Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended June 30, 2009
Commission
File Number 000-25779
THESTREET.COM,
INC.
(Exact
name of Registrant as specified in its charter)
Delaware
|
06-1515824
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification Number)
|
|
incorporation
or organization)
|
14 Wall
Street
New York, New York
10005
(Address
of principal executive offices, including zip code)
(212)
321-5000
(Registrant's
telephone number, including area code)
Indicate
by a check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ¨ No
x
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant as required to submit and post such files). Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨ Accelerated
filer x Non-accelerated
filer ¨ Smaller
reporting company ¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
(Number
of Shares Outstanding
|
||
(Title of Class)
|
as of February 2, 2010)
|
|
Common
Stock, par value $0.01 per share
|
31,538,727
|
|
Explanatory
Note
Along
with this report TheStreet.com, Inc. (“we,” “us,” the “Company”), is filing its
delayed quarterly report for the second quarter of fiscal year 2009 on Form
10-Q. This Form 10-Q amends the second quarterly report on Form
10-Q for the fiscal year 2008 of TheStreet.com, Inc. which Form 10-Q originally
was filed on August 8, 2008 (the “Original Form 10-Q”). The amendment is a
result of the restatement of the Company’s interim condensed consolidated
financial statements and related financial information for the three and six
months ended June 30, 2008 (“2008 Financial Information”).
The
Company is restating its previously filed 2008 Financial Information to correct
inaccuracies in its Promotions.com subsidiary (which the Company sold in
December 2009) resulting from and requiring adjustments to revenue and expenses
for transactions with certain third parties (including parties in which certain
executives of the Promotions.com subsidiary had an interest), in which the
Company contracted both to provide services to, and receive services from, such
parties and due to errors in the timing of recognition of
revenue. The restatement of the 2008 Financial Information resulted
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 fiscal 2008 interim condensed
consolidated financial statements as reported prior to this
restatement.
TheStreet.com,
Inc.
Form
10-Q
For
the Three Months Ended June 30, 2009
Part
I - FINANCIAL INFORMATION
|
1
|
|
Item
1.
|
Interim
Condensed Consolidated Financial Statements
|
1
|
Condensed
Consolidated Balance Sheets
|
1
|
|
Condensed
Consolidated Statements of Operations
|
2
|
|
Condensed
Consolidated Statements of Cash Flows
|
3
|
|
Notes
to Condensed Consolidated Financial Statements
|
4
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
29
|
Item
4.
|
Controls
and Procedures
|
29
|
PART
II - OTHER INFORMATION
|
30
|
|
Item
1.
|
Legal
Proceedings
|
30
|
Item
1A.
|
Risk
Factors
|
32
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
32
|
Item
3.
|
Defaults
Upon Senior Securities
|
32
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
32
|
Item
5.
|
Other
Information
|
33
|
Item
6.
|
Exhibits
|
34
|
SIGNATURES
|
35
|
ii
Part I –
FINANCIAL INFORMATION
Item
1. Interim
Condensed Consolidated Financial Statements.
