Notes
to Condensed Consolidated Financial Statements
(unaudited)
1.
DESCRIPTION
OF THE BUSINESS AND BASIS OF PRESENTATION
Business
TheStreet.com,
Inc. together with its wholly owned subsidiaries, (“we”, “us” or the “Company”),
is a leading digital financial media company. Our goal is to be the
primary independent online-only source of reliable and actionable investing
ideas, news and analysis, markets and rate data and analytical tools for a
growing audience of self-directed investors and the institutions that serve
them. We distribute our fee-based premium content and
advertising-supported content through a network of proprietary electronic
services including: Web sites, blogs, widgets, email services, mobile devices,
podcasts and online video channels. We also syndicate our content for
distribution by financial institutions and other media
organizations.
Basis
of Presentation and Restatement of September 30, 2008 Interim Condensed
Consolidated Financial Statements
The
accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and with the instructions
to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and for
quarterly reports on Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
notes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
financial statements require the use of management estimates and include the
accounts of the Company as required by GAAP.
Operating
results for the three and nine-month periods ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.
The
consolidated balance sheet at December 31, 2008 has been derived from the
audited financial statements at that date, as restated (see below), but does not
include all of the information and notes required by GAAP for complete financial
statements.
For
further information, refer to the consolidated financial statements and
accompanying notes included in the Company’s annual report on Form 10-K/A for
the year ended December 31, 2008, filed with the Securities and Exchange
Commission (“SEC”) on February 8, 2010 (“2008 Form 10-K/A”). The 2008
period results described in our condensed consolidated financial statements
reflect the results reported in our 2008 Form 10-K/A.
The
Company is restating its previously filed September 30, 2008 interim condensed
consolidated financial statements (“2008 Financial Information”) to correct
inaccuracies related to the timing of recognition of revenue within the
Company’s former Promotions.com subsidiary which the Company sold in December
2009. The restatement of the 2008 Financial Information as well as
the restatement of the December 31, 2008 consolidated financial statements and
the interim consolidated financial statements for the quarters ended March 31,
2008, June 30, 2008 and December 31, 2008, result in reduced revenue in certain
quarters, and increased revenue in other quarters, as compared to results
previously reported; reduced expense in certain quarters, as compared to results
previously reported; and reduced net income (or increased net loss) in certain
quarters, and reduced net loss in other quarters, as compared to results
previously reported. The restatement does not affect the Company’s
previously reported cash, cash equivalents, restricted cash and marketable
securities.
Restated
balances for items of the 2008 Financial Information have been identified with
the notation “As Restated” where appropriate. Throughout the interim
condensed consolidated financial statements, the term “as previously reported”
will be used to refer to balances from the September 2008 interim condensed
consolidated financial statements as reported prior to this
restatement.
The
impact of the restatement on the Company’s Consolidated Statements of Operations
for the three and nine month periods ended September 30, 2008 is as
follows:
|
|
|
Unaudited
|
|
|
|
|
For
the Three Months Ended September 30, 2008
|
|
|
|
|
As
Filed
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Net
revenue:
|
|
|
|
|
|
|
|
|
|
|
Paid
services
|
|
$
|
10,244,212
|
|
|
$
|
-
|
|
|
$
|
10,244,212
|
|
|
Marketing
services
|
|
|
6,478,367
|
|
|
|
326,058
|
|
|
|
6,804,425
|
|
|
Total
net revenue
|
|
|
16,722,579
|
|
|
|
326,058
|
|
|
|
17,048,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services
|
|
|
8,405,002
|
|
|
|
(45,439
|
)
|
|
|
8,359,563
|
|
|
Sales
and marketing
|
|
|
3,550,363
|
|
|
|
-
|
|
|
|
3,550,363
|
|
|
General
and administrative
|
|
|
4,589,851
|
|
|
|
-
|
|
|
|
4,589,851
|
|
|
Depreciation
and amortization
|
|
|
1,481,670
|
|
|
|
-
|
|
|
|
1,481,670
|
|
|
Total
operating expense
|
|
|
18,026,886
|
|
|
|
(45,439
|
)
|
|
|
17,981,447
|
|
|
Operating
loss
|
|
|
(1,304,307
|
)
|
|
|
371,497
|
|
|
|
(932,810
|
)
|
|
Net
interest income
|
|
|
345,675
|
|
|
|
-
|
|
|
|
345,675
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(958,632
|
)
|
|
|
371,497
|
|
|
|
(587,135
|
)
|
|
Provision
for income taxes
|
|
|
106,364
|
|
|
|
-
|
|
|
|
106,364
|
|
|
Loss
from continuing operations
|
|
|
(1,064,996
|
)
|
|
|
371,497
|
|
|
|
(693,499
|
)
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
3,079
|
|
|
|
-
|
|
|
|
3,079
|
|
|
Net
loss
|
|
|
(1,068,075
|
)
|
|
|
371,497
|
|
|
|
(696,578
|
)
|
|
Preferred
stock cash dividends
|
|
|
96,424
|
|
|
|
-
|
|
|
|
96,424
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(1,164,499
|
)
|
|
$
|
371,497
|
|
|
$
|
(793,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
Loss
from discontinued operations
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
Net
loss
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.03
|
)
|
|
Preferred
stock dividends
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
Net
loss attributable to common stockholders
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
Loss
from discontinued operations
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
Net
loss
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.03
|
)
|
|
Preferred
stock dividends
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
Net
loss attributable to common stockholders
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding
|
|
|
30,482,949
|
|
|
|
|
|
|
|
30,482,949
|
|
|
Weighted
average diluted shares outstanding
|
|
|
30,482,949
|
|
|
|
|
|
|
|
30,482,949
|
|
|
|
|
Unaudited
|
|
|
|
|
For
the Nine Months Ended September 30, 2008
|
|
|
|
|
As
Filed
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
Net
revenue:
|
|
|
|
|
|
|
|
|
|
|
Paid
services
|
|
$
|
31,293,620
|
|
|
$
|
-
|
|
|
$
|
31,293,620
|
|
|
Marketing
services
|
|
|
24,065,875
|
|
|
|
(1,915,011
|
)
|
|
|
22,150,864
|
|
|
Total
net revenue
|
|
|
55,359,495
|
|
|
|
(1,915,011
|
)
|
|
|
53,444,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services
|
|
|
24,427,285
|
|
|
|
(136,316
|
)
|
|
|
24,290,969
|
|
|
Sales
and marketing
|
|
|
10,944,352
|
|
|
|
-
|
|
|
|
10,944,352
|
|
|
General
and administrative
|
|
|
13,024,218
|
|
|
|
-
|
|
|
|
13,024,218
|
|
|
Depreciation
and amortization
|
|
|
4,330,054
|
|
|
|
-
|
|
|
|
4,330,054
|
|
|
Total
operating expense
|
|
|
52,725,909
|
|
|
|
(136,316
|
)
|
|
|
52,589,593
|
|
|
Operating
income
|
|
|
2,633,586
|
|
|
|
(1,778,695
|
)
|
|
|
854,891
|
|
|
Net
interest income
|
|
|
1,432,112
|
|
|
|
-
|
|
|
|
1,432,112
|
|
|
Income
from continuing operations before income taxes
|
|
|
4,065,698
|
|
|
|
(1,778,695
|
)
|
|
|
2,287,003
|
|
|
Provision
for income taxes
|
|
|
377,985
|
|
|
|
-
|
|
|
|
377,985
|
|
|
Income
from continuing operations
|
|
|
3,687,713
|
|
|
|
1,778,695
|
|
|
|
1,909,018
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
7,895
|
|
|
|
-
|
|
|
|
7,895
|
|
|
Net
income
|
|
|
3,679,818
|
|
|
|
(1,778,695
|
)
|
|
|
1,901,123
|
|
|
Preferred
stock cash dividends
|
|
|
289,272
|
|
|
|
-
|
|
|
|
289,272
|
|
|
Net
income attributable to common stockholders
|
|
$
|
3,390,546
|
|
|
$
|
(1,778,695
|
)
|
|
$
|
1,611,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
0.12
|
|
|
|
|
|
|
$
|
0.06
|
|
|
Loss
from discontinued operations
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
Net
loss
|
|
|
0.12
|
|
|
|
|
|
|
|
0.06
|
|
|
Preferred
stock dividends
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
Net
loss attributable to common stockholders
|
|
$
|
0.11
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
0.11
|
|
|
|
|
|
|
$
|
0.05
|
|
|
Loss
from discontinued operations
|
|
|
(0.00
|
)
|
|
|
|
|
|
|
(0.00
|
)
|
|
Net
loss
|
|
|
0.11
|
|
|
|
|
|
|
|
0.05
|
|
|
Preferred
stock dividends
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
0.11
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding
|
|
|
30,442,955
|
|
|
|
|
|
|
|
30,442,955
|
|
|
Weighted
average diluted shares outstanding
|
|
|
34,713,061
|
|
|
|
|
|
|
|
34,713,061
|
|
The
restatement did not have a material impact on the Company’s interim consolidated
balance sheet as of September 30, 2008 or its cash flows from operating,
investing and financing activities for the nine months ended September 30,
2008.
