##### 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 May 31, 2009
 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.
 (Exact name of registrant as specified in its charter)
 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
(Address of Principal Executive Offices including Zip Code)
 (650) 226-4600
(Registrants Telephone Number, Including Area Code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



DEMANDTEC, INC.
FORM 10-Q
 TABLE OF CONTENTS
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of May 31, 2009 and February 28, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2009 and 2008
    
    
    5Notes to Condensed 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
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40Signature
    
    
    41EX-10.1EX-10.2EX-10.3EX-10.4EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 DemandTec, Inc.
 
 Condensed Consolidated Balance Sheets
 (In thousands, except per share data)
 As of
    
    
    As ofMay 31,
    
    
    February 28,2009
    
    
    2009(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,458
    
    
    $
    33,572Marketable securities
    
    
    39,962
    
    
    
    46,426Accounts receivable, net of allowances of $120 as of May 31, 2009 and February 28, 2009
    
    
    4,196
    
    
    
    11,000Other current assets
    
    
    4,012
    
    
    
    4,230Total current assets
    
    
    76,628
    
    
    
    95,228Marketable securities, non-current
    
    
    6,840
    
    
    
    7,886Property, equipment and leasehold improvements, net
    
    
    4,904
    
    
    
    5,429Intangible assets, net
    
    
    7,262
    
    
    
    8,405Goodwill
    
    
    16,662
    
    
    
    16,492Other assets, net
    
    
    445
    
    
    
    715Total assets
    
    $
    112,741
    
    
    $
    134,155LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    12,236
    
    
    $
    12,962Deferred revenue
    
    
    40,018
    
    
    
    46,415Notes payable, current
    
    
    432
    
    
    
    1,720Merger consideration payable
    
    
    1,000
    
    
    
    12,343Total current liabilities
    
    
    53,686
    
    
    
    73,440Deferred revenue, non-current
    
    
    1,444
    
    
    
    2,400Other long-term liabilities
    
    
    1,661
    
    
    
    1,666Commitments and contingencies (see Note 5)Stockholders equity:Common stock, $0.001 par value  175,000 shares authorized; 28,280 and 28,059 shares
issued and outstanding, respectively, excluding 2 and 4 shares subject to repurchase,
respectively, as of May 31, 2009 and February 28, 2009
    
    
    28
    
    
    
    28Additional paid-in capital
    
    
    136,587
    
    
    
    133,320Accumulated other comprehensive income
    
    
    438
    
    
    
    682Accumulated deficit
    
    
    (81,103
    )
    
    
    (77,381
    )Total stockholders equity
    
    
    55,950
    
    
    
    56,649Total liabilities and stockholders equity
    
    $
    112,741
    
    
    $
    134,155
  3




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##### Table of Contents



DemandTec, Inc.
 
 Condensed Consolidated Statements of Operations
 (In thousands, except per share data)
 (Unaudited)
 Three Months EndedMay 31,2009
    
    
    2008Revenue
    
    $
    19,545
    
    
    $
    18,054Cost of revenue(1)(2)
    
    
    6,704
    
    
    
    5,655Gross profit
    
    
    12,841
    
    
    
    12,399Operating expenses:Research and development(2)
    
    
    8,156
    
    
    
    6,503Sales and marketing(2)
    
    
    5,431
    
    
    
    5,172General and administrative(2)
    
    
    2,374
    
    
    
    2,174Restructuring charges
    
    
    278
    
    
    
    Amortization of purchased intangible assets
    
    
    589
    
    
    
    89Total operating expenses
    
    
    16,828
    
    
    
    13,938Loss from operations
    
    
    (3,987
    )
    
    
    (1,539
    )Interest income
    
    
    229
    
    
    
    534Interest expense
    
    
    (31
    )
    
    
    (3
    )Other income, net
    
    
    86
    
    
    
    54Loss before provision for income taxes
    
    
    (3,703
    )
    
    
    (954
    )Provision for income taxes
    
    
    19
    
    
    
    80Net loss
    
    $
    (3,722
    )
    
    $
    (1,034
    )Net loss per common share, basic and diluted
    
    $
    (0.13
    )
    
    $
    (0.04
    )Shares used in computing net loss per common share, basic and diluted
    
    
    28,157
    
    
    
    26,609(1) Includes amortization of purchased intangible assets
    
    $
    466
    
    
    $
    152(2) Includes stock-based compensation expense as follows:Cost of revenue
    
    $
    418
    
    
    $
    389Research and development
    
    
    856
    
    
    
