##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended November 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-33634
 DemandTec, Inc.
  Delaware
    
    94-3344761(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 One Circle Star Way, Suite 200
San Carlos, California 94070
 (650) 226-4600
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



DemandTec, Inc.
 INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of November 30, 2008 and February 29, 2008
    
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended November 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3. Defaults Upon Senior Securities
    
    
    41Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    42EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DemandTec, Inc.
 
 Consolidated Balance Sheets
 (in thousands, except per share data)
 As of
    
    
    As ofNovember 30,
    
    
    February 29,2008
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,483
    
    
    $
    43,257Marketable securities
    
    
    48,369
    
    
    
    30,547Accounts receivable, net of allowances of $120
and $160 as of November 30, 2008 and February
29, 2008, respectively
    
    
    12,361
    
    
    
    18,227Other current assets
    
    
    4,311
    
    
    
    4,161Total current assets
    
    
    93,524
    
    
    
    96,192Marketable securities, non-current
    
    
    8,848
    
    
    
    2,085Property, equipment and leasehold improvements, net
    
    
    5,235
    
    
    
    5,139Restricted cash
    
    
    
    
    
    
    200Other assets, net
    
    
    10,081
    
    
    
    10,180Total assets
    
    $
    117,688
    
    
    $
    113,796LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    10,876
    
    
    $
    6,969Deferred revenue
    
    
    45,579
    
    
    
    44,006Other current liabilities
    
    
    451
    
    
    
    478Total current liabilities
    
    
    56,906
    
    
    
    51,453Deferred revenue, non-current
    
    
    4,525
    
    
    
    11,369Other long-term liabilities
    
    
    516
    
    
    
    677Commitments and contingencies (see Note 3)Stockholders equity:Common stock, $0.001 par value  175,000 shares
authorized as of November 30, 2008 and February
29, 2008; 27,787 and 26,452 shares issued and
outstanding, respectively, excluding 10 and 31
shares subject to repurchase, respectively, as
of November 30, 2008 and February 29, 2008
    
    
    28
    
    
    
    26Additional paid-in capital
    
    
    130,891
    
    
    
    122,699Accumulated other comprehensive income
    
    
    660
    
    
    
    Accumulated deficit
    
    
    (75,838
    )
    
    
    (72,428
    )Total stockholders equity
    
    
    55,741
    
    
    
    50,297Total liabilities and stockholders equity
    
    $
    117,688
    
    
    $
    113,796
  3




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##### Table of Contents



DemandTec, Inc.
 
 Consolidated Statements of Operations
 (in thousands, except per share data)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedNovember 30,
    
    
    November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    18,989
    
    
    $
    15,945
    
    
    $
    55,675
    
    
    $
    43,866Cost of revenue(1)(2)
    
    
    5,834
    
    
    
    5,560
    
    
    
    17,335
    
    
    
    14,898Gross profit
    
    
    13,155
    
    
    
    10,385
    
    
    
    38,340
    
    
    
    28,968Operating expenses:Research and development(2)
    
    
    6,659
    
    
    
    5,598
    
    
    
    19,772
    
    
    
    15,736Sales and marketing(2)
    
    
    4,839
    
    
    
    4,697
    
    
    
    15,250
    
    
    
    12,316General and administrative(2)
    
    
    2,662
    
    
    
    1,956
    
    
    
    7,333
    
    
    
    4,354Amortization of acquired intangible assets
    
    
    331
    
    
    
    89
    
    
    
    751
    
    
    
    271Total operating expenses
    
    
    14,491
    
    
    
    12,340
    
    
    
    43,106
    
    
    
    32,677Loss from operations
    
    
    (1,336
    )
    
    
    (1,955
    )
    
    
    (4,766
    )
    
    
    (3,709
    )Interest income
    
    
    431
    
    
    
    878
    
    
    
    1,436
    
    
    
    1,658Interest expense
    
    
    (31
    )
    
    
    
    
    
    
    (54
    )
    
    
    (1,216
    )Other income (expense), net
    
    
    37
    
    
    
    291
    
    
    
    (25
    )
    
    
    266Loss before provision (benefit) for income taxes
    
    
    (899
    )
    
    
    (786
    )
    
    
    (3,409
    )
    
    
    (3,001
    )Provision (benefit) for income taxes
    
    
    (91
    )
    
    
    181
    
    
    
    1
    
    
    
    319Net loss
    
    $
    (808
    )
    
    $
    (967
    )
    
    $
    (3,410
    )
    