A summary
of the Company's critical accounting policies and estimates can be found in our
2008 Form 10-K/A, as filed with the SEC on February 8, 2010 (the “2008 Form
10-K/A”). During the nine months ended September 30, 2009, we changed
a critical accounting policy related to our Promotions.com
business: whereas in prior periods, we accounted for revenue for
Promotions.com primarily on a percentage of completion basis, we have determined
that we did not have in place adequate systems to identify and document the
occurrence of milestones. Promotions.com generates revenues from
website design, promotion management and hosting services. The
Company typically enters into arrangements on a fixed fee
basis. Revenue generated from website design services are recognized
upon acceptance from the customer or on a straight-line basis over the hosting
period if the Company performs website design services and hosts the
software. Revenues from promotions management services are recognized
straight-line over the promotion period as the promotion is designed to only
operate on Promotions.com proprietary platform. Hosting services are
recognized straight-line over the hosting period.
Effective
July 1, 2007, the Company’s revenue streams were classified into two components,
“paid services” and “marketing services”. Effective April 1, 2009,
the “paid services” component has been renamed “premium services” to better
reflect the character of this revenue and as such, this line item has been
changed for all periods presented.
The
Company has evaluated subsequent events for recognition or disclosure through
February 8, 2010, which was the date we filed this Form 10-Q with the
SEC.
Recent
Accounting Pronouncements
Effective
January 1, 2009, the Company adopted Accounting Standards Codification (“ASC”)
805-10 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 141
(Revised 2007)),
Business
Combinations
(“ASC 805-10”). ASC 805-10 requires the acquiring
entity in a business combination to recognize the full fair value of assets
acquired and liabilities assumed in the transaction, establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed, requires expensing of most transaction costs, and
requires the acquirer to disclose to investors and other users all of the
information needed to evaluate and understand the nature and financial effect of
the business combination. The effect of this pronouncement did not
have a material impact on the Company’s condensed consolidated financial
statements reflected in this report. However, the effect of this
pronouncement may be material in the future dependent upon each specific
acquisition that might occur in future periods.
Effective
January 1, 2009, the Company adopted ASC 815-40 (formerly EITF 07-5),
Determining Whether an Instrument
(or an Embedded Feature) is Indexed to an Entity’s Own Stock,
(“ASC
815-40”). ASC 815-40 provides framework for determining whether an
instrument is indexed to an entity’s own stock. The adoption of ASC
815-40 did not have a material impact on the Company’s condensed consolidated
financial statements reflected in this report.
Effective
January 1, 2009 the Company adopted ASC 810-10 (formerly SFAS No. 160),
Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51
(“ASC 810-10”). Upon adoption of ASC 810-10, the Company is required
to report any noncontrolling interests as a separate component of stockholders’
equity. The Company is required to present any net income allocable to
noncontrolling interests and net income attributable to the stockholders of the
Company separately in its consolidated statement of operations. The effect of
this pronouncement did not have a material impact on the Company’s condensed
consolidated financial statements reflected in this report. However,
the effect of this pronouncement may be material in the future dependent upon
each specific acquisition that might occur in future periods.
In April
2009, the Company adopted ASC 825-10 (formerly FSP 107-1),
Interim Disclosure about Fair Value
of Financial Instruments
(“ASC 825-10”). ASC 825-10 amends ASC
825-10 (formerly SFAS No. 107),
Disclosures about Fair Value of
Financial Instruments,
to require disclosures about the fair value of
financial instruments for interim periods of publicly traded companies as well
as in annual financial statements. ASC 825-10 also amends ASC 270-10
(formerly APB Opinion No. 28),
Interim Financial Reporting,
to require those disclosures in summarized financial information at interim
reporting periods. ASC 825-10 is effective for interim reporting
periods after June 15, 2009. The Company elected early adoption of
ASC 825-10 for the quarter ended March 31, 2009. The implementation
of ASC 825-10 did not have a material effect on the Company’s condensed
consolidated financial statements reflected in this report.
In April
2009, the Company adopted ASC 820-10 (formerly FSP No. 157-4),
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
(“ASC
820-10”). ASC 820-10 provides additional guidance for estimating fair
value in accordance with ASC 820-10 (formerly SFAS No. 157),
Fair Value Measurements
when
the volume and level of activity for the asset or liability have significantly
decreased. ASC 820-10 also includes guidance on identifying
circumstances that indicate a transaction is not orderly. ASC 820-10
is effective for interim and annual reporting periods ending after June 15,
2009, applied prospectively. The Company elected early adoption of ASC 820-10
for the quarter ended March 31, 2009. The implementation of ASC
820-10 did not have a material effect on the Company’s condensed consolidated
financial statements reflected in this report.
In May
2009, the Company adopted ASC 855-10 (formerly SFAS No. 165),
Subsequent Events
. This
standard establishes the accounting and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date.
The implementation of this standard did not have a material impact on the
Company’s condensed consolidated financial statements reflected in this
report. See Note 1 – Basis of Presentation for this new
disclosure.
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2009-16 (formerly SFAS No. 166,
Accounting for Transfers of
Financial Assets - An amendment of FASB Statement No. 140
). ASU 2009-16
removes the concept of a qualifying special-purpose entity (QSPE) from ASC
860-10 (formerly SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities
)
and removes the
exception from applying ASC 810-10 (formerly FASB Interpretation No. 46 (revised
December 2003),
Consolidation of Variable Interest
Entities
). This statement also clarifies the requirements for isolation
and limitations on portions of financial assets that are eligible for sale
accounting. This statement is effective for fiscal years beginning after
November 15, 2009. Earlier application is prohibited. ASU 2009-16 is
not expected to have a material impact on the Company’s consolidated financial
statements.
In
June 2009, the FASB issued ASU 2009-17 (formerly SFAS No. 167,
Amendments to FASB
Interpretation No. 46R
). ASU 2009-17 amends ASC 810-10 (formerly FIN
46R) to require an analysis to determine whether a variable interest gives the
entity a controlling financial interest in a variable interest entity. This
statement requires an ongoing reassessment and eliminates the quantitative
approach previously required for determining whether an entity is the primary
beneficiary. This statement is effective for fiscal years beginning after
November 15, 2009. Earlier application is prohibited. ASU 2009-17 is
not expected to have a material impact on the Company’s consolidated financial
statements.
In June
2009, the Company adopted ASC 105-10 (formerly SFAS No. 168),
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162
(“ASC 105-10”). The
Codification will become the source of authoritative GAAP recognized by the FASB
to be applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. On the effective date of
ASC 105-10, the Codification will supersede all then-existing non-SEC accounting
and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. ASC 105-10 is effective for financial statements
issued for interim and annual periods ending after September 15,
2009. The implementation of ASC 105-10 did not have a material effect
on the Company’s condensed consolidated financial statements reflected in this
report.
In April
2009, the Company adopted ASC 320-10 (formerly FSP FAS 115-2 and ASC 958-320
(formerly FAS 124-2), “Recognition and Presentation of Other-Than-Temporary
Impairments” (”ASC 320-10” and ”ASC 958-320”), which amends ASC 320-10 (formerly
SFAS No. 115), “Accounting for Certain Investments in Debt and Equity
Securities” and ASC 958-320 (formerly SFAS No. 124), “Accounting for
Certain Investments Held by Not-for-Profit Organizations”. This standard
establishes a different other-than-temporary impairment indicator for debt
securities than previously prescribed. If it is more likely than not that an
impaired security will be sold before the recovery of its cost basis, either due
to the investor’s intent to sell or because it will be required to sell the
security, the entire impairment is recognized in earnings. Otherwise, only the
portion of the impaired debt security related to estimated credit losses is
recognized in earnings, while the remainder of the impairment is recorded in
other comprehensive income and recognized over the remaining life of the debt
security. In addition, the standard expands the presentation and disclosure
requirements for other-than-temporary-impairments for both debt and equity
securities. ASC 320-10 and ASC 958-320 were adopted for the period ended
June 30, 2009. ASC 320-10 and ASC 958-320 did not have a material impact on
the Company’s condensed consolidated financial statements reflected in this
report. See Note 3 — Fair Value Measurements for further
information.
In
October 2009, the FASB issued ASU 2009-13 (an update to ASC 605-25), “Revenue
Recognition: Multiple-Element Arrangements” (“ASU 2009-13”) which is effective
for annual periods ending after June 15, 2010; however, early adoption is
permitted. In arrangements with multiple deliverables, ASU 2009-13 permits
entities to use management’s best estimate of selling price to value individual
deliverables when those deliverables have never been sold separately or when
third-party evidence is not available. In addition, any discounts provided in
multiple element arrangements will be allocated on the basis of the relative
selling price of each deliverable. The Company is currently evaluating the
impact of adopting the provisions of ASU 2009-13.
Reclassifications
Certain
prior period amounts have been reclassified to conform to current year
presentation.