    592Sales and marketing
    
    
    619
    
    
    
    440General and administrative
    
    
    525
    
    
    
    368Total stock-based compensation expense
    
    $
    2,418
    
    
    $
    1,789
  4




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##### Table of Contents



DemandTec, Inc
 
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Three Months EndedMay 31,2009
    
    
    2008Operating activities:Net loss
    
    $
    (3,722
    )
    
    $
    (1,034
    )Adjustment to reconcile net loss to net cash
 provided by (used in) operating activities:Depreciation
    
    
    768
    
    
    
    672Stock-based compensation expense
    
    
    2,418
    
    
    
    1,789Amortization of purchased intangible assets
    
    
    1,055
    
    
    
    241Provision for accounts receivable
    
    
    
    
    
    
    (30
    )Other
    
    
    (13
    )
    
    
    (9
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    6,740
    
    
    
    5,946Other current assets
    
    
    (48
    )
    
    
    (67
    )Other assets
    
    
    270
    
    
    
    325Accounts payable and accrued expenses
    
    
    1,269
    
    
    
    1,125Accrued compensation
    
    
    (1,998
    )
    
    
    (579
    )Deferred revenue
    
    
    (7,353
    )
    
    
    (3,982
    )Net cash
provided by  (used in) operating activities
    
    
    (614
    )
    
    
    4,397Investing activities:Purchases of property, equipment and leasehold improvements
    
    
    (242
    )
    
    
    (1,083
    )Purchases of marketable securities
    
    
    (18,989
    )
    
    
    (19,014
    )Maturities of marketable securities
    
    
    26,500
    
    
    
    17,320Acquisition of Connect3
    
    
    (11,343
    )
    
    
    Change in restricted cash
    
    
    
    
    
    
    200Net cash used in investing activities
    
    
    (4,074
    )
    
    
    (2,577
    )Financing activities:Proceeds from issuance of common stock, net of repurchases
    
    
    845
    
    
    
    1,039Payments on notes payable
    
    
    (1,288
    )
    
    
    (8
    )Net cash
provided by  (used in) financing activities
    
    
    (443
    )
    
    
    1,031Effect of exchange rate changes on cash and cash equivalents
    
    
    17
    
    
    
    10Net
increase (decrease) in cash and cash equivalents
    
    
    (5,114
    )
    
    
    2,861Cash and cash equivalents at beginning of period
    
    
    33,572
    
    
    
    43,257Cash and cash equivalents at end of period
    
    $
    28,458
    
    
    $
    46,118
  5




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##### Table of Contents



DemandTec, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 1. Business Summary and Significant Accounting Policies
 Description of Business
  Basis of Presentation
   Reclassifications
  Use of Estimates
  Revenue Recognition
  6




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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
  Concentrations of Credit Risk, Significant Customers and Suppliers and Geographic Information
    Three Months Ended May 31,2009
    
    
    2008United States
    
    $
    16,859
    
    
    $
    15,426International
    
    
    2,686
    
    
    
    2,628Total revenue
    
    $
    19,545
    
    
    $
    18,054
  7




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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
 Net Loss per Common Share
 Earnings per Share
   Three Months Ended May 31,2009
    
    
    2008Net loss
    
    $
    (3,722
    )
    
    $
    (1,034
    )Weighted average number of common shares outstanding
    
    
    28,160
    
    
    
    26,635Weighted average number of common shares subject to repurchase
    
    
    (3
    )
    
    
    (26
    )Shares used in computing net loss per common share, basic and diluted
    
    
    28,157
    
    
    
    26,609Net loss per common share, basic and diluted
    
    $
    (0.13
    )
    
    $
    (0.04
    )
 8




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##### Table of Contents



Three Months Ended May 31,2009
    
    
    2008Shares subject to options to purchase
common stock, PSUs and RSUs, and shares
subject to issuance under the ESPP
    
    
    4,019
    
    
    
    4,684Common stock subject to repurchase
    
    
    3
    
    
    
    26Total
    
    
    4,022
    
    
    
    4,710
 Recent Accounting Pronouncements
 Subsequent Events
 Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly Recognition and Presentation of Other-Than-Temporary Impairments Interim Disclosures About Fair Value of Financial
Instruments Disclosures about Fair
Value of Financial Instruments
 Accounting for Defensive Intangible Assets Fair Value Measurements
 Determination of the Useful Life of Intangible
Assets, Goodwill and Other Intangible Assets
 Business Combinations
 9