    $
    (3,320
    )Net loss per common share, basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.23
    )Shares used in computing net loss per common share, basic and diluted
    
    
    27,681
    
    
    
    26,167
    
    
    
    27,192
    
    
    
    14,705(1) Includes amortization of acquired intangible assets
    
    $
    152
    
    
    $
    154
    
    
    $
    457
    
    
    $
    456(2) Includes stock-based compensation expense as follows:Cost of revenue
    
    $
    389
    
    
    $
    539
    
    
    $
    1,243
    
    
    $
    839Research and development
    
    
    509
    
    
    
    580
    
    
    
    1,681
    
    
    
    827Sales and marketing
    
    
    488
    
    
    
    605
    
    
    
    1,699
    
    
    
    830General and administrative
    
    
    424
    
    
    
    340
    
    
    
    1,222
    
    
    
    569Total stock-based compensation expense
    
    $
    1,810
    
    
    $
    2,064
    
    
    $
    5,845
    
    
    $
    3,065
  4




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DemandTec, Inc
 
 Consolidated Statements of Cash Flows
 (in thousands)
 (unaudited)
 Nine Months EndedNovember 30,2008
    
    
    2007Operating activities:Net loss
    
    $
    (3,410
    )
    
    $
    (3,320
    )Adjustment to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    2,149
    
    
    
    1,390Stock-based compensation expense
    
    
    5,845
    
    
    
    3,065Amortization and revaluation to fair value of warrants issued in conjunction with debt
    
    
    
    
    
    
    183Amortization of acquired intangible assets
    
    
    1,208
    
    
    
    727Amortization of financing costs
    
    
    12
    
    
    
    93Charge on early extinguishment of debt
    
    
    
    
    
    
    504Other
    
    
    167
    
    
    
    19Changes in operating assets and liabilities:Accounts receivable
    
    
    5,955
    
    
    
    (3,269
    )Prepaid expenses and other current assets
    
    
    (115
    )
    
    
    (661
    )Deferred commissions
    
    
    844
    
    
    
    (114
    )Other assets
    
    
    (366
    )
    
    
    (30
    )Accounts payable and accrued expenses
    
    
    3,372
    
    
    
    (1,841
    )Accrued compensation
    
    
    403
    
    
    
    1,056Deferred revenue
    
    
    (5,274
    )
    
    
    10,426Net cash provided by operating activities
    
    
    10,790
    
    
    
    8,228Investing activities:Purchases of property, equipment and leasehold improvements
    
    
    (2,294
    )
    
    
    (2,976
    )Purchases of marketable securities
    
    
    (69,805
    )
    
    
    (56,652
    )Maturities of marketable securities
    
    
    45,220
    
    
    
    15,750Acquisition of TradePoint, net of cash received
    
    
    
    
    
    
    (1,325
    )Purchase of intangible assets
    
    
    (1,000
    )
    
    
    Removal of cash restriction
    
    
    200
    
    
    
    Net cash used in investing activities
    
    
    (27,679
    )
    
    
    (45,203
    )Financing activities:Proceeds from issuance of common stock, net of repurchases
    
    
    2,319
    
    
    
    284Net cash proceeds from initial public offering
    
    
    
    
    
    
    57,611Increase in liability associated with offering costs
    
    
    
    
    
    
    166Payments on line of credit
    
    
    
    
    
    
    (3,000
    )Payments on notes payable
    
    
    (8
    )
    
    
    (10,400
    )Net cash provided by financing activities
    
    
    2,311
    
    
    
    44,661Effect of exchange rate changes on cash and cash equivalents
    
    
    (196
    )
    
    
    40Net increase (decrease) in cash and cash equivalents
    
    
    (14,774
    )
    
    
    7,726Cash and cash equivalents at beginning of period
    
    
    43,257
    
    
    
    21,036Cash and cash equivalents at end of period
    
    $
    28,483
    
    
    $
    28,762Supplemental information:Cash paid for interest
    
    $
    9
    
    
    $
    956Cash paid for income taxes
    
    $
    208
    
    
    $
    200Reclassification of preferred stock warrant from liability to additional paid-in capital
    
    $
    
    
    
    $
    712Conversion of preferred stock to common stock and additional paid-in capital
    
    $
    
    
    
    $
    51,144
  5




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##### Table of Contents



DemandTec, Inc.
 