The
Company holds investments in corporate floating rate notes totaling
approximately $18.3 million, which mature at various times within the next 35
months, and in two municipal auction rate securities (“ARS”) issued by the
District of Columbia with a par value of $1.875 million. The ARS pay
interest in accordance with their terms at each respective auction date,
typically every 35 days, and mature in the year 2038. The Company
accounts for its marketable securities in accordance with the provisions of ASC
320-10. The Company classifies these securities as available for sale
and are reported at fair value. Unrealized gains and losses are
recorded as a component of comprehensive income and excluded from net income.
See Note 13 to Notes to Condensed Consolidated Financial
Statements.
|
3.
|
FAIR
VALUE MEASUREMENTS
|
Effective
January 1, 2008, the Company adopted ASC 820-10, which refines the definition of
fair value, provides a framework for measuring fair value and expands
disclosures about fair value measurements. ASC 820-10 defines fair
value as the price that would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between market participants
at the reporting date. The statement establishes consistency and
comparability by providing a fair value hierarchy that prioritizes the inputs to
valuation techniques into three broad levels, which are described
below:
|
•
|
Level
1: Inputs are quoted market prices in active markets for identical
assets or liabilities (these are observable market
inputs).
|
|
•
|
Level
2: Inputs are inputs other than quoted prices included within Level 1
that are observable for the asset or liability (includes quoted market
prices for similar assets or identical or similar assets in markets in
which there are few transactions, prices that are not current or vary
substantially).
|
|
•
|
Level
3: Inputs are unobservable inputs that reflect the entity’s own
assumptions in pricing the asset or liability (used when little or no
market data is available).
|
Financial
assets and liabilities included in our financial statements and measured at fair
value as of September 30, 2009 are classified based on the valuation
technique level in the table below:
|
Description:
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Cash
and cash equivalents (1)
|
|
$
|
60,486,534
|
|
|
$
|
60,486,534
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Marketable
securities (2)
|
|
|
20,277,416
|
|
|
|
18,467,416
|
|
|
|
—
|
|
|
|
1,810,000
|
|
|
Long
term investment (3)
|
|
|
555,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
555,000
|
|
|
Total
at fair value
|
|
$
|
81,318,950
|
|
|
$
|
78,953,950
|
|
|
$
|
—
|
|
|
$
|
2,365,000
|
|
|
|
(1)
|
Cash
and cash equivalents, totaling $60,486,534, consists primarily of money
market funds and checking accounts for which we determine fair value
through quoted market prices.
|
|
|
(2)
|
Marketable
securities consist of corporate floating rate notes for which we determine
fair value through quoted market prices. Marketable securities
also consist of two municipal ARS issued by the District of Columbia.
Historically, the fair value of ARS investments approximated par value due
to the frequent resets through the auction process. Due to
recent events in credit markets, the auction events, which historically
have provided liquidity for these securities, have been
unsuccessful. The result of a failed auction is that these ARS
holdings will continue to pay interest in accordance with their terms at
each respective auction date; however, liquidity of the securities will be
limited until there is a successful auction, the issuer redeems the
securities, the securities mature or until such time as other markets for
these ARS holdings develop. For each of our ARS, we evaluate
the risks related to the structure, collateral and liquidity of the
investment, and forecast the probability of issuer default, auction
failure and a successful auction at par, or a redemption at par, for each
future auction period. Temporary impairment charges are
recorded in accumulated other comprehensive income, whereas
other-than-temporary impairment charges are recorded in our statement of
operations. As of September 30, 2009, the Company determined
there was a decline in the fair value of its ARS investments of $65,000,
which was deemed temporary and was included within accumulated other
comprehensive income. The Company used a discounted cash flow
model to determine the estimated fair value of its investment in
ARS. The assumptions used in preparing the discounted cash flow
model include estimates for interest rate, timing and amount of cash flows
and expected holding period of
ARS.
|
|
|
(3)
|
Long
term investment consists of an investment in Debtfolio, Inc., doing
business as Geezeo, a Web-based personal finance site. The
investment totaled $1,850,000 for an 18.5% ownership
stake. Additionally, the Company incurred approximately $0.2
million of legal fees in connection with this investment. The Company
retained the option to purchase the company based on an equity value of
$12 million at any point prior to April 23, 2009, but did not exercise the
option. During the first quarter of 2009, the carrying value of
the Company’s investment was written down to fair value based upon an
estimate of the market value of the Company’s equity. The
impairment charge approximated $1.5 million. There have been no
additional events during the three months ended September 30, 2009 that
would indicate any additional
impairment.
|
The
following table provides a reconciliation of the beginning and ending balance
for the Company’s marketable securities measured at fair value using significant
unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
Marketable
Securities
|
|
|
Balance
at January 1, 2009
|
|
$
|
1,658,178
|
|
|
Transfers
to Level 1
|
|
|
(48,178
|
)
|
|
Increase
in fair value of investment
|
|
|
225,000
|
|
|
Redemption
of Auction Rate Security
|
|
|
(25,000
|
)
|
|
Balance
at September 30, 2009
|
|
$
|
1,810,000
|
|
|
4.
|
STOCK-BASED
COMPENSATION
|
For a
detailed description of past equity-based compensation activity, please refer to
the Company’s 2008 Form 10-K/A. There have been no significant
changes in the Company’s equity-based compensation accounting policies and
assumptions from those that were disclosed in the 2008 Form 10-K/A.
The
Company estimates the value of employee stock options on the date of grant using
the Black-Scholes option-pricing model. This determination is affected by the
Company’s stock price as well as assumptions regarding expected volatility,
risk-free interest rate, and expected dividends. No employee stock options were
granted during the nine months ended September 30, 2009. The
weighted-average fair value of employee stock options granted during the nine
months ended September 30, 2008 was $3.56, using the Black-Scholes model with
the weighted-average assumptions presented below. Because
option-pricing models require the use of subjective assumptions, changes in
these assumptions can materially affect the fair value of the
options.
|
Expected
option lives
|
|
3.5
years
|
|
Expected
volatility
|
|
47.57%
|
|
Risk-free
interest rate
|
|
2.37%
|
|
Expected
dividend yield
|
|
0.83%
|
As of
September 30, 2009, there remained 1,015,947 shares available for future awards
under the Company’s 2007 Performance Incentive Plan (the “2007
Plan”). In connection with awards under both the 2007 Plan and the
Company’s 1998 Stock Incentive Plan (the “1998 Plan”), the Company recorded
$573,221 and $2,158,815 of non-cash stock-based compensation for the three and
nine month periods ended September 30, 2009, respectively, as compared to
$986,076 and $2,639,208 for the three and nine month periods ended September 30,
2008, respectively. As of September 30, 2009, there was approximately
$5.6 million of unrecognized stock-based compensation expense remaining to be
recognized over a weighted-average period of 3.32 years.
A summary
of the activity of the 1998 Plan and 2007 Plan is as follows:
|
|
|
Shares
Underlying
Awards
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Weighted
Average
Remaining
Contractual
Life
(In
Years)
|
|
|
Awards
outstanding at December 31, 2008
|
|
|
2,617,782
|
|
|
$
|
6.37
|
|
|
|
|
|
|
|
|
Restricted
stock units granted
|
|
|
735,021
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Shares
issued under restricted stock units
|
|
|
(432,545
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Options
cancelled
|
|
|
(525,540
|
)
|
|
$
|
6.99
|
|
|
|
|
|
|
|
|
Restricted
stock units forfeited
|
|
|
(87,857
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Awards
outstanding at March 31, 2009
|
|
|
2,306,861
|
|
|
$
|
5.64
|
|
|
|
|
|
|
|
|
Restricted
stock units granted
|
|
|
650,000
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Shares
issued under restricted stock units
|
|
|
(3,370
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Options
cancelled
|
|
|
(570,717
|
)
|
|
$
|
8.26
|
|
|
|
|
|
|
|
|
Restricted
stock units forfeited
|
|
|
(116,729
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Awards
outstanding at June 30, 2009
|
|
|
2,266,045
|
|
|
$
|
3.66
|
|
|
|
|
|
|
|
|
Restricted
stock units granted
|
|
|
492,088
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Options
cancelled
|
|
|
(218,556
|
)
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
Restricted
stock units forfeited
|
|
|
(20,690
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Awards
outstanding at September 30, 2009
|
|
|
2,518,887
|
|
|
$
|
2.38
|
|
|
$
|
5,215
|
|
|
|
3.18
|
|
|
Awards
vested and expected to vest at September 30, 2009
|
|
|
2,254,488
|
|
|
$
|
2.60
|
|
|
$
|
4,490
|
|
|
|
3.23
|
|
|
Options
exercisable at September 30, 2009
|
|
|
485,008
|
|
|
$
|
8.04
|
|
|
$
|
0
|
|
|
|
1.72
|
|
|
Restricted
stock eligible to be issued at September 30, 2009 pursuant to restricted
stock units
|
|
|
0
|
|
|
$
|
0.00
|
|
|
$
|
0
|
|
|
|
N/A
|
|
A summary
of the status of the Company’s unvested share-based payment awards as of
September 30, 2009 and changes in the nine month period then ended, is as
follows:
|
|
|
|
|
|
|
|
|
Unvested
Awards
|
|
Number
of
Shares
|
|
|
Weighted
Average
Grant
Date
Fair Value
|
|
|
Shares
underlying awards unvested at December 31, 2008
|
|
|
1,609,990
|
|
|
$
|
5.70
|
|
|
Shares
underlying restricted stock units granted
|
|
|
1,877,109
|
|
|
$
|
2.52
|
|
|
Shares
underlying options vested
|
|
|
(379,033
|
)
|
|
$
|
3.59
|
|
|
Shares
underlying restricted stock units vested
|
|
|
(435,915
|
)
|
|
$
|
6.73
|
|
|
Shares
underlying options cancelled
|
|
|
(412,996
|
)
|
|
$
|
3.61
|
|
|
Shares
underlying restricted stock units forfeited
|
|
|
(225,276
|
)
|
|
$
|
4.78
|
|
|
Shares
underlying awards unvested at September 30, 2009
|
|
|
2,033,879
|
|
|
$
|
3.41
|
|
For the
nine months ended September 30, 2009 and 2008, the total fair value of
share-based awards vested was $4,294,742 and $2,382,064,
respectively. For the nine months ended September 30, 2009 and 2008,
the total intrinsic value of options exercised was $0 (no options were
exercised) and $1,152,566, respectively. For the nine months ended
September 30, 2009 and 2008, zero and 572,106 stock options, respectively, and
1,877,109 and 458,371 restricted stock units, respectively, were granted to
employees of the Company. Additionally, for the nine months ended
September 30, 2009 and 2008, zero and 138,368 stock options, respectively, were
exercised, and 435,915 and 118,041 shares were issued under restricted stock
unit grants, respectively, yielding approximately $0 and $0.4 million,
respectively, to the Company.