THESTREET.COM,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
June 30, 2009
|
December 31, 2008
|
|||||||
(Unaudited)
|
(As
Restated - Note 1)
|
|||||||
assets
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 63,411,600 | $ | 72,441,294 | ||||
Restricted
cash
|
500,000 | 516,951 | ||||||
Marketable
securities
|
799,031 | - | ||||||
Accounts
receivable, net of allowance for doubtful accounts of $100,436 as of June
30, 2009 and $531,092 as of December 31, 2008
|
5,090,863 | 11,167,297 | ||||||
Other
receivables
|
495,954 | 647,596 | ||||||
Deferred
taxes
|
- | 2,546,743 | ||||||
Prepaid
expenses and other current assets
|
2,174,219 | 1,884,247 | ||||||
Assets
held for sale
|
4,679,939 | - | ||||||
Total
current assets
|
77,151,606 | 89,204,128 | ||||||
Property
and equipment, net of accumulated depreciation and amortization of
$11,671,141 as of June 30, 2009 and $11,250,569 as of December 31,
2008
|
8,547,244 | 9,672,779 | ||||||
Marketable
securities
|
15,692,510 | 1,658,178 | ||||||
Long
term investment
|
555,000 | 2,042,970 | ||||||
Other
assets
|
81,610 | 122,197 | ||||||
Goodwill
|
20,181,000 | 40,024,076 | ||||||
Other
intangibles, net
|
8,359,945 | 13,630,900 | ||||||
Deferred
taxes
|
- | 13,570,047 | ||||||
Restricted
cash
|
1,660,371 | 1,762,079 | ||||||
Total
assets
|
$ | 132,229,286 | $ | 171,687,354 | ||||
liabilities
and stockholders’ equity
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 1,786,259 | $ | 280,469 | ||||
Accrued
expenses
|
5,247,683 | 2,784,902 | ||||||
Deferred
revenue
|
16,285,222 | 16,495,712 | ||||||
Other
current liabilities
|
132,300 | 205,838 | ||||||
Liabilities
of discontinued operations
|
231,955 | 225,925 | ||||||
Liabilities
held for sale
|
2,203,015 | - | ||||||
Total
current liabilities
|
25,886,434 | 19,992,846 | ||||||
Other
liabilities
|
541,532 | 79,896 | ||||||
Total
liabilities
|
26,427,966 | 20,072,742 | ||||||
Stockholders’
Equity
|
||||||||
Preferred
stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and
outstanding as of June 30, 2009 and December 31, 2008; the aggregate
liquidation preference totals $55,000,000 as of June 30, 2009 and December
31, 2008
|
55 | 55 | ||||||
Common
stock; $0.01 par value; 100,000,000 shares authorized; 36,598,461 shares
issued and 30,620,942 shares outstanding as of June 30, 2009, and
36,262,546 shares issued and 30,378,894 shares outstanding as of December
31, 2008
|
365,985 | 362,625 | ||||||
Additional
paid-in capital
|
270,955,796 | 271,271,574 | ||||||
Accumulated
other comprehensive loss
|
(202,104 | ) | (290,000 | ) | ||||
Treasury
stock at cost; 5,977,519 shares as of June 30, 2009 and 5,883,652 shares
as of December 31, 2008
|
(10,130,571 | ) | (9,900,284 | ) | ||||
Accumulated
deficit
|
(155,187,841 | ) | (109,829,358 | ) | ||||
Total
stockholders’ equity
|
105,801,320 | 151,614,612 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 132,229,286 | $ | 171,687,354 |
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements
1
THESTREET.COM,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
June 30,
|
For the Six Months Ended
June 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(As
Restated -
Note
1)
|
(As
Restated -
Note
1)
|
|||||||||||||||
(unaudited)
|
(unaudited)
|
|||||||||||||||
Net
revenue:
|
||||||||||||||||
Premium
services
|
$ | 9,428,936 | $ | 10,289,939 | $ | 18,936,377 | $ | 21,049,408 | ||||||||
Marketing
services
|
5,563,305 | 8,113,882 | 9,556,326 | 15,346,439 | ||||||||||||
Total
net revenue
|
14,992,241 | 18,403,821 | 28,492,703 | 36,395,847 | ||||||||||||
Operating
expense:
|
||||||||||||||||
Cost
of services
|
7,264,697 | 8,320,717 | 15,510,407 | 15,931,406 | ||||||||||||
Sales
and marketing
|
2,785,929 | 3,630,394 | 5,762,836 | 7,393,989 | ||||||||||||
General
and administrative
|