 Notes to Consolidated Financial Statements
 1. Business Summary and Significant Accounting Policies
 Business Summary
  Initial Public Offering
  Fiscal Year
  Reclassifications
  Significant Accounting Policies
 Basis of Presentation
   6




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Use of Estimates
  Revenue Recognition
  Revenue Recognition Revenue Arrangements with Multiple Deliverables
 
    
    there is persuasive evidence of an arrangement;
    
    access to the software service has been provided to the customer;
    
    the collection of the fees is probable; and
    
    the amount of fees to be paid by the customer is fixed or determinable.
  Deferred Revenue
  Foreign Currency Translation
  7




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##### Table of Contents



Concentrations of Credit Risk, Significant Customers and Suppliers and Geographic Information
    Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007United States
    
    $
    16,528
    
    
    $
    14,011
    
    
    $
    48,028
    
    
    $
    38,595International
    
    
    2,461
    
    
    
    1,934
    
    
    
    7,647
    
    
    
    5,271Total revenue
    
    $
    18,989
    
    
    $
    15,945
    
    
    $
    55,675
    
    
    $
    43,866
  Deferred Commissions
 Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts
 Goodwill and Intangible Assets
 Goodwill and Other Intangible Assets
 8




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Impairment of Long-Lived Assets
 Accounting for the Impairment or
Disposal of Long-Lived Assets
 Stock-Based Compensation
 Share-Based Payment
 Accounting for Equity Investments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services
 Net Loss per Common Share
 Earnings per Share
  9




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##### Table of Contents



Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (808
    )
    
    $
    (967
    )
    
    $
    (3,410
    )
    
    $
    (3,320
    )Weighted average number of common shares outstanding
    
    
    27,694
    
    
    
    26,274
    
    
    
    27,211
    
    
    
    14,844Less: Weighted average number of common shares
subject to repurchase
    
    
    (13
    )
    
    
    (107
    )
    
    
    (19
    )
    
    
    (139
    )Shares used in computing net loss per common share,
basic and diluted
    
    
    27,681
    
    
    
    26,167
    
    
    
    27,192
    
    
    
    14,705Net loss per common share, basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.23
    )
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Shares subject to options to purchase common
stock, PSUs and RSUs, and shares subject to
issuance under the ESPP
    
    
    4,073
    
    
    
    6,027
    
    
    
    4,467
    
    
    
    5,101Shares subject to warrants to purchase common stock
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    172Common stock subject to repurchase
    
    
    13
    
    
    
    107
    
    
    
    19
    
    
    
    139Convertible preferred stock (if-converted basis
until initial public offering)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,881Total
    
    
    4,086
    
    
    
    6,239
    
    
    
    4,486
    
    
    
    13,293
 Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities
 Business Combinations
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 10




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##### Table of Contents



2. Balance Sheet Accounts
 Marketable Securities
  As of
    
    
    As ofNovember 30,
    
    
    February 29,2008
    
    
    2008Commercial paper
    
    $
    7,273
    
    
    $
    6,946Corporate bonds
    
    
    12,358
    
    
    
    4,721U.S. agency bonds
    
    
    25,628
    
    
    
    20,766U.S. treasury securities
    
    
    11,958
    
    
    
    Asset-backed securities
    
    
    
    
    
    
    199$
    57,217
    
    
    $
    32,632
  Other Assets, Net
  As of
    
    
    As ofNovember 30,
    
    
    February 29,2008
    
    
    2008Purchased intangible assets, net of accumulated amortization of $2,498 and $1,289, respectively
    
    $
    4,002
    
    
    $
    3,761Goodwill
    
    
    5,290
    
    
    
    5,290Other
    
    
    789
    
    
    
    1,129Total other assets, net
    
    $
    10,081
    
    
    $
    10,180
 Accounts Payable and Accrued Expenses
  As of
    
    
    As ofNovember 30,
    
    
    February 29,2008
    
    
    2008Accounts payable
    
    $
    4,012
    
    
    $
    1,304Accrued professional services
    
    
    934
    
    
    
    569Income taxes payable
    
    
    53
    
    
    
    158Accrued compensation
    
    
    5,051
    
    
    
    4,648Other accrued liabilities
    
    
    826
    
    
    
    290Total accounts payable and accrued expenses
    
    $
    10,876
    
    
    $
    6,969
 3. Commitments and Contingencies
 Commitments
  11




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Legal Proceedings
  4. Debt
   12




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##### Table of Contents



5. Stockholders Equity
 Equity Incentive Plans and Employee Stock Purchase Plan
 1999 Equity Incentive Plan
  2007 Equity Incentive Plan
  Stock Options.
 Performance Stock Units.
   Restricted Stock Units.
 13