Preferred
Stock
There
have been no changes to the terms of the Company’s preferred stock from those
that were described in the Company’s 2008 Form 10-K/A.
Treasury
Stock
In
December 2000, the Company’s Board of Directors authorized the repurchase of up
to $10 million worth of the Company’s common stock, from time to time, in
private purchases or in the open market. In February 2004, the
Company’s Board of Directors approved the resumption of the stock repurchase
program under new price and volume parameters, leaving unchanged the maximum
amount available for repurchase under the program. However, the
affirmative vote of the holders of a majority of the outstanding shares of
Series B Preferred Stock, voting separately as a single class, is necessary for
the Company to repurchase its stock. During the nine-month periods
ended September 30, 2009 and 2008, the Company did not purchase any shares of
common stock under the program. Since inception of the program, the
Company has purchased a total of 5,453,416 shares of common stock at an
aggregate cost of $7,321,122. In addition, pursuant to the terms of
the Company’s 1998 Plan and 2007 Plan,, and certain procedures adopted by the
Compensation Committee of the Board of Directors, in connection with the
exercise of stock options by certain of the Company’s executive officers, and
the issuance of restricted stock units, the Company may withhold shares in lieu
of payment of the exercise price and/or the minimum amount of applicable
withholding taxes then due. Through September 30, 2009, the Company
had withheld an aggregate of 420,048 shares which have been recorded as treasury
stock. In addition, the Company received an aggregate of 208,270
shares as partial settlement of the working capital and debt adjustment from the
acquisition of Corsis Technology Group II LLC, 104,055 of which were received in
December 2008 and 104,215 of which were received in September
2009. These shares have been recorded as treasury stock.
Dividends
On September 30, 2009, the Company paid
its quarterly cash dividend of $0.025 per share on its common stock and its
convertible preferred stock on a converted common share basis, to stockholders
of record at the close of business on September 15, 2009. These
dividends totaled approximately $0.9 million.
Additionally,
the Company’s Board of Directors declared a quarterly cash dividend in the
amount of $0.025 per share of common stock during the fourth quarter of 2009,
which resulted in additional cash expenditure of approximately $0.9
million. The Company’s Board of Directors reviews the dividend
payment each quarter and there can be no assurance that we will continue to pay
this cash dividend in the future.
In
December 2001, the Company was named as a defendant in a securities class action
filed in the United States District Court for the Southern District of New York
related to its initial public offering (“IPO”) in May 1999. The lawsuit also
named as individual defendants certain of its former officers and directors,
James J. Cramer, currently the Chairman of the Board of the Company, and certain
of the underwriters of the IPO, including The Goldman Sachs Group, Inc.,
Hambrecht & Quist LLC (now part of JP Morgan Chase & Co.), Thomas Weisel
Partners LLC, Robertson Stephens Inc. (an investment banking subsidiary of
BankBoston Corp., later FleetBoston Corp., which ceased operations in 2002), and
Merrill Lynch, Pierce, Fenner & Smith, Inc. (now part of Bank of America
Corporation). Approximately 300 other issuers and their underwriters
have had similar suits filed against them, all of which are included in a single
coordinated proceeding in the district court (the “IPO Litigations”). The
complaints allege that the prospectus and the registration statement for the IPO
failed to disclose that the underwriters allegedly solicited and received
“excessive” commissions from investors and that some investors in the IPO
allegedly agreed with the underwriters to buy additional shares in the
aftermarket in order to inflate the price of the Company’s stock. An amended
complaint was filed April 19, 2002. The Company and the officers and directors
were named in the suits pursuant to Section 11 of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934, and other related
provisions. The complaints seek unspecified damages, attorney and expert fees,
and other unspecified litigation costs.
On July
1, 2002, the underwriter defendants in the consolidated actions moved to dismiss
all of the IPO Litigations, including the action involving the Company. On July
15, 2002, the Company, along with other non-underwriter defendants in the
coordinated cases, also moved to dismiss the litigation. On February 19, 2003,
the district court ruled on the motions. The district court granted the
Company’s motion to dismiss the claims against it under Rule 10b-5, due to the
insufficiency of the allegations against the Company. The motions to dismiss the
claims under Section 11 of the Securities Act were denied as to virtually all of
the defendants in the consolidated cases, including the Company. In addition,
some of the individual defendants in the IPO Litigations, including Mr. Cramer,
signed a tolling agreement and were dismissed from the action without prejudice
on October 9, 2002.
In June
2003, a proposed collective partial settlement of this litigation was structured
between the plaintiffs, the issuer defendants in the consolidated actions, the
issuer officers and directors named as defendants, and the issuers’ insurance
companies. On or about June 25, 2003, a committee of the Company’s Board of
Directors conditionally approved the proposed settlement. In June 2004, an
agreement of partial settlement was submitted to the court for preliminary
approval. The court granted the preliminary approval motion on February 15,
2005, subject to certain modifications. On August 31, 2005, the court issued a
preliminary order further approving the modifications to the settlement and
certifying the settlement classes. The court also appointed the notice
administrator for the settlement and ordered that notice of the settlement be
distributed to all settlement class members by January 15, 2006. The settlement
fairness hearing occurred on April 24, 2006, and the court reserved decision at
that time.
While the
partial settlement was pending approval, the plaintiffs continued to litigate
against the underwriter defendants. The district court directed that the
litigation proceed within a number of “focus cases” rather than in all of the
310 cases that have been consolidated. The Company’s case is not one of these
focus cases. On October 13, 2004, the district court certified the focus cases
as class actions. The underwriter defendants appealed that ruling, and on
December 5, 2006, the Court of Appeals for the Second Circuit reversed the
district court’s class certification decision. On April 6, 2007, the Second
Circuit denied plaintiffs’ petition for rehearing. In light of the Second
Circuit opinion, counsel to the issuers informed the district court that the
settlement with the plaintiffs could not be approved because the defined
settlement class, like the litigation class, could not be certified. The
settlement was terminated pursuant to a Stipulation and Order dated June 25,
2007.
On August
14, 2007, plaintiffs filed their second consolidated amended class action
complaints against the focus cases and, on September 27, 2007, again moved for
class certification. On November 12, 2007, certain of the defendants in the
focus cases moved to dismiss plaintiffs’ second amended consolidated class
action complaints. On March 26, 2008, the district court denied the motions to
dismiss except as to Section 11 claims raised by those plaintiffs who sold their
securities for a price in excess of the initial offering price and those who
purchased outside of the previously certified class period. Briefing on the
class certification motion was completed in May 2008. That motion was withdrawn
without prejudice on October 10, 2008. On April 2, 2009, a
stipulation and agreement of settlement among the plaintiffs, issuer defendants
and underwriter defendants was submitted to the Court for preliminary
approval. The settlement was approved on October 5,
2009. Under the settlement, the Company’s obligation of approximately
$339,000 would be paid by the issuers’ insurance companies. There can
be no assurance that the approval of the settlement will not be reversed on
appeal and that the settlement will be implemented in its current form, or at
all. Due to the inherent uncertainties of litigation, the ultimate
outcome of the matter is uncertain.
