothy ClaytonTimothy
      ClaytonChief
      Financial Officer


33