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Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination that Arise From Contingencies Accounting for Contingencies Reasonable
Estimation of the Amount of a Loss  an interpretation of FASB Statement No. 5
 2. Acquisition
  Business Combinations
 3. Balance Sheet Components
 Marketable Securities
  As of
    
    
    As ofMay 31,
    
    
    February 28,2009
    
    
    2009Commercial paper
    
    
    2,796
    
    
    
    6,291Corporate bonds
    
    
    12,461
    
    
    
    12,314U.S. agency bonds
    
    
    31,545
    
    
    
    23,724Treasury bills
    
    
    
    
    
    
    11,983$
    46,802
    
    
    $
    54,312
  10




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##### Table of Contents



Accounts Payable and Accrued Expenses
  As of
    
    
    As ofMay 31,
    
    
    February 28,2009
    
    
    2009Accounts payable
    
    $
    4,151
    
    
    $
    2,822Accrued professional services
    
    
    782
    
    
    
    640Income taxes payable
    
    
    48
    
    
    
    50Other accrued liabilities
    
    
    1,640
    
    
    
    1,837Accrued compensation
    
    
    5,615
    
    
    
    7,613Total accounts payable and accrued expenses
    
    $
    12,236
    
    
    $
    12,962
 4. Goodwill and Purchased Intangible Assets
 Goodwill
 Goodwill and Other
Intangible Assets Disclosures about Segments of an Enterprise and Related Information
 Purchased Intangible Assets
  5. Commitments and Contingencies
 Commitments
  Legal Proceedings
  6. Debt
  11




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7. Stock-Based Compensation
 Equity Incentive Plans
 1999 Equity Incentive Plan
  2007 Equity Incentive Plan
  Stock Options
  Performance Stock Units (PSUs)
   12




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##### Table of Contents



Restricted Stock Units (RSUs)
   Shares
    
    
    Shares Subject
    
    
    Weighted AverageAvailable
    
    
    to Options
    
    
    Option Exercisefor Grant
    
    
    Outstanding
    
    
    Price per Share(Shares in thousands)Balance at February 28, 2009
    
    
    604
    
    
    
    7,732
    
    
    $
    5.20Additional shares authorized
    
    
    1,403
    
    
    
    
    
    
    
    Options granted
    
    
    (212
    )
    
    
    212
    
    
    
    7.53Performance stock units granted
    
    
    (901
    )
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    (133
    )
    
    
    2.281999 Plan options cancelled/forfeited (1)
    
    
    
    
    
    
    (42
    )
    
    
    6.072007 Plan options cancelled/forfeited
    
    
    79
    
    
    
    (79
    )
    
    
    9.19Performance and restricted stock units cancelled/forfeited
    
    
    245
    
    
    
    
    
    
    
    Balance at May 31, 2009
    
    
    1,218
    
    
    
    7,690
    
    
    
    5.27
 
 (1)
    
    Under the terms of the 1999 Plan, shares underlying cancelled or forfeited options are no
longer available for awards. Employee Stock Purchase Plan (ESPP)
  Stock-Based Compensation Expense Associated with Awards to Employees
  13




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##### Table of Contents



Weighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted Average perAverage
    
    Expected
    
    
    
    
    
    
    
    
    
    Share Fair Value ofExpected
    
    Stock
    
    Risk-free
    
    Expected
    
    Options/FMV ofTerm
    
    Price
    
    Interest
    
    Dividend
    
    Awards Granted(in years)
    
    Volatility
    
    Rate
    
    Yield
    
    During the PeriodThree months ended May 31, 2009(1)Stock options
    
    
    4.3
    
    
    
    64
    %
    
    
    1.7
    %
    
    
    0
    %
    
    $
    3.84Performance stock units
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    7.59ESPP
    
    
    0.5
    
    
    
    95
    %
    
    
    0.3
    %
    
    
    0
    %
    
    $
    3.08Three
months ended May 31, 2008Stock options
    
    
    4.2
    
    
    
    38
    %
    
    
    3.3
    %
    
    
    0
    %
    
    $
    3.38Performance stock units
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    10.37Restricted stock units
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    $
    10.40ESPP
    
    
    0.5
    
    
    
    43
    %
    
    
    2.0
    %
    
    
    0
    %
    
    $
    1.94
 
 (1)
    
    No RSUs were granted in the three months ended May 31, 2009. 14




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##### Table of Contents



Unrecognized
    
    
    RemainingStock-Based
    
    
    Weighted AverageCompensation
    
    
    Recognition Period(in millions)
    
    
    (in years)Stock
options granted after March 1, 2006
    
    $
    10.0
    
    
    