In
October 2009, the Company was named as one of several defendants in a lawsuit
captioned Online News Link LLC v. Apple Inc. et al., Civ. No. 2:09-CV-0312-DF
(U.S.D.C., E.D. Tex.). The complaint alleges that defendants infringe
U.S. Patent No. 7,508,789, putatively owned plaintiff, related to a certain
method of displaying digital data via hyperlinks. The Company has
filed an answer denying liability on a variety of theories. Due to
the early stage of this matter and the inherent uncertainties of litigation, the
ultimate outcome of this matter is uncertain.
The
Company is party to other legal proceedings arising in the ordinary course of
business or otherwise, none of which other proceedings is deemed
material.
|
7.
|
NET
INCOME (LOSS) PER SHARE OF COMMON
STOCK
|
Basic net
income (loss) per share is computed using the weighted average number of common
shares outstanding during the period. Diluted net income (loss) per
share is computed using the weighted average number of common shares and, if
dilutive, potential common shares outstanding during the
period. Potential common shares consist of restricted stock units
(using the treasury stock method), the incremental common shares issuable upon
the exercise of stock options (using the treasury stock method), and the
conversion of the Company’s convertible preferred stock and warrants (using the
if-converted method). For the three-month periods ended September 30,
2009 and 2008, approximately 3.9 million and 3.9 million options and warrants to
purchase common stock, respectively, were excluded from the calculation, as
their effect would be anti-dilutive because the exercise prices were greater
than the average market price of the common stock during the respective periods
and because the Company recorded a net loss. For the nine-month
periods ended September 30, 2009 and 2008, approximately 3.2 million and 2.4
million options and warrants to purchase common stock, respectively, were
excluded from the calculation, as their effect would be anti-dilutive because
the exercise prices were greater than the average market price of the common
stock during the respective periods and, with respect to the nine months ended
September 30, 2009, because the Company recorded a net loss.
The
following table reconciles the numerator and denominator for the
calculation.
|
|
|
For
the Three Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
|
2009
|
|
|
2008
(As restated)
|
|
|
2009
|
|
|
2008
(As restated)
|
|
|
Basic
net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(1,294,898
|
)
|
|
$
|
(693,499
|
)
|
|
$
|
(46,644,775
|
)
|
|
$
|
1,909,018
|
|
|
Loss
from discontinued operations
|
|
|
(1,846
|
)
|
|
|
(3,079
|
)
|
|
|
(10,453
|
)
|
|
|
(7,895
|
)
|
|
Preferred
stock cash dividends
|
|
|
(96,424
|
)
|
|
|
(96,424
|
)
|
|
|
(289,272
|
)
|
|
|
(289,272
|
)
|
|
Numerator
for basic earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income available to common stockholders
|
|
$
|
(1,393,168
|
)
|
|
$
|
(793,002
|
)
|
|
$
|
(46,944,500
|
)
|
|
$
|
1,611,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding
|
|
|
30,606,216
|
|
|
|
30,482,949
|
|
|
|
30,574,361
|
|
|
|
30,442,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
0.06
|
|
|
Loss
from discontinued operations
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
Preferred
stock cash dividends
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
Net
(loss) income available to common stockholders
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(1,294,898
|
)
|
|
$
|
(693,499
|
)
|
|
$
|
(46,644,775
|
)
|
|
$
|
1,909,018
|
|
|
Loss
from discontinued operations
|
|
|
(1,846
|
)
|
|
|
(3,079
|
)
|
|
|
(10,453
|
)
|
|
|
(7,895
|
)
|
|
Preferred
stock cash dividends
|
|
|
(96,424
|
)
|
|
|
(96,424
|
)
|
|
|
(289,272
|
)
|
|
|
-
|
|
|
Numerator
for diluted earnings per share -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income available to common stockholders
|
|
$
|
(1,393,168
|
)
|
|
$
|
(793,002
|
)
|
|
$
|
(46,944,500
|
)
|
|
$
|
1,901,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding
|
|
|
30,606,216
|
|
|
|
30,482,949
|
|
|
|
30,574,361
|
|
|
|
30,442,955
|
|
|
Weighted
average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock options and restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
413,164
|
|
|
Convertible
preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,856,942
|
|
|
Weighted
average diluted shares outstanding
|
|
|
30,606,216
|
|
|
|
34,482,949
|
|
|
|
30,574,361
|
|
|
|
34,713,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
0.05
|
|
|
Loss
from discontinued operations
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
Preferred
stock cash dividends
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
Net
(loss) income available to common stockholders
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
0.05
|
|
The
Company accounts for its income taxes in accordance with ASC
740-10. Under ASC 740-10, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their tax bases. ASC 740-10 also requires that deferred tax assets be
reduced by a valuation allowance if it is more likely than not that some or all
of the deferred tax assets will not be realized based on all available positive
and negative evidence.
As of
September 30, 2009, the Company has approximately $128 million of net operating
loss carryforwards (“NOLs”) and had recognized a deferred tax asset for a
portion of such net operating losses in the amount of $16.1 million as of
December 31, 2008. During the three months ended March 31, 2009, the
Company recorded a valuation allowance against these deferred tax assets as
management concluded that it was more likely than not that the Company would not
realize the benefit of this portion of its deferred tax assets through taxable
income to be generated in future years. The decision to record this valuation
allowance was based on a projected loss for the current year, the resulting
expected cumulative pre-tax loss for the three years ended December 31, 2009,
the inability to carryback the net operating losses, limited future reversals of
existing temporary differences and the limited availability of tax planning
strategies.
The Company expects to continue to
provide a full valuation allowance until, or unless, it can sustain a level of
profitability that demonstrates its ability to utilize these
assets.
In
accordance with Section 382 of the Internal Revenue Code, the Company’s NOLs may
be limited in the event of a change in ownership. The ultimate
realization of NOLs is dependent upon the generation of future taxable income
during the periods following an ownership change. As such, a portion
of the existing NOLs may be subject to limitation.
|
9.
|
BUSINESS
CONCENTRATIONS AND CREDIT RISK
|
Financial
instruments that subject the Company to concentrations of credit risk consist
primarily of cash, cash equivalents, marketable securities and restricted cash.
The Company maintains all of its cash, cash equivalents, marketable securities
and restricted cash in six domestic financial institutions, although
substantially all of the balance is within one institution. The
Company performs periodic evaluations of the relative credit standing of the six
institutions. As of September 30, 2009, the Company’s cash and cash
equivalents primarily consisted of money market funds, checking accounts and
short-term certificates of deposit. The Company’s marketable securities
consisted of approximately $18.3 million of corporate floating rate notes, which
mature at various times within the next 35 months, and two auction rate
securities issued by the District of Columbia with a par value of $1.875
million.
For the
three and nine month periods ending September 30, 2009, no individual client
accounted for 10% or more of consolidated revenue.
The
Company’s customers are primarily concentrated in the United
States. The Company performs ongoing credit evaluations, generally
does not require collateral, and establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of customers, historical trends
and other information. To date, actual losses have been within
management’s expectations.
During
2008, the Company made an investment in Debtfolio, Inc., doing business as
Geezeo, a Web-based personal finance site. The investment totaled
$1,850,000 for an 18.5% ownership stake. Additionally, the Company
incurred approximately $0.2 million of legal fees in connection with this
investment. The Company retained the option to purchase the company based on an
equity value of $12 million at any point prior to April 23, 2009, but did not
exercise the option. During the first quarter of 2009, the carrying
value of the Company’s investment was written down to fair value based upon an
estimate of the market value of the Company’s equity. The impairment
charge approximated $1.5 million. There have been no additional
events during the three months ended September 30, 2009 that would indicate any
additional impairment.
In the
first quarter of 2009, the Company performed an interim impairment test of its
goodwill, intangible assets and a long-term investment due to certain impairment
indicators, including a continued decline in both advertising and subscription
revenue resulting from the challenging economic environment and a reduction in
the Company’s enterprise value. As a result of this test, the Company
recorded an impairment charge of $24.1 million, as follows:
|
|
·
|
The
total Company fair value was estimated using a combination of a discounted
cash flow model (present value of future cash flows) and the Company’s
business enterprise value based upon the fair value of its outstanding
common and preferred shares. The fair value of the Company’s
goodwill is the residual fair value after allocating the Company’s total
fair value to its other assets, net of liabilities. This
analysis resulted in an impairment of the Company’s goodwill approximating
$19.8 million. The review also revealed an additional
impairment to the Company’s intangible assets related to certain customer
relationships and noncompete agreements approximating $2.8
million.
|
|
|
·
|
The
carrying value of the Company’s long-term investment was written down to
fair value based upon the most current estimate of the market value of the
Company’s equity stake in Debtfolio, Inc. The impairment
approximated $1.5 million. (See Note 10 – Long Term
Investment)
|
|
12.
|
RESTRUCTURING
AND OTHER CHARGES
|
In March
2009, the Company announced and implemented a reorganization plan, including an
approximate 8% reduction in the Company’s workforce, to align the Company’s
resources with its strategic business objectives. Additionally,
effective March 21, 2009, the Company’s then Chief Executive Officer tendered
his resignation, and effective May 8, 2009, the Company’s then Chief Financial
Officer tendered his resignation. As a result of these activities,
the Company incurred restructuring and other charges from continuing operations
approximating $2.7 million during the nine months ended September 30,
2009. Included in this charge were severance and other payroll
related expenses, totaling approximately $1.8 million, $0.2 million related to
the accelerated vesting of certain restricted stock units, $0.3 million related
to the write-off of certain assets, $0.2 million of recruiting fees, and legal
fees approximating $0.2 million.