3,430,233 | 4,078,822 | 7,971,911 | 8,434,367 | ||||||||||||
Depreciation
and amortization
|
1,207,710 | 1,584,780 | 2,678,447 | 2,848,384 | ||||||||||||
Impairment
charges
|
- | - | 24,137,069 | - | ||||||||||||
Restructuring
and other charges
|
574,281 | - | 2,558,810 | - | ||||||||||||
Total
operating expense
|
15,262,850 | 17,614,713 | 58,619,480 | 34,608,146 | ||||||||||||
Operating (loss)
income
|
(270,609 | ) | 789,108 | (30,126,777 | ) | 1,787,702 | ||||||||||
Net
interest income
|
359,417 | 400,243 | 589,554 | 1,086,437 | ||||||||||||
Gain
on sales of marketable securities
|
260,746 | - | 260,746 | - | ||||||||||||
Other
income
|
- | - | 153,677 | - | ||||||||||||
Income
(loss) from continuing operations before income taxes
|
349,554 | 1,189,351 | (29,122,800 | ) | 2,874,139 | |||||||||||
Provision
for income taxes
|
- | 125,693 | 16,227,077 | 271,621 | ||||||||||||
Income
(loss) from continuing operations
|
349,554 | 1,063,658 | (45,349,877 | ) | 2,602,518 | |||||||||||
Discontinued
operations:
|
||||||||||||||||
Loss
from discontinued operations
|
9,532 | 2,085 | 8,607 | 4,816 | ||||||||||||
Net
income (loss)
|
340,022 | 1,061,573 | (45,358,484 | ) | 2,597,702 | |||||||||||
Preferred
stock cash dividends
|
96,424 | 96,424 | 192,848 | 192,848 | ||||||||||||
Net
income (loss) attributable to common stockholders
|
$ | 243,598 | $ | 965,149 | $ | (45,551,332 | ) | $ | 2,404,854 | |||||||
Basic
net income (loss) per share
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.01 | $ | 0.03 | $ | (1.48 | ) | $ | 0.09 | |||||||
Loss from
discontinued operations
|
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Net
income (loss)
|
0.01 | 0.03 | (1.48 | ) | 0.09 | |||||||||||
Preferred
stock cash dividends
|
(0.00 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Net
income (loss) attributable to common stockholders
|
$ | 0.01 | $ | 0.03 | $ | (1.49 | ) | $ | 0.08 | |||||||
Diluted
net income (loss) per share
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.01 | $ | 0.03 | $ | (1.48 | ) | $ | 0.07 | |||||||
Loss from
discontinued operations
|
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Net
income (loss)
|
0.01 | 0.03 | (1.48 | ) | 0.07 | |||||||||||
Preferred
stock cash dividends
|
(0.00 | ) | - | (0.01 | ) | - | ||||||||||
Net
income (loss) attributable to common stockholders
|
$ | 0.01 | $ | 0.03 | $ | (1.49 | ) | $ | 0.07 | |||||||
Weighted
average basic shares outstanding
|
30,620,349 | 30,452,497 | 30,558,170 | 30,422,738 | ||||||||||||
Weighted
average diluted shares outstanding
|
30,620,349 | 34,597,480 | 30,558,170 | 34,647,940 |
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements
2
THESTREET.COM,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
|
||||||||
2009
|
2008
|
|||||||
(As
Restated -
Note
1)
|
||||||||
(unaudited)
|
||||||||
Cash Flows from Operating Activities: | ||||||||
Net
(loss) income
|
$ | (45,358,483 | ) | $ | 2,597,702 | |||
Loss
from discontinued operations
|
8,607 | 4,816 | ||||||
(Loss)
income from continuing operations
|
(45,349,876 | ) | 2,602,518 | |||||
Adjustments
to reconcile income from continuing operations to net cash provided by
operating activities:
|
||||||||
Stock-based
compensation expense
|
1,585,594 | 1,653,132 | ||||||
Provision
for doubtful accounts
|
84,683 | 125,000 | ||||||
Depreciation
and amortization
|
2,678,447 | 2,848,384 | ||||||
Valuation
allowance on deferred taxes
|
16,116,790 | - | ||||||
Impairment
charges
|
24,137,069 | - | ||||||
Restructuring
and other charges
|
428,868 | - | ||||||
Deferred
rent
|
627,969 | 60,726 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
3,707,244 | (245,882 | ) | |||||
Other
receivables
|
99,834 | (324 | ) | |||||
Prepaid
expenses and other current assets
|
(563,029 | ) | (833,482 | ) | ||||
Other
assets
|
(3,544 | ) | 50,966 | |||||
Accounts
payable