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2007 Employee Stock Purchase Plan
  Stock-Based Compensation Expense Associated with Awards to Employees
   Three Months Ended November 30,
    
    Nine Months Ended November 30,2008 (1)
    
    2007 (2)
    
    2008
    
    2007 (3)Stock options:Weighted average expected term (in years)
    
    
    4.1
    
    
    
    4.0
    
    
    
    4.2
    
    
    
    3.7Expected stock price volatility
    
    
    57
    %
    
    
    38
    %
    
    
    51
    %
    
    
    36
    %Risk-free interest rate
    
    
    2.3
    %
    
    
    3.1
    %
    
    
    2.7
    %
    
    
    4.1
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Weighted average per share fair value of
stock options granted during the period
    
    $
    4.10
    
    
    $
    4.53
    
    
    $
    3.88
    
    
    $
    3.34Performance stock units:Weighted average per share fair value of
performance stock units granted during
the period
    
    
    
    
    
    
    
    
    
    $
    10.37
    
    
    $
    9.97Restricted stock units:Weighted average per share fair value of
restricted stock units granted during the
period
    
    
    
    
    
    
    
    
    
    $
    10.40Employee Stock Purchase Plan:Weighted average expected term (in months)
    
    
    6
    
    
    
    
    
    
    
    6
    
    
    
    8Expected stock price volatility
    
    
    72
    %
    
    
    
    
    
    
    57
    %
    
    
    32
    %Risk-free interest rate
    
    
    0.9
    %
    
    
    
    
    
    
    1.5
    %
    
    
    4.2
    %Expected dividend yield
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    0
    %
 
 (1)
    
    No PSUs or RSUs were issued in the three months ended November 30, 2008.(2)
    
    No PSUs, RSUs or ESPP shares were issued in the three months ended November 30, 2007.(3)
    
    No RSUs were issued in the nine months ended November 30, 2007. 14




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Stock-Based Compensation Expense Associated with Awards to Non-Employees
   6. Income Taxes
  Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
 15




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##### Table of Contents



7. Derivative Financial Instruments
   Accounting for Derivative
Instruments and Hedging Activities
 8. Fair Value Measurements
 Fair Value Measurements
 Level 1 
 Level 2
 Level 3 
   16




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Significant OtherObservable InputsDescription
    
    Total
    
    (Level 2)Assets:Foreign currency forward contracts(1)
    
    $
    636
    
    
    $
    636
 
 (1)
    
    Included in other current assets and other assets, net on our consolidated balance sheet. 9. Comprehensive Loss
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (808
    )
    
    $
    (967
    )
    
    $
    (3,410
    )
    
    $
    (3,320
    )Change in net
unrealized gain on
cash flow hedges
and implicit
interest
    
    $
    411
    
    
    $
    
    
    
    $
    660
    
    
    $
    Comprehensive loss
    
    $
    (397
    )
    
    $
    (967
    )
    
    $
    (2,750
    )
    
    $
    (3,320
    )
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net unrealized gain on cash flow
hedges and implicit interest
    
    $
    411
    
    
    $
    
    
    
    $
    660
    
    
    $
    Accumulated other comprehensive income
    
    $
    411
    
    
    $
    
    
    
    $
    660
    
    
    $
    
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This quarterly report on Form 10-Q contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. In addition, we may make other
written and oral communications from time to time that contain such statements. Forward-looking
statements include statements as to industry trends and future expectations of ours and other
matters that do not relate strictly to historical facts. These statements are often identified by
the use of words such as may, will, expect, believe, anticipate, intend, could,
estimate, or continue, and similar expressions or variations. These statements are based on the
beliefs and assumptions of our management based on information currently available to management.
Such forward-looking statements are subject to risks, uncertainties and other factors that could
cause actual results and the timing of certain events to differ materially from future results
expressed or implied by such forward-looking statements. These forward-looking statements include
statements in this Item 2, Managements Discussion and Analysis of Financial Condition and Results
of Operations. Factors that could cause or contribute to such differences include, but are not
limited to, those identified below, and those discussed in the section titled Risk Factors
included elsewhere in this Form 10-Q and in our other Securities and Exchange Commission filings,
including our Annual Report on Form 10-K for the fiscal year ended February 29, 2008. Furthermore,
such forward-looking statements speak only as of the date of this report. We undertake no
obligation to update any forward-looking statements to reflect events or circumstances after the
date of such statements.
 The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related notes thereto
appearing elsewhere in this Form 10-Q and with the consolidated financial statements and notes
thereto and managements discussion and analysis of financial condition and results of operation
appearing in our Annual Report on Form 10-Kfor the fiscal year ended
February 29, 2008.
 Overview
  17