Total
cash outlay for the restructuring and other charge will approximate $2.3
million, of which approximately $0.8 million is included in accrued expenses on
the Company’s consolidated balance sheet as of September 30, 2009.
The
following table displays the activity of the restructuring and other charge
reserve account from the initial charges during the first quarter 2009 through
September 30, 2009:
|
|
|
Intial
Charge
|
|
|
Q1
Payments
|
|
|
Q1
2009 Other
Deductions
|
|
|
Balance
March
31, 2009
|
|
|
Q2
Additions
|
|
|
Q2
Payments
|
|
|
Balance
June
30,
2009
|
|
|
Q3
Additions
|
|
|
Q3
Payment
|
|
|
Balance
September
30,
2009
|
|
|
Workforce
reduction
|
|
$
|
1,741,752
|
|
|
$
|
(243,598
|
)
|
|
$
|
(186,091
|
)
|
|
$
|
1,312,063
|
|
|
$
|
574,281
|
|
|
$
|
(643,503
|
)
|
|
$
|
1,242,841
|
|
|
$
|
169,692
|
|
|
$
|
(582,613
|
)
|
|
$
|
829,920
|
|
|
Asset
write-off
|
|
|
242,777
|
|
|
|
-
|
|
|
|
(242,777
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
1,984,529
|
|
|
$
|
(243,598
|
)
|
|
$
|
(428,868
|
)
|
|
$
|
1,312,063
|
|
|
$
|
574,281
|
|
|
$
|
(643,503
|
)
|
|
$
|
1,242,841
|
|
|
$
|
169,692
|
|
|
$
|
(582,613
|
)
|
|
$
|
829,920
|
|
|
13.
|
COMPREHENSIVE
(LOSS) INCOME
|
Comprehensive
(loss) income consists of the following:
|
|
|
For
the Three Months
Ended
September
30,
|
|
|
For
the Nine Months Ended
September
30,
|
|
|
|
|
2009
|
|
|
2008
(As
restated)
|
|
|
2009
|
|
|
2008
(As
restated)
|
|
|
Net
(loss) income
|
|
$
|
(1,296,744
|
)
|
|
|
(696,578
|
)
|
|
$
|
(46,655,228
|
)
|
|
$
|
1,901,123
|
|
|
Recovery
of temporary impairment of ARS
|
|
|
225,000
|
|
|
|
-
|
|
|
|
225,000
|
|
|
|
-
|
|
|
Unrealized
gain on marketable securities
|
|
|
489,461
|
|
|
|
-
|
|
|
|
838,103
|
|
|
|
-
|
|
|
Reclass
from AOCI to earnings due to sale
|
|
|
(34,684
|
)
|
|
|
-
|
|
|
|
(295,430
|
)
|
|
|
-
|
|
|
Comprehensive
(loss) income
|
|
$
|
(616,967
|
)
|
|
$
|
(696,578
|
)
|
|
$
|
(45,887,555
|
)
|
|
$
|
1,901,123
|
|
|
14.
|
DISCONTINUED
OPERATIONS
|
In June
2005, the Company committed to a plan to discontinue the operations of its
wholly owned subsidiary, Independent Research Group LLC, which operated the
Company’s securities research and brokerage segment. Accordingly, the
remaining operating results relating to this segment, which are limited to
certain professional fees, have been segregated from continuing operations and
reported as a separate line item on the condensed consolidated statements of
operations and cash flows. There were no cash flows from discontinued operations
from investing or financing activities for all periods presented.
During
the second quarter of 2009, the Company began seeking a buyer for its
Promotions.com subsidiary (“Promotions.com”). As a result, the assets
and liabilities that can be specifically related to the Promotions.com
operations have been classified in the condensed consolidated balance sheet as
of September 30, 2009 as assets and liabilities held for sale. The Company has
ceased depreciation and amortization on these assets and all amounts have been
recorded at their estimated fair values, less selling costs, and consist of the
following at September 30, 2009:
|
ASSETS
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
40,052
|
|
|
Restricted
cash
|
|
|
16,951
|
|
|
Accounts
receivable
|
|
|
2,778,445
|
|
|
Other
receivables
|
|
|
55,408
|
|
|
Prepaid
expenses and other current assets
|
|
|
198,997
|
|
|
Property
and equipment
|
|
|
636,522
|
|
|
Other
assets
|
|
|
24,778
|
|
|
Other
intangibles, net
|
|
|
1,355,633
|
|
|
Restricted
cash
|
|
|
101,708
|
|
|
Total
assets held for sale
|
|
$
|
5,208,494
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Accounts
payable
|
|
$
|
59,403
|
|
|
Accrued
expenses
|
|
|
135,741
|
|
|
Deferred
revenue
|
|
|
1,652,159
|
|
|
Other
current liabilities
|
|
|
135,752
|
|
|
Other
liabilities
|
|
|
14,521
|
|
|
Total
liabilities held for sale
|
|
$
|
1,997,576
|
|
On
December 18, 2009, the Company sold all of its membership interest in its
Promotions.com subsidiary for an aggregate price of approximately $3.1 million
(the “Sale Price”). The purchaser (the “Purchaser”) is a company
owned by the managers of the Promotions.com subsidiary, who prior to the closing
were employees of the Company. In connection with the sale, the
Company received a payment of $1.0 million in cash and notes in an aggregate
principal amount of approximately $2.1 million. The notes are payable
in six equal monthly installments commencing April 1, 2010. The
Company was granted a security interest in the securities and assets of
Promotions.com until the notes are fully paid, and one of the notes (with a
principal amount of $0.3 million) is guaranteed by the principals of the
Purchaser. In the event that, prior to December 18, 2011, there is a
change in control of the Purchaser or all or substantially all of the assets of
Promotions.com are sold, among other events, for consideration (as defined
therein) in excess of the Sale Price, the Company will be entitled to receive an
additional payment from the Purchaser, equal to 50% of such excess if the event
occurs on or before December 18, 2010 and 25% of such excess if the event occurs
after December 18, 2010 and prior to December 18, 2011.
On
December 16, 2009 (the “Closing Date”), the Company, through a wholly-owned
acquisition subsidiary, acquired all of the outstanding securities of Kikucall,
Inc., a subscription marketing services company (the “Acquisition”), for an
aggregate purchase price of approximately $5.2 million, subject to adjustment as
provided therein. In connection with the Acquisition, the Company
paid approximately $3.8 million in cash and issued to the target company’s
stockholders 647,901 shares of the Company’s common stock (the “Stock”),
valued at approximately $1.4 million, a portion of which was placed in escrow
pursuant to the terms of an escrow agreement entered into in connection with the
Acquisition. The Stock issued in connection with the Acquisition was
unregistered and exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder,
based upon representations that the Company has obtained from each target
company stockholder receiving Stock in the Acquisition that such stockholder is
an “accredited investor” as that term is defined in Rule 501(a) of Regulation
D. The Company has not granted the recipients any registration rights
with respect to the Stock. Additionally, the Company has assumed net
liabilities approximating $0.1 million. Two of the Company’s
directors, Daryl Otte (who is also our Chief Executive Officer) and Martin
Peretz, were directors of the acquired company, and, both directly and
indirectly through investment vehicles, were stockholders and creditors of the
acquired company. As a result of the Acquisition, the following amounts
were received, respectively, on the Closing Date by (i) Mr. Otte, (ii) Dr.
Peretz, (iii) investment vehicles in which Mr. Otte and Dr. Peretz had a direct
or indirect interest and (iv) other investment vehicles in which Dr. Peretz had
a direct or indirect interest, or by Dr. Peretz’s children: (i)
approximately $190,000 cash and 34,524 shares of Stock, having an aggregate
value of approximately $265,000 on the Closing Date; (ii) approximately $155,000
cash and 20,023 shares of Stock, having an aggregate value of approximately
$200,000 on the Closing Date; (iii) approximately $520,000 cash and 120,127
shares of Stock, having an aggregate value of approximately $785,000 on the
Closing Date; and (iv) approximately $680,000 cash and 68,526 shares of Stock,
having an aggregate value of approximately $830,000 on the Closing Date.
In connection with the Acquisition, Mr. Otte and Dr. Peretz each executed a
letter agreeing to donate to charity an amount that approximated the
respective gain such donor recognized as a result of the Acquisition related to
his shareholdings in the acquired company. The negotiation of the Acquisition
was overseen by the Company’s Audit Committee, comprised solely of independent
directors, on behalf of the Company and the Acquisition was unanimously approved
by the Audit Committee and the Company’s board of directors.