|
1,565,588 | 76,505 | ||||||
Accrued
expenses
|
2,290,726 | (1,814,538 | ) | |||||
Deferred
revenue
|
1,510,331 | 1,946,062 | ||||||
Other
current liabilities
|
181,853 | 175,764 | ||||||
Other
liabilities
|
(29,034 | ) | (30,739 | ) | ||||
Net
cash provided by continuing operations
|
9,069,513 | 6,614,092 | ||||||
Net
cash used in discontinued operations
|
(2,577 | ) | (13,133 | ) | ||||
Net
cash provided by operating activities
|
9,066,936 | 6,600,959 | ||||||
Cash
Flows from Investing Activities:
|
||||||||
Purchase
of marketable securities
|
(24,137,379 | ) | - | |||||
Sale
of marketable securities
|
9,391,912 | - | ||||||
Business
combinations, net of cash received
|
- | (106,252 | ) | |||||
Long
term investment
|
- | (1,392,976 | ) | |||||
Capital
expenditures
|
(1,346,946 | ) | (2,119,361 | ) | ||||
Proceeds
from the sale of fixed assets
|
- | 28,153 | ||||||
Net
cash used in investing activities
|
(16,092,413 | ) | (3,590,436 | ) | ||||
Cash
Flows from Financing Activities:
|
||||||||
Proceeds
from the exercise of stock options
|
- | 588,874 | ||||||
Costs
associated with the sale of preferred stock
|
- | (125,000 | ) | |||||
Cash
dividends paid on common stock
|
(1,581,082 | ) | (1,542,871 | ) | ||||
Cash
dividends paid on preferred stock
|
(192,848 | ) | (289,272 | ) | ||||
Restricted
cash
|
- | (41,709 | ) | |||||
Purchase
of treasury stock
|
(230,287 | ) | (325,729 | ) | ||||
Net
cash used in financing activities
|
(2,004,217 | ) | (1,735,707 | ) | ||||
Net
(decrease) increase in cash and cash equivalents
|
(9,029,694 | ) | 1,274,816 | |||||
Cash
and cash equivalents, beginning of period
|
72,441,294 | 79,170,754 | ||||||
Cash
and cash equivalents, end of period
|
$ | 63,411,600 | $ | 80,445,570 | ||||
Supplemental disclosures of cash flow
information:
|
||||||||
Cash
payments made for interest
|
$ | 4,583 | $ | 25,057 | ||||
Cash
payments made for income taxes
|
$ | 322,395 | $ | 488,523 |
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these
financial
statements
3
TheStreet.com,
Inc.
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 June 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 six-month periods ended June 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 June 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,
September 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 June 30, 2008 interim condensed
consolidated financial statements as reported prior to this
restatement.
4
The
impact of the restatement on the Company’s Consolidated Statements of Operations
for the three and six month periods ended June 30, 2008 is as
follows:
Unaudited
|
||||||||||||
For the Three Months Ended June 30, 2008
|
||||||||||||
As Filed
|
Adjustment
|
As Restated
|
||||||||||
Net
revenue:
|
||||||||||||
Paid
services
|
$ | 10,289,939 | $ | - | $ | 10,289,939 | ||||||
Marketing
services
|
9,398,992 | (1,285,110 | ) | 8,113,882 | ||||||||
Total
net revenue
|
19,688,931 | (1,285,110 | ) | 18,403,821 | ||||||||
Operating
expense:
|
||||||||||||
Cost
of services
|
8,366,156 | (45,439 | ) | 8,320,717 | ||||||||
Sales
and marketing
|
3,630,394 | - | 3,630,394 | |||||||||
General
and administrative
|
4,078,822 | - | 4,078,822 | |||||||||
Depreciation
and amortization
|
1,584,780 | - | 1,584,780 | |||||||||
Total
operating expense
|
17,660,152 | (45,439 | ) | 17,614,713 | ||||||||
Operating
income
|
2,028,779 | (1,239,671 | ) | 789,108 | ||||||||
Net
interest income
|
400,243 | - | 400,243 | |||||||||
Income
from continuing operations before income taxes
|
2,429,022 | (1,239,671 | ) | 1,189,351 | ||||||||
Provision
for income taxes
|
125,693 | - | 125,693 | |||||||||
Income
from continuing operations
|
2,303,329 | (1,239,671 | ) | 1,063,658 | ||||||||
Discontinued
operations:
|
||||||||||||
Loss
from discontinued operations
|