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      
     Critical Accounting Policies and Estimates
  
    
    Revenue Recognition
 18




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##### Table of Contents




    
    Deferred Commissions
    
    Stock-Based Compensation
    
    Goodwill and Intangible Assets
    
    Impairment of Long-Lived Assets
   Results of Operations
 Revenue
   Three Months Ended November 30,
    
    Nine Months Ended November 30,2008
    
    2007
    
    2008
    
    2007(in thousands)Revenue
    
    $
    18,989
    
    
    $
    15,945
    
    
    $
    55,675
    
    
    $
    43,866
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007
    19




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##### Table of Contents



Cost of Revenue
  Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands)Revenue
    
    $
    18,989
    
    
    $
    15,945
    
    
    $
    55,675
    
    
    $
    43,866Cost of revenue
    
    
    5,834
    
    
    
    5,560
    
    
    
    17,335
    
    
    
    14,898Gross profit
    
    
    13,155
    
    
    
    10,385
    
    
    
    38,340
    
    
    
    28,968Gross margin
    
    
    69.3
    %
    
    
    65.1
    %
    
    
    68.9
    %
    
    
    66.0
    %
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
   20




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##### Table of Contents



Research and Development Expenses
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2008
    
    2007
    
    2008
    
    2007(dollars in thousands)Research and development
    
    $
    6,659
    
    
    $
    5,598
    
    
    $
    19,772
    
    
    $
    15,736Percent of revenue
    
    
    35.1
    %
    
    
    35.1
    %
    
    
    35.5
    %
    
    
    35.9
    %
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
   Sales and Marketing Expenses
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2008
    
    2007
    
    2008
    
    2007(dollars in thousands)Sales and marketing
    
    $
    4,839
    
    
    $
    4,697
    
    
    $
    15,250
    
    
    $
    12,316Percent of revenue
    
    
    25.5
    %
    
    
    29.5
    %
    
    
    27.4
    %
    
    
    28.1
    %
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
  21




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##### Table of Contents



General and Administrative Expenses
  Three Months Ended November 30,
    
    Nine Months Ended November 30,2008
    
    2007
    
    2008
    
    2007(dollars in thousands)General and administrative
    
    $
    2,662
    
    
    $
    1,956
    
    
    $
    7,333
    
    
    $
    4,354Percent of revenue
    
    
    14.0
    %
    
    
    12.3
    %
    
    
    13.2
    %
    
    
    9.9
    %
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
  Amortization of Acquired Intangible Assets
 Three Months Ended November 30,
    
    Nine Months Ended November 30,2008
    
    2007
    
    2008
    
    2007(dollars in thousands)Amortization of acquired intangible assets
    
    $
    331
    
    
    $
    89
    
    
    $
    751
    
    
    $
    271Percent of revenue
    
    
    1.7
    %
    
    
    0.6
    %
    
    
    1.3
    %
    
    
    0.6
    %
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
 22




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##### Table of Contents



Other Income (Expense), Net
 Three Months Ended November 30,
    
    
    Nine Months Ended November 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Interest income
    
    $
    431
    
    
    $
    878
    
    
    $
    1,436
    
    
    $
    1,658Interest expense
    
    
    (31
    )
    
    
    
    
    
    
    (54
    )
    
    
    (1,216
    )Other income (expense)
    
    
    37
    
    
    
    291
    
    
    
    (25
    )
    
    
    279Other income (expense), net
    
    $
    437
    
    
    $
    1,169
    
    
    $
    1,357
    
    
    $
    721
 Three and Nine Months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
    Provision (Benefit) for Income Taxes
 Three Months Ended November 30,
    
    Nine Months Ended November 30,2008
    
    2007
    
    2008
    
    2007(in thousands)Provision (benefit) for income taxes
    
    $
    (91
    )
    
    $
    181
    
    
    $
    1
    
    
    $
    319
 Three and Nine months Ended November 30, 2008 Compared to the Three and Nine Months Ended
November 30, 2007.
   23




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##### Table of Contents



Stock-Based Compensation Expense
  Liquidity and Capital Resources
    Nine Months Ended November 30,2008
    
    2007(in thousands)Net cash provided by operating activities
    
    $
    10,790
    
    
    $
    8,228Net cash used in investing activities
    
    
    (27,679
    )
    
    
    (45,203
    )Net cash provided by financing activities
    
    
    2,311
    
    
    