    2.5Performance stock units
    
    
    6.7
    
    
    
    1.1Restricted stock units
    
    
    2.4
    
    
    
    0.9$
    19.1
    
    
    
    1.8
  8. Income Taxes
  Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
 9. Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities
 
  Net Unrealized
    
    
    Cumulative
    
    
    Accumulated OtherGain on
    
    
    Implied Interest on
    
    
    ComprehensiveCash Flow Hedges
    
    
    Forward Contracts
    
    
    IncomeBalance at February 28, 2009
    
    $
    642
    
    
    $
    40
    
    
    $
    682Changes in net unrealized gain and cumulative
implied interest on cash flow hedges
    
    
    (259
    )
    
    
    15
    
    
    
    (244
    )Balance at May 31, 2009
    
    $
    383
    
    
    $
    55
    
    
    $
    438
  15




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##### Table of Contents



10. Fair Value Measurements
 Fair Value Measurements
 Level 1 
 Level 2
 Level 3 
    Significant OtherObservable InputsDescription
    
    Total
    
    (Level 2)Assets:Foreign currency forward contracts(1)
    
    $
    143
    
    
    $
    143
 
 (1)
    
    Included in other current assets, net on our condensed consolidated balance sheet. 11. Comprehensive Loss
  Three Months Ended May 31,2009
    
    
    2008Net loss
    
    $
    (3,722
    )
    
    $
    (1,034
    )Change in net unrealized gain and
cumulative implied interest on cash
flow hedges
    
    
    (244
    )
    
    
    Total Comprehensive Loss
    
    $
    (3,966
    )
    
    $
    (1,034
    )
 12. Restructuring Charges
  16




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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 28, 2009. 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-K for the fiscal year ended February 28, 2009.
 Overview
     17




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##### Table of Contents



TM
    Critical Accounting Policies and Estimates
  
    
    Revenue Recognition
    
    Stock-Based Compensation
    
    Goodwill and Intangible Assets
    
    Impairment of Long-Lived Assets
 18




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In many cases, the accounting treatment of a particular transaction is specifically dictated
by GAAP and does not require managements judgment in its application. There are also areas in
which managements judgment in selecting among available accounting policy alternatives would not
produce a materially different result.
  Results of Operations
 Revenue
  Three Months Ended May 31,2009
    
    2008(in thousands)Revenue
    
    $
    19,545
    
    
    $
    18,054
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008
    Cost of Revenue
  19




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##### Table of Contents



Three Months Ended May 31,2009
    
    2008(dollars in thousands)Revenue
    
    $
    19,545
    
    
    $
    18,054Cost of revenue
    
    
    6,704
    
    
    
    5,655Gross profit
    
    
    12,841
    
    
    
    12,399Gross margin
    
    
    65.7
    %
    
    
    68.7
    %
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
   Research and Development Expenses
  Three Months Ended May 31,2009
    
    2008(dollars in thousands)Research and development
    
    $
    8,156
    
    
    $
    6,503Percent of revenue
    
    
    41.7
    %
    
    
    36.0
    %
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
   20




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##### Table of Contents



Sales and Marketing Expenses
  Three Months Ended May 31,2009
    
    2008(dollars in thousands)Sales and marketing
    
    $
    5,431
    
    
    $
    5,172Percent of revenue
    
    
    27.8
    %
    
    
    28.6
    %
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
    General and Administrative Expenses
  Three Months Ended May 31,2009
    
    2008(dollars in thousands)General and administrative
    
    $
    2,374
    
    
    $
    2,174Percent of revenue
    
    
    12.1
    %
    
    
    12.0
    %
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
 21




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Amortization of Purchased Intangible Assets
 Three Months Ended May 31,2009
    
    2008(dollars in thousands)Amortization of purchased intangible assets
    
    $
    589
    
    
    $
    89Percent of revenue
    
    
    3.0
    %
    
    
    0.5
    %
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
 Other Income, Net
 Three Months Ended May 31,2009
    
    
    2008(in thousands)Interest income
    
    $
    229
    
    
    $
    534Interest expense
    
    
    (31
    )
    
    
    (3
    )Other income
    
    
    86
    
    
    
    54Other income, net
    
    $
    284
    
    
    $
    585
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
 Provision for Income Taxes
 Three Months Ended May 31,2009
    
    2008(in thousands)Provision for income taxes
    
    $
    19
    
    
    $
    80
 Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008.
 22




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Stock-Based Compensation Expense
  Liquidity and Capital Resources
   Three Months Ended May 31,2009
    