2,085 | - | 2,085 | |||||||||
Net
income
|
2,301,244 | (1,239,671 | ) | 1,061,573 | ||||||||
Preferred
stock cash dividends
|
96,424 | - | 96,424 | |||||||||
Net
income attributable to common stockholders
|
$ | 2,204,820 | $ | (1,239,671 | ) | $ | 965,149 | |||||
Basic
net income per share:
|
||||||||||||
Income
from continuing operations
|
$ | 0.07 | $ | 0.03 | ||||||||
Loss
from discontinued operations
|
(0.00 | ) | (0.00 | ) | ||||||||
Net
income
|
0.07 | 0.03 | ||||||||||
Preferred
stock cash dividends
|
(0.00 | ) | (0.00 | ) | ||||||||
Net
income attributable to common stockholders
|
$ | 0.07 | $ | 0.03 | ||||||||
Diluted
net income per share:
|
||||||||||||
Income
from continuing operations
|
$ | 0.07 | $ | 0.03 | ||||||||
Loss
from discontinued operations
|
(0.00 | ) | (0.00 | ) | ||||||||
Net
income
|
0.07 | 0.03 | ||||||||||
Preferred
stock cash dividends
|
(0.00 | ) | (0.00 | ) | ||||||||
Net
income attributable to common stockholders
|
$ | 0.07 | $ | 0.03 | ||||||||
Weighted
average basic shares outstanding
|
30,452,497 | 30,452,497 | ||||||||||
Weighted
average diluted shares outstanding
|
34,597,480 | 34,597,480 |
5
Unaudited
|
||||||||||||
For the Six Months Ended June 30, 2008
|
||||||||||||
As Filed
|
Adjustment
|
As Restated
|
||||||||||
Net
revenue:
|
||||||||||||
Paid
services
|
$ | 21,049,408 | $ | - | $ | 21,049,408 | ||||||
Marketing
services
|
17,587,508 | (2,241,069 | ) | 15,346,439 | ||||||||
Total
net revenue
|
38,636,916 | (2,241,069 | ) | 36,395,847 | ||||||||
Operating
expense:
|
||||||||||||
Cost
of services
|
16,022,283 | (90,878 | ) | 15,931,406 | ||||||||
Sales
and marketing
|
7,393,989 | - | 7,393,989 | |||||||||
General
and administrative
|
8,434,367 | - | 8,434,367 | |||||||||
Depreciation
and amortization
|
2,848,384 | - | 2,848,384 | |||||||||
Total
operating expense
|
34,699,023 | (90,878 | ) | 34,608,146 | ||||||||
Operating
income
|
3,937,893 | (2,150,191 | ) | 1,787,702 | ||||||||
Net
interest income
|
1,086,437 | - | 1,086,437 | |||||||||
Income
from continuing operations before income taxes
|
5,024,330 | (2,150,191 | ) | 2,874,139 | ||||||||
Provision
for income taxes
|
271,621 | 271,621 | ||||||||||
Income
from continuing operations
|
4,752,709 | (2,150,191 | ) | 2,602,518 | ||||||||
Discontinued
operations:
|
||||||||||||
Loss
from discontinued operations
|
4,816 | - | 4,816 | |||||||||
Net
income
|
4,747,893 | (2,150,191 | ) | 2,597,702 | ||||||||
Preferred
stock cash dividends
|
192,848 | - | 192,848 | |||||||||
Net
income attributable to common stockholders
|
$ | 4,555,045 | $ | (2,150,191 | ) | $ | 2,404,854 | |||||
Basic
net income per share:
|
||||||||||||
Income
from continuing operations
|
$ | 0.16 | $ | 0.09 | ||||||||
Loss
from discontinued operations
|
(0.00 | ) | (0.00 | ) | ||||||||
Net
income
|
0.16 | 0.09 | ||||||||||
Preferred
stock cash dividends
|
(0.01 | ) | (0.01 | ) | ||||||||
Net
income attributable to common stockholders
|
$ | 0.15 | $ | 0.08 | ||||||||
Diluted
net income per share:
|
||||||||||||
Income
from continuing operations
|
$ | 0.14 | $ | 0.07 | ||||||||
Loss
from discontinued operations
|
(0.00 | ) | (0.00 | ) | ||||||||
Net
income
|
0.14 | 0.07 | ||||||||||
Preferred
stock cash dividends
|
- | - | ||||||||||
Net
income attributable to common stockholders
|
$ | 0.14 | $ | 0.07 | ||||||||
Weighted
average basic shares outstanding
|
30,422,738 | 30,422,738 | ||||||||||
Weighted
average diluted shares outstanding
|
34,647,940 | 34,647,940 |
The
restatement did not have a material impact on the Company’s interim consolidated
balance sheet as of June 30, 2008 or its cash flows from operating, investing
and financing activities for the six months ended June 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 six months ended June 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.