The
acquisition provides the Company with the expertise and software programs to
expand its subscription marketing efforts to increase its subscription
revenue.
|
Assets
acquired:
|
|
|
|
|
Accounts
receivable
|
|
$
|
18,539
|
|
|
Other
current assets
|
|
|
66,670
|
|
|
Other
assets
|
|
|
27,000
|
|
|
Excess
purchase price over net assets acquired
|
|
|
5,383,617
|
|
|
Total
assets acquired
|
|
|
5,495,826
|
|
|
|
|
|
|
|
|
Liabilities
assumed:
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
253,923
|
|
|
|
|
|
|
|
|
Total
consideration
|
|
$
|
5,241,903
|
|
The
initial accounting for the acquisition is not complete as an independent
appraisal to identify and quantify potential intangible assets and their
estimated useful lives has not yet been concluded.
The
following unaudited pro forma financial information for the nine months ended
September 30, 2009 and 2008, gives effect to the acquisition by the Company of
Kikucall as if the acquisition had occurred on January 1, 2008:
|
|
|
2009
|
|
|
2008
|
|
|
Total
revenue
|
|
$
|
44,680,616
|
|
|
$
|
54,385,148
|
|
|
Net
income
|
|
$
|
(46,879,218
|
)
|
|
$
|
921,694
|
|
The pro
forma financial information above is not necessarily indicative of what the
Company’s consolidated results of operations actually would have been if the
Kikucall acquisition had been completed at the beginning of the period. In
addition, the pro forma financial information above does not attempt to project
the Company’s future results of operations.
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
All
statements contained in this quarterly report on Form 10-Q that are not
descriptions of historical facts are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Forward-looking statements are
inherently subject to risks and uncertainties, and actual results could differ
materially from those reflected in the forward-looking statements due to a
number of factors, which include, but are not limited to, the factors set forth
under the heading “Risk Factors” and elsewhere in this quarterly report, and in
other documents filed by the Company with the Securities and Exchange Commission
from time to time, including, without limitation, the Company’s annual report on
Form 10-K/A for the year ended December 31, 2008. Certain
forward-looking statements may be identified by terms such as “may”, “will”,
“should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”,
“estimates”, “predicts”, “forecasts”, “potential”, or “continue” or similar
terms or the negative of these terms. All statements relating to the Company’s
plans, strategies and objective are deemed forward-looking statements. Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. The forward-looking
statements contained in this quarterly report speak only as of the date of the
filing hereof; the Company has no obligation to update these forward-looking
statements, whether as a result of new information, future developments or
otherwise.
The
following discussion and analysis should be read in conjunction with the
Company’s unaudited condensed consolidated financial statements and notes
thereto.
Overview
TheStreet.com,
Inc., together with its wholly owned subsidiaries (“we”, “us” or the “Company”),
is a leading digital financial media company. Our goal is to be the
primary independent online-only source of reliable and actionable investing
ideas, news and analysis, markets and rate data and analytical tools for a
growing audience of self-directed investors and the institutions that serve
them. We distribute our fee-based premium content and
advertising-supported content through a network of proprietary electronic
services including: Web sites, blogs, widgets, email services, mobile devices,
podcasts and online video channels. We also syndicate our content for
distribution by financial institutions and other media
organizations.
Effective
July 1, 2007, the Company’s revenue streams were classified into two components,
“paid services” and “marketing services”. Effective April 1, 2009,
the “paid services” component has been renamed “premium services” to better
reflect the character of this revenue and as such this line item has been
changed for all periods presented.
The
Company reports revenue in two categories: premium services and marketing
services. Premium service revenue is comprised of subscriptions,
licenses and fees for access to its investment information and rate
services. Marketing services revenue is comprised of fees charged for
the placement of advertising and sponsorships within the Company’s services and
for interactive marketing work performed by the Company’s Promotions.com
business.
Critical
Accounting Estimates
The
Company’s discussion and analysis of its financial condition and results of
operations are based upon its condensed consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions are reviewed
periodically and the effects of revisions are reflected in the condensed
consolidated financial statements in the period they are deemed to be
necessary. Significant estimates made in the accompanying condensed
consolidated financial statements include, but are not limited to, the
following:
|
|
·
|
incentive
compensation,
|
|
|
·
|
useful
lives of intangible assets,
|
|
|
·
|
useful
lives of fixed assets,
|
|
|
·
|
the
carrying value of goodwill, intangible assets, marketable securities and
the Company’s long term investment,
|
|
|
·
|
allowances
for doubtful accounts,
|
|
|
·
|
accrued
expense estimates,
|
|
|
·
|
reserves
for estimated tax liabilities,
|
|
|
·
|
certain
estimates and assumptions used in the calculation of the fair value of
equity compensation issued to employees,
and
|
|
|
·
|
revenue
estimates based upon a completed contract basis related to the Company’s
Promotions.com business.
|
A summary
of the Company's critical accounting policies and estimates can be found in our
2008 Form 10-K/A, as filed with the SEC on February 8, 2010 (the “2008 Form
10-K/A”). During the nine months ended September 30, 2009, we changed
a critical accounting policy related to our Promotions.com
business: whereas in prior periods, we accounted for revenue for
Promotions.com primarily on a percentage of completion basis, we have determined
that we did not have in place adequate systems to identify and document the
occurrence of milestones. Promotions.com generates revenues from
website design, promotion management and hosting services. The
Company typically enters into arrangements on a fixed fee
basis. Revenue generated from website design services are recognized
upon acceptance from the customer or on a straight-line basis over the hosting
period if the Company performs website design services and hosts the
software. Revenues from promotions management services are recognized
straight-line over the promotion period as the promotion is designed to only
operate on Promotions.com proprietary platform. Hosting services are
recognized straight-line over the hosting period.
Restatement
of 2008 Period Results
As
previously discussed in this Form 10-Q, the Company has restated its previously
issued interim condensed consolidated financial statements for the period ended
September 30, 2008 and as its December 31, 2008 consolidated financial
statements and the interim consolidated financial statements for the quarters
ended March 31, 2008, June 30, 2008 and December 31, 2008. Restated amounts have
been identified with the wording “as restated”. The 2008 period results
discussed below reflect the results reported in our 2008 Form
10-K/A.
Results
of Operations
Comparison
of Three Months Ended September 30, 2009 and September 30, 2008 (as
restated)
Revenue
|
|
|
For the Three Months Ended September
30,
|
|
|
|
|
|
Revenue:
|
|
2009
|
|
|
Percent
of Total
Revenue
|
|
|
2008 (As
restated)
|
|
|
Percent
of Total
Revenue
|
|
|
Percent
Change
|
|
|
Premium
services
|
|
$
|
9,373,672
|
|
|
|
62
|
%
|
|
$
|
10,244,212
|
|
|
|
60
|
%
|
|
|
-8
|
%
|
|
Marketing
services
|
|
|
5,861,932
|
|
|
|
38
|
%
|
|
|
6,804,425
|
|
|
|
40
|
%
|
|
|
-14
|
%
|
|
Total
revenue
|
|
$
|
15,235,604
|
|
|
|
100
|
%
|
|
$
|
17,048,637
|
|
|
|
100
|
%
|
|
|
-11
|
%
|
Premium services
.
Premium
service revenue is comprised of subscriptions, licenses and fees for access to
its investment information and rate services. Revenue is recognized ratably over
the contract period.
Premium
services revenue for the three months ended September 30, 2009 decreased by 8%
when compared to the three months ended September 30, 2008. The
decrease is primarily attributable to a 9% decrease in revenue from the
Company’s equity investment information services and a 37% decrease in revenue
from its equity ratings services, related to the end of the global research
settlement arranged by former New York State Attorney General Eliot Spitzer with
several major Wall Street brokerage firms. The settlement period
ended in July 2009 and thus contributed only one month of revenue during the
three months ended September 30, 2009. Settlement revenue for the
seven months ended July 31, 2009 approximated $1.2 million. These
decreases were partially offset by a 9% increase in revenue from the Company’s
bank rate information services.
The revenue decline in the
equity investment information services is a result of a decline in
the number of subscribers and the value of booked subscription contracts in
the three months ended September 30, 2009 as compared to the prior year
period. During the three months ended September 30, 2009, the Company
launched new marketing initiatives resulting in bookings, a measure of the
dollar value of the subscription-based services contracted during the period net
of cancellations and refunds, to increase by 11% when compared to the three
months ended September 30, 2008.
Marketing services
.
Marketing services revenue
is comprised of fees charged for the placement of advertising and sponsorships
within the Company’s services and for interactive marketing work performed by
the Company’s Promotions.com business.
|
|
|
For
the Three Months Ended
September
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
(as
restated)
|
|
|
Percent
Change
|
|
|
Marketing
services:
|
|
|
|
|
|
|
|
|
|
|
Advertising
and sponsorships
|
|
$
|
4,303,958
|
|
|
$
|
5,436,633
|
|
|
|
-21
|
%
|
|
Interactive
marketing services (Promotions.com)
|
|
|
1,557,974
|
|
|
|
1,367,792
|
|
|
|
14
|
%
|
|
Total
|
|
$
|
5,861,932
|
|
|
$
|
6,804,425
|
|
|
|
-14
|
%
|
Marketing
services revenue for the three months ended September 30, 2009, decreased by 14%
when compared to the three months ended September 30, 2008. We
believe that our marketing services businesses were impacted by a poor
macro-economic environment, which caused our clients to reduce their overall
marketing spending.