    44,661
 Operating Activities
   24




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Investing Activities
   Financing Activities
    Contractual Obligations
   25




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##### Table of Contents



Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Operating leases
    
    $
    1,887
    
    
    $
    1,464
    
    
    $
    423
    
    
    $
    
    
    
    $
    Note payable to former TradePoint shareholders
    
    
    434
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of rights to assortment optimization
    
    
    450
    
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    2,771
    
    
    $
    2,348
    
    
    $
    423
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities
 Business Combinations
 Determination of the
Useful Life of Intangible Assets Goodwill and Other Intangible Assets
 26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Risk
  
 Foreign Currency Translation
 Interest Rate Sensitivity
   
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  27




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Changes in Internal Control over Financial Reporting
  28




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Set forth below and elsewhere in this Quarterly Report on Form 10-Q , and in other documents we
file with the Securities and Exchange Commission, or SEC, are risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the forward-looking
statements contained in this Quarterly Report on Form 10-Q and in other written and oral
communications from time to time. Because of the following factors, as well as other variables
affecting our operating results, past financial performance should not be considered as a reliable
indicator of future performance and investors should not use historical trends to anticipate
results or trends in future periods.
 Risks Related to Our Business and Industry
 We have a history of losses and we may not achieve or sustain profitability in the future.
  The effects of the recent global economic crisis may adversely impact our business, operating
results or financial condition.
  We may experience significant quarterly fluctuations in our operating results due to a number of
factors, which makes our future operating results difficult to predict and could cause our
operating results to fall below expectations.
   29




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##### Table of Contents




    
    our ability to increase sales to existing customers and to renew agreements with our
existing customers, particularly larger retail customers;
    
    our ability to attract new customers, particularly larger retail customers and consumer
products customers;
    
    changes in our pricing policies or those of our competitors;
    
    outages and capacity constraints with our hosting partners;
    
    fluctuations in demand for our software;
    
    volatility in the sales of our solutions on a quarterly basis;
    
    reductions in customers budgets for information technology purchases and delays in their
purchasing cycles, particularly in light of recent deteriorating economic conditions;
    
    our ability to develop and implement in a timely manner new software and enhancements
that meet customer requirements;
    
    our ability to hire, train and retain key personnel;
    
    any significant changes in the competitive dynamics of our market, including new entrants
or substantial discounting of products;
    
    our ability to control costs, including our operating expenses;
    
    any significant change in our facilities-related costs;
    
    the timing of hiring personnel and of large expenses such as those for trade shows and
third-party professional services;
    
    general economic conditions in the retail and CP markets; and
    
    the impact of a recession or any other adverse economic conditions on our business,
including a delay in signing or a failure to sign significant customer agreements.
  We depend on a small number of customers, which are primarily large retailers, and our growth, if
any, depends upon our ability to add new and retain existing large customers.
  Our business depends substantially on customers renewing their agreements for our software. Any
decline in our customer renewals would harm our operating results.
 30




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##### Table of Contents



Because we recognize revenue ratably over the terms of our customer agreements, the lack of
renewals or the failure to enter into new agreements will not immediately be reflected in our
operating results but will negatively affect revenue in future quarters.
  Our sales cycles are long and unpredictable, and our sales efforts require considerable time
and expense.
  Our business will be adversely affected if the retail and CP industries do not widely adopt
technology solutions incorporating scientific techniques to understand and predict consumer
demand to make pricing and other merchandising decisions.
  If we are unable to continue to enhance our current software or to develop or acquire new
software to address changing consumer demand management business requirements, we may not be able
to attract or retain customers.
  31




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##### Table of Contents



Understanding and predicting consumer behavior is dependent upon the continued availability of
accurate and relevant data from retailers and third-party data aggregators. If we are unable to
obtain access to relevant data, or if we do not enhance our core science and econometric modeling
methodologies to adjust for changing consumer behavior, our software may become less competitive
or obsolete.
  We rely on our management team and will need additional personnel to grow our business, and the
loss of one or more key employees or our inability to attract and retain qualified personnel
could harm our business.
  32




---



##### Table of Contents



We have experienced growth in recent periods. If we fail to manage our growth effectively, we may
be unable to execute our business plan, maintain high levels of customer service or address
competitive challenges adequately.
  We have derived most of our revenue from sales to our retail customers. If our software is not
widely accepted by CP companies, our ability to grow our revenue and achieve our strategic
objectives will be harmed.
  We face intense competition that could prevent us from increasing our revenue and prevent us from
becoming profitable.
    We rely on two third-party service providers to host our software, and any interruptions or
delays in services from these third parties could impair the delivery of our software as a
service.
  33