6
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 April
2009, the Company adopted ASC 320-10 (formerly FSP FAS 115-2 and ASC 958-320
(formerly SFAS No. 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.
7
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”). 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 2009-16 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. 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
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.
8
Reclassifications
Certain
prior period amounts have been reclassified to conform to current year
presentation.
2.
|
MARKETABLE
SECURITIES
|
The
Company holds investments in corporate floating rate notes totaling
approximately $14.8 million, which mature at various times within the next 31
months, and in two municipal auction rate securities (“ARS”) issued by the
District of Columbia with a par value of $1.9 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 June 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)
|
$ | 63,411,600 | $ | 63,411,600 | $ | — | $ | — | ||||||||
Marketable
securities (2)
|
16,491,541 | 14,881,541 | — | 1,610,000 | ||||||||||||
Long
term investment (3)
|
555,000 | — | — | 555,000 | ||||||||||||
Total
at fair value
|
$ | 80,458,141 | $ | 78,293,141 | $ | — | $ | 2,165,000 |
|
(1)
|
Cash
and cash equivalents, totaling $63,411,600, consists primarily of money
market funds and checking accounts for which we determine fair value
through quoted market prices.
|
9
|
(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 December 31, 2008, the Company
determined there was a decline in the fair value of its ARS investments of
$290,000, 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. Based upon an
updated assessment as of June 30, 2009, it was concluded that there was no
material change in the fair value of the ARS
investments.
|
|
(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 June 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 | ) | ||
Balance
at June 30, 2009
|
$ | 1,610,000 |
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 six months ended June 30, 2009. The
weighted-average fair value of employee stock options granted during the six
months ended June 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 | % |
10
As of
June 30, 2009, there remained 1,268,789 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 $341,981 and $1,585,594
of non-cash stock-based compensation for the three and six month periods ended
June 30, 2009, respectively, as compared to $952,035 and $1,653,132 for the
three and six month periods ended June 30, 2008, respectively. As of June 30,
2009, there was approximately $5.2 million of unrecognized stock-based
compensation expense remaining to be recognized over a weighted-average period
of 3.13 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 | $ | 2,773 | 2.62 | ||||||||||
Awards
vested and expected to vest at June 30, 2009
|
2,086,601 | $ | 3.90 | $ | 2,436 | 3.08 | ||||||||||
Options
exercisable at June 30, 2009
|
666,062 | $ | 8.69 | $ | 0 | 2.50 | ||||||||||
Restricted
stock eligible to be issued at June 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 June
30, 2009 and changes in the six 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
|
1,385,021 | $ | 2.67 | |||||
Shares
underlying options vested
|
(341,531 | ) | $ | 3.54 | ||||
Shares
underlying restricted stock units vested
|
(435,915 | ) | $ | 6.73 | ||||
Shares
underlying options cancelled
|
(412,996 | ) | $ | 3.61 | ||||
Shares
underlying restricted stock units forfeited
|
(204,586 | ) | $ | 4.80 | ||||
Shares
underlying awards unvested at June 30, 2009
|
1,599,983 | $ | 2.27 |
11
For the
six months ended June 30, 2009 and 2008, the total fair value of share-based
awards vested was $4,144,541 and $1,946,725, respectively. For the
six months ended June 30, 2009 and 2008, the total intrinsic value of options
exercised was $0 (no options were exercised) and $1,152,566, respectively. For
the six months ended June 30, 2009 and 2008, zero and 572,106 stock options,
respectively, and 1,385,021 and 458,371 restricted stock units, respectively,
were granted to employees of the Company. Additionally, for the six
months ended June 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.