Operating
Expense
|
|
|
For
the Three Months Ended September 30,
|
|
|
|
|
|
Operating
expense:
|
|
2009
|
|
|
Percent
of
Total
Revenue
|
|
|
2008
(As
restated)
|
|
|
Percent
of
Total
Revenue
|
|
|
Percent
Change
|
|
|
Cost
of services
|
|
$
|
7,156,120
|
|
|
|
47.0
|
%
|
|
$
|
8,359,563
|
|
|
|
49.1
|
%
|
|
|
-14
|
%
|
|
Sales
and marketing
|
|
|
3,005,218
|
|
|
|
19.7
|
%
|
|
|
3,550,363
|
|
|
|
20.8
|
%
|
|
|
-15
|
%
|
|
General
and administrative
|
|
|
5,213,582
|
|
|
|
34.2
|
%
|
|
|
4,589,851
|
|
|
|
26.9
|
%
|
|
|
14
|
%
|
|
Depreciation
and amortization
|
|
|
1,206,916
|
|
|
|
7.9
|
%
|
|
|
1,481,670
|
|
|
|
8.7
|
%
|
|
|
-19
|
%
|
|
Restructuring
and other charges
|
|
|
169,692
|
|
|
|
1.1
|
%
|
|
|
-
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Total
operating expense
|
|
$
|
16,751,528
|
|
|
|
|
|
|
$
|
17,981,447
|
|
|
|
|
|
|
|
-7
|
%
|
Cost of
services.
Cost of services expense includes compensation,
benefits and outside contributor costs related to the creation of our content,
licensed data and the technology required to publish our content.
Cost of
services expense decreased by approximately $1.2 million over the
periods. The decrease was largely the result of lower compensation
and related costs totaling approximately $0.8 million resulting from a reduction
of approximately 17% in the average headcount in this expense category.
Additionally, the Company achieved savings related to hosting and internet costs
combined with reduced fees paid to nonemployees, the sum of which totaled
approximately $0.4 million, partially offset by increased consulting fees
totaling approximately $0.1 million.
Sales and
marketing.
Sales and marketing expense consists primarily of
advertising and promotion, promotional materials, credit card processing fees,
and compensation expense for the direct sales force, marketing services, and
customer service departments.
Sales and
marketing expense decreased by approximately $0.5 million over the
periods. The decrease was largely the result of reduced advertising
and promotion expenditures approximating $0.6 million, together with lower
compensation and related costs totaling approximately $0.1 million resulting
from a reduction of approximately 8% in the average headcount in this expense
category. These savings were partially offset by increased consulting
fees approximating $0.1 million.
General and
administrative
. General and administrative expense consists
primarily of compensation for general management, finance and administrative
personnel, occupancy costs, professional fees, insurance, and other office
expenses.
General
and administrative expense increased by approximately $0.6 million over the
periods. The increase was primarily the result of onetime costs related to a
review of the recording of certain revenue in a non-core business,
Promotions.com, totaling approximately $1.3 million, partially offset by (1)
lower compensation and related costs totaling approximately $0.2 million,
primarily related to a reduction of approximately 9% in the average headcount
within this expense category, and (2) reduced costs related to occupancy and bad
debt expense, the sum of which totaled approximately $0.3 million.
Depreciation and
amortization.
Depreciation and amortization expense decreased
by approximately $0.3 million over the periods. The decrease is
largely attributable to reduced amortization expense resulting from the
impairment charges recorded during the three months ended March 31, 2009,
partially offset by increased amortization of Web site and software development
costs.
Restructuring and other
charges
. In March 2009, the Company announced and implemented
a reorganization plan to align the Company’s resources with its strategic
business objectives. As a result of these activities, the Company has
incurred a restructuring and other charge from continuing operations
approximating $0.2 million during the three months ended September 30,
2009.
Net
Interest Income
|
|
|
For
the Three Months Ended
September
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
(As
restated)
|
|
|
|
|
|
Net
interest income
|
|
$
|
186,342
|
|
|
$
|
345,675
|
|
|
|
-46
|
%
|
The
decrease in net interest income is primarily the result of reduced interest
rates.
Provision
for Income Taxes
|
|
|
For
the Three Months Ended
September
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
(As
restated)
|
|
|
Change
|
|
|
Benefit
(provision) for income taxes
|
|
$
|
-
|
|
|
$
|
(106,364
|
)
|
|
|
N/A
|
|
The
Company accounts for its income taxes in accordance with ASC 740-10 (formerly
SFAS No. 109),
Accounting for
Income Taxes
(“ASC 740-10”). Under ASC 740-10, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases. ASC 740-10 also
requires that deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some or all of the deferred tax assets will not be
realized based on all available positive and negative evidence.
As of
September 30, 2009, the Company has approximately $128 million of net operating
loss carryforwards (“NOLs”) and had recorded a full valuation allowance against
these deferred tax assets as management concluded that it was more likely than
not that the Company would not realize the benefit of this portion of its
deferred tax assets through taxable income to be generated in future years. The
decision to record this valuation allowance was based on a projected loss for
the current year, the resulting expected cumulative pre-tax loss for the three
years ended December 31, 2009, the inability to carryback the net operating
losses, limited future reversals of existing temporary differences and the
limited availability of tax planning strategies.
The Company expects to continue to
provide a full valuation allowance until, or unless, it can sustain a level of
profitability that demonstrates its ability to utilize these
assets.
In
accordance with Section 382 of the Internal Revenue Code, the Company’s NOLs may
be limited in the event of a change in ownership. The ultimate
realization of NOLs is dependent upon the generation of future taxable income
during the periods following an ownership change. As such, a portion
of the existing NOLs may be subject to limitation.
Net
Loss
Net loss
for the three months ended September 30, 2009 totaled $1,296,744, or $0.05 per
basic and diluted share, compared to net loss totaling $696,578, or $0.03 per
basic and diluted share, for the three months ended September 30,
2008.
Comparison
of Nine Months Ended September 30, 2009 and September 30, 2008 (as
restated)
Revenue
|
|
|
For the Nine Months Ended September
30,
|
|
|
|
|
|
Revenue:
|
|
2009
|
|
|
Percent
of
Total
Revenue
|
|
|
2008 (As
restated)
|
|
|
Percent
of
Total
Revenue
|
|
|
Percent
Change
|
|
|
Premium
services
|
|
$
|
28,310,049
|
|
|
|
65
|
%
|
|
$
|
31,293,620
|
|
|
|
59
|
%
|
|
|
-10
|
%
|
|
Marketing
services
|
|
|
15,418,258
|
|
|
|
35
|
%
|
|
|
22,150,864
|
|
|
|
41
|
%
|
|
|
-30
|
%
|
|
Total
revenue
|
|
$
|
43,728,307
|
|
|
|
100
|
%
|
|
$
|
53,444,484
|
|
|
|
100
|
%
|
|
|
-18
|
%
|
Premium
services revenue for the nine months ended September 30, 2009 decreased by 10%
when compared to the nine months ended September 30, 2008. The
decrease is primarily attributable to a 12% decrease in revenue from the
Company’s equity investment information services and a 16% decrease in revenue
from its equity ratings services, primarily related to the end of the global
research settlement arranged by former New York State Attorney General Eliot
Spitzer with several major Wall Street brokerage firms. The
settlement period ended in July 2009 and thus contributed only seven months of
revenue during the nine months ended September 30, 2009. Settlement
revenue for the seven months ended July 31, 2009 approximated $1.2
million. These decreases were partially offset by a 7% increase in
revenue from the Company’s bank rate information services.
The revenue decline in the
equity investment information services is a result of a decline in
the number of subscribers and the value of booked subscription contracts in
the nine months ended September 30, 2009 as compared to the prior year
period. For the nine months ended September 30, 2009, bookings, a
measure of the dollar value of the subscription-based services contracted during
the period net of cancellations and refunds, declined by 6% when compared to the
nine months ended September 30, 2008. However, during the three
months ended September 30, 2009, the Company launched new marketing initiatives
resulting in bookings to increase by 11% when compared to the three months ended
September 30, 2008.
|
|
|
For
the Nine Months Ended
S
eptember
30,
|
|
|
|
|
|
|
|
2009
|
|
|
2008
(As
restated)
|
|
|
|
|
|
Marketing
services:
|
|
|
|
|
|
|
|
|
|
|
Advertising
and sponsorships
|
|
$
|
12,035,497
|
|
|
$
|
17,777,230
|
|
|
|
-32
|
%
|
|
Interactive
marketing services (Promotions.com)
|
|
|
3,382,761
|
|
|
|
4,373,634
|
|
|
|