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##### Table of Contents



If our security measures are breached and unauthorized access is obtained to our customers data,
our operations may be perceived as not being secure, customers may curtail or stop using our
software and we may incur significant liabilities.
  If we fail to respond to rapidly changing technological developments or evolving industry
standards, our software may become less competitive or obsolete.
  Our use of open source and third-party technology could impose limitations on our ability to
commercialize our software.
  If we are unable to protect our intellectual property rights, our competitive position could be
harmed and we could be required to incur significant expenses in order to enforce our rights.
    34




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##### Table of Contents



Material defects or errors in our software could harm our reputation, result in significant
expense to us and impair our ability to sell our software.
  Because our long-term success depends, in part, on our ability to expand sales of our software to
customers located outside of the United States, our business increasingly will be susceptible to
risks associated with international operations.
  
    
    fluctuations in currency exchange rates;
    
    unexpected changes in foreign regulatory requirements;
    
    localization of our software, including translation of the interface of our software into
foreign languages and creation of localized agreements;
    
    longer accounts receivable payment cycles and difficulties in collecting accounts
receivable;
    
    tariffs and trade barriers and other regulatory or contractual limitations on our ability
to sell or develop our software in certain international markets;
    
    difficulties in managing and staffing international operations;
    
    potentially adverse tax consequences, including the complexities of international value
added tax systems and restrictions on the repatriation of earnings;
    
    the burdens of complying with a wide variety of international laws and different legal
standards, including local data privacy laws and local consumer protection laws that could
regulate retailers permitted pricing and promotion practices;
    
    political, social and economic instability abroad, terrorist attacks and security
concerns in general; and
    
    reduced or varied protection of intellectual property rights in some countries.
  35




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##### Table of Contents



Because portions of our software development, sustaining engineering, quality assurance and
testing, operations and customer support are provided by a third party in China, our business
will be susceptible to risks associated with having substantial operations overseas.
   If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements could be impaired, which could adversely affect our operating results, our
ability to operate our business and investors views of us.
   36




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##### Table of Contents



We may expand through acquisitions of other companies, which may divert our managements
attention and result in unexpected operating difficulties, increased costs and dilution to our
stockholders.
   If one or more of our key strategic relationships were to become impaired or if these third
parties were to align with our competitors, our business could be harmed.
  Claims by others that we infringe their proprietary technology could harm our business.
   Changes in financial accounting standards or practices may cause adverse, unexpected financial
reporting fluctuations and affect our reported results of operations.
 Revenue Arrangements with Multiple Deliverables Revenue Arrangements with Multiple Deliverables
 37




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##### Table of Contents



We might require additional capital to support our business growth, and this capital might not be
available on acceptable terms, or at all.
  Evolving regulation of the Internet may affect us adversely.
  We incur significantly increased costs as a result of operating as a public company, and our
management is required to devote substantial time to compliance efforts.
  Risks Related to Ownership of Our Common Stock
 The trading price of our common stock has been volatile in the past, may continue to be volatile,
and may decline.
  
    
    variations in our operating results;
    
    announcements of technological innovations, new products and services, acquisitions,
strategic alliances or significant agreements by us or by our competitors;
    
    recruitment or departure of key personnel;
    
    the financial projections we may provide to the public, any changes in these projections
or our failure to meet these projections;
 38




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##### Table of Contents




    
    changes in the estimates of our operating results or changes in recommendations by any
securities analysts that elect to follow our common stock;
    
    market conditions in our industry, the retail industry and the economy as a whole;
    
    price and volume fluctuations in the overall stock market;
    
    lawsuits threatened or filed against us;
    
    adoption or modification of regulations, policies, procedures or programs applicable to
our business; and
    
    the volume of trading in our common stock, including sales upon exercise of outstanding
options.
  Future sales of shares by existing stockholders, or the perception that such sales may occur,
could cause our stock price to decline.
  If securities analysts do not publish research or publish unfavorable research about our
business, our stock price and trading volume could decline.
  Insiders and other affiliates have substantial control over us and will be able to influence
corporate matters.
  Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or
prevent a change in control of our company and may affect the trading price of our common stock.
  
    
    authorize the issuance of blank check preferred stock that could be issued by our board
of directors to thwart a takeover attempt;
 39