5.
|
STOCKHOLDERS’
EQUITY
|
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 six-month periods
ended June 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 June 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 June 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 June 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 both the third and fourth quarters of 2009, which
resulted in additional cash expenditures of approximately $0.9 million in each
period. 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.
12
6.
|
LEGAL
PROCEEDINGS
|
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.
13
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 June 30, 2009 and 2008,
approximately 3.2 million and 2.6 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. For
the six-month period ended June 30, 2009 and 2008, approximately 3.1 million and
2.3 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 six months ended
June 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 June 30,
|
For the Six Months Ended June 30,
|
|||||||||||||||
2009
|
2008 (As
restated)
|
2009
|
2008 (As
restated)
|
|||||||||||||
Basic net income (loss) per share
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 349,554 | $ | 1,063,658 | $ | (45,349,877 | ) | $ | 2,602,518 | |||||||
Loss
from discontinued operations
|
(9,532 | ) | (2,085 | ) | (8,607 | ) | (4,816 | ) | ||||||||
Preferred
stock cash dividends
|
(96,424 | ) | (96,424 | ) | (192,848 | ) | (192,848 | ) | ||||||||
Numerator
for basic earnings per share -
|
||||||||||||||||
Net
income (loss) available to common stockholders
|
$ | 243,598 | $ | 965,149 | $ | (45,551,332 | ) | $ | 2,404,854 | |||||||
Denominator:
|
||||||||||||||||
Weighted
average basic shares outstanding
|
30,620,349 | 30,452,497 | 30,558,170 | 30,422,738 | ||||||||||||
Basic
net income (loss) per share:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.01 | $ | 0.03 | $ | (1.48 | ) | $ | 0.09 | |||||||
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
income (loss) available to common stockholders
|
$ | 0.01 | $ | 0.03 | $ | (1.49 | ) | $ | 0.08 | |||||||
Diluted
net income (loss) per share
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 349,554 | 1,063,658 | $ | (45,349,877 | ) | $ | 2,602,518 | ||||||||
Loss
from discontinued operations
|
(9,532 | ) | (2,085 | ) | (8,607 | ) | (4,816 | ) | ||||||||
Preferred
stock cash dividends
|
(96,424 | ) | - | (192,848 | ) | - | ||||||||||
Numerator
for diluted earnings per share -
|
||||||||||||||||
Net
income (loss) available to common stockholders
|
$ | 243,598 | $ | 1,061,573 | $ | (45,551,332 | ) | $ | 2,597,702 | |||||||
Denominator:
|
||||||||||||||||
Weighted
average basic shares outstanding
|
30,620,349 | 30,452,497 | 30,558,170 | 30,422,738 | ||||||||||||
Weighted
average effect of dilutive securities:
|
||||||||||||||||
Employee
stock options and restricted stock units
|
- | 288,041 | - | 368,260 | ||||||||||||
Convertible
preferred stock
|
- | 3,856,942 | - | 3,856,942 | ||||||||||||
Weighted
average diluted shares outstanding
|
30,620,349 | 34,597,480 | 30,558,170 | 34,647,940 | ||||||||||||
Diluted
net income (loss) per share:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.01 | $ | 0.03 | $ | (1.48 | ) | $ | 0.07 | |||||||
Loss
from discontinued operations
|
(0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
Preferred
stock cash dividends
|
(0.00 | ) | - | (0.01 | ) | - | ||||||||||
Net
income (loss) available to common stockholders
|
$ | 0.01 | $ | 0.03 | $ | (1.49 | ) | $ | 0.07 |
14
8.
|
INCOME
TAXES
|
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
June 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 June 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 $14.8 million of corporate floating rate notes, which
mature at various times within the next 31 months, and two auction rate
securities issued by the District of Columbia with a par value of $1.9
million.