    2008(in thousands)Net cash provided by (used in) operating activities
    
    $
    (614
    )
    
    $
    4,397Net cash used in investing activities
    
    
    (4,074
    )
    
    
    (2,577
    )Net cash provided by (used in) financing activities
    
    
    (443
    )
    
    
    1,031
 Operating Activities
   23




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Investing Activities
   Financing Activities
    Contractual Obligations
   Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years(In thousands)Operating leases
    
    $
    1,155
    
    
    $
    991
    
    
    $
    164
    
    
    $
    
    
    
    $
    Merger consideration payable to former
Connect3 shareholders
    
    
    2,000
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    Notes payable to former TradePoint shareholders
    
    
    432
    
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    3,587
    
    
    $
    2,423
    
    
    $
    1,164
    
    
    $
    
    
    
    $
    
 24




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##### Table of Contents



Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Subsequent Events
 Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly Recognition and
Presentation of Other-Than-Temporary Impairments Interim Disclosures About Fair Value of Financial Instruments Disclosures about Fair Value of Financial Instruments
 Accounting for Defensive Intangible Assets Fair Value Measurements
 Determination of the Useful Life of Intangible
Assets, Goodwill and Other Intangible Assets
 Business Combinations
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Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination that Arise From Contingencies Accounting for Contingencies Reasonable Estimation of the Amount of a Loss  an interpretation of FASB
Statement No. 5
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Risk
  
 Foreign Currency Translation
 Interest Rate Sensitivity
   26




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Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  27




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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 ongoing  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.
  28




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
    
    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, or pricing pressure on our
software services;
    
    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.
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Our business depends substantially on customers renewing their agreements for our software. Any
decline in our customer renewals would harm our operating results.
  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
statement of operations in any significant manner but will negatively affect revenue in future
quarters.
  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.
  30




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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 business requirements, we may not be able to attract or retain customers.
  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.
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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.
  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.
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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.
  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 software 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.
  33




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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 will be increasingly 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;
 34




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##### Table of Contents




    
    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.
  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.
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##### Table of Contents



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.
 Share-Based Payment,
 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 might require additional capital to support our business growth, and this capital might not be
available on acceptable terms, or at all.
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##### Table of Contents



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;
    
    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;
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##### Table of Contents




    
    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;
    
    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;
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##### Table of Contents




    
    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 Stock
      (c)
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 None.
 
 Item 3. Defaults Upon Senior Securities
  39




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Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 ExhibitNo.
    
    Description10.1
    
    First Amendment to Amended and Restated Outsourcing Services Agreement, dated as of April 21,
2009, by and between the Registrant and Sonata Services Limited10.2
    
    Amendment No. 1 to Loan and Security Agreement dated as of May 7, 2009 by and between DemandTec,
Inc. and Silicon Valley Bank10.3*
    
    DemandTec, Inc. Non-Employee Director Compensation Policy, effective as of March 1, 200910.4*
    
    Form of Fiscal Year 2010 PSU Agreement under the Registrants 2007 Equity Incentive Plan31.1
    
    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
 
 
    
    Confidential treatment has been requested for a portion of this exhibit.*
    
    Represents a management agreement or compensatory plan.**
    
    This certification is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing
of DemandTec, Inc. under the Securities Act of 1933 or the Securities
Exchange Act of 1934, whether made before or after the date of this
Quarterly Report on Form 10-Q, irrespective of any general
incorporation language contained in such filing. 40




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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) 41




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##### Table of Contents



ExhibitNo.
    
    Description10.1
    
    First Amendment to Amended and Restated Outsourcing Services Agreement, dated as of April 21,
2009, by and between the Registrant and Sonata Services Limited10.2
    
    Amendment No. 1 to Loan and Security Agreement dated as of May 7, 2009 by and between DemandTec,
Inc. and Silicon Valley Bank10.3*
    
    DemandTec, Inc. Non-Employee Director Compensation Policy, effective as of March 1, 200910.4*
    
    Form of Fiscal Year 2010 PSU Agreement under the Registrants 2007 Equity Incentive Plan31.1
    
    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
 
 
    
    Confidential treatment has been requested for a portion of this exhibit.*
    
    Represents a management agreement or compensatory plan.**
    
    This certification is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing
of DemandTec, Inc. under the Securities Act of 1933 or the Securities
Exchange Act of 1934, whether made before or after the date of this
Quarterly Report on Form 10-Q, irrespective of any general
incorporation language contained in such filing. 42