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##### Table of Contents




    
    establish a classified board of directors, as a result of which the successors to the
directors whose terms have expired will be elected to serve from the time of election and
qualification until the third annual meeting following their election;
    
    require that directors only be removed from office for cause and only upon a majority
stockholder vote;
    
    provide that vacancies on our board of directors, including newly created directorships,
may be filled only by a majority vote of directors then in office;
    
    limit who may call special meetings of stockholders;
    
    prohibit stockholder action by written consent, thus requiring all actions to be taken at
a meeting of the stockholders;
    
    require supermajority stockholder voting to effect certain amendments to our restated
certificate of incorporation and amended and restated bylaws; and
    
    require advance notification of stockholder nominations and proposals.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Sales of Unregistered SecuritiesNone.
 (b)
    
    Use of Proceeds from Public Offering of Common StockIn August 2007, we completed our initial public offering, or IPO, pursuant to a registration
statement on Form S-1 (Registration No. 333-143248) which the U.S. Securities and Exchange
Commission declared effective on August 8, 2007. Under the registration statement, we
registered the offering and sale of an aggregate of up to 6,900,000 shares of our common
stock. Of the registered shares, 6,000,000 of the shares of common stock issued pursuant to
the registration statement were sold at a price to the public of $11.00 per share. As a result
of the IPO, we raised a total of $57.6 million in net proceeds after deducting underwriting
discounts and commissions and expenses.On August 14, 2007 we used $3.0 million of our proceeds to settle our credit facility. On
August 16, 2007, we used $10.2 million of our proceeds to settle our term loan with Silicon
Valley Bank and Gold Hill Venture Lending 03, LP. We have used and intend to continue to use
the remaining net proceeds from the offering for working capital and other general corporate
purposes, including to finance our growth, develop new software and fund capital expenditures.
Additionally, we may choose to expand our current business through acquisitions of other
complementary businesses, products, services or technologies. Pending such uses, we plan to
invest the net proceeds in short-term, interest-bearing, investment grade securities.As of November 30, 2008, approximately $44.4 million of aggregate net proceeds remained
invested in interest-bearing obligations, investment-grade instruments, certificates of
deposit or direct or guaranteed obligations of the United States government or in operating
cash accounts.There were no material differences in the actual use of proceeds from our IPO as compared to
the planned use of proceeds as described in the final prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b).(c)
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Issuer Purchases of Equity SecuritiesTotal Number of Shares
    
    
    Maximum Number ofTotal Number
    
    
    
    
    
    
    Purchased as Part of
    
    
    Shares that May Yet Beof Shares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Purchased Under thePeriod
    
    Purchased (1)
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    Plans or Programs9/1/08 - 9/30/08
    
    
    228
    
    
    $
    1.30
    
    
    
    
    
    
    
    10/1/08 - 10/31/08
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    11/1/08 - 11/30/08
    
    
    365
    
    
    $
    1.30
    
    
    
    
    
    
    
    Total
    
    
    593
    
    
    
    
    
    
    
    
 40




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##### Table of Contents



(1)
    
    Under our 1999 Equity Incentive Plan we granted options to purchase common stock that
permit the optionee to exercise the option before vesting, with us retaining a right to
repurchase any unvested shares at the optionees original cost in the event of the optionees
cessation of service. We ceased to grant further options with this repurchase feature after
December 2, 2005. This table shows the shares acquired by us upon our repurchase of unvested
shares upon employees terminations during the quarter ended November 30, 2008. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   Votes For
    
    WithheldRonald R. Baker
    
    
    21,760,857
    
    
    
    578,145Linda Fayne Levinson
    
    
    21,760,857
    
    
    
    578,145
   Votes for
    
    
    22,322,340Votes against
    
    
    13,414Abstain
    
    
    3,248Broker Non-Vote
    
    
    0
 
 Item 5. Other Information
  41




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##### Table of Contents



Item 6. Exhibits
 ExhibitNo.
    
    Description10.1*
    
    DemandTec, Inc. Non-Employee Director Compensation Policy, effective as of September 2, 2008
(incorporated herein by reference to our Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on October 3, 2008)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Represents a management agreement or compensatory plan.  42




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##### Table of Contents



SIGNATURES
   DemandTec, Inc.By:
    /s/ Mark A. CulhaneMark A. CulhaneExecutive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) 43




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##### Table of Contents



ExhibitNo.
    
    Description10.1*
    
    DemandTec, Inc. Non-Employee Director Compensation Policy, effective as of September 2, 2008
(incorporated herein by reference to our Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on October 3, 2008)31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Represents a management agreement or compensatory plan. 44