For the
three and six month periods ending June 30, 2009, no individual client accounted
for 10% or more of consolidated revenue.
15
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.
10.
|
LONG
TERM INVESTMENT
|
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 June 30, 2009 that would indicate any additional
impairment.
11.
|
IMPAIRMENT
CHARGES
|
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 $2.6 million during the six months ended June 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 $0.1 million.
Total
cash outlay for the restructuring and other charge will approximate $2.1
million, of which approximately $1.2 million is included in accrued expenses on
the Company’s consolidated balance sheet as of June 30, 2009.
16
The
following table displays the activity of the restructuring and other charge
reserve account from the initial charges during the first quarter 2009 through
June 30, 2009:
Intial
Charge
|
Q1
Payments
|
Q1
2009 Other
Deductions
|
Balance
March 31, 2009
|
Q2
Additions
|
Q2 Payments
|
Balance
June
30,
2009
|
||||||||||||||||||||||
Workforce
reduction
|
$ | 1,741,752 | $ | (243,598 | ) | $ | (186,091 | ) | $ | 1,312,063 | $ | 574,281 | $ | (643,503 | ) | $ | 1,242,841 | |||||||||||
Asset
write-off
|
242,777 | - | (242,777 | ) | - | - | - | - | ||||||||||||||||||||
$ | 1,984,529 | $ | (243,598 | ) | $ | (428,868 | ) | $ | 1,312,063 | $ | 574,281 | $ | (643,503 | ) | $ | 1,242,841 |
13.
|
COMPREHENSIVE
INCOME (LOSS)
|
Comprehensive
income (loss) consists of the following:
For the Three Months
Ended June 30,
|
For the Six Months Ended
June 30,
|
|||||||||||||||
2009
|
2008 (As
restated)
|
2009
|
2008 (As
restated)
|
|||||||||||||
Net
income (loss)
|
$ | 340,022 | $ | 1,061,573 | $ | (45,358,484 | ) | $ | 2,597,702 | |||||||
Unrealized
gain on marketable securities
|
248,782 | - | 348,642 | - | ||||||||||||
Reclass
from AOCI to earnings due to sale
|
(260,746 | ) | - | (260,746 | ) | - | ||||||||||
Comprehensive
income (loss)
|
$ | 328,058 | $ | 1,061,573 | $ | (45,270,588 | ) | $ | 2,597,702 |
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.
15.
|
ASSETS
HELD FOR SALE
|
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 Promotions.com have been
classified in the condensed consolidated balance sheet as of June 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 June
30, 2009:
17
ASSETS
|
||||
Cash
and cash equivalents
|
$ | 40,344 | ||
Restricted
cash
|
16,951 | |||
Accounts
receivable
|
2,284,507 | |||
Other
receivables
|
51,808 | |||
Prepaid
expenses and other current assets
|
163,835 | |||
Property
and equipment
|
628,822 | |||
Other
assets
|
36,331 | |||
Other
intangibles
|
1,355,633 | |||
Restricted
cash
|
101,708 | |||
Assets
held for sale
|
$ | 4,679,939 | ||
LIABILITIES
|
||||
Accounts
payable
|
$ | 59,798 | ||
Accrued
expenses
|
160,945 | |||
Deferred
revenue
|
1,720,821 | |||
Other
current liabilities
|
244,368 | |||
Other
liabilities
|
17,083 | |||
Liabilities
held for sale
|
$ | 2,203,015 |
16.
|
SUBSEQUENT
EVENTS
|
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.
18
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 six months ended
June 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
|
$ | 29,073,142 | $ | 37,058,241 | ||||
Net
income
|
$ | (45,579,313 | ) | $ | 1,876,847 |
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.
19
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.
|
20
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 six months ended June 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
June 30, 2008 and as its December 31, 2008 consolidated financial statements and
the interim consolidated financial statements for the quarters ended March 31,
2008, September 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 June 30, 2009 and June 30, 2008 (as restated)
Revenue
For the Three Months Ended June 30,
|
||||||||||||||||||||
Revenue:
|
2009
|
Percent
of Total
Revenue
|
2008 (As
restated)
|
Percent of
Total
Revenue
|
Percent
Change
|
|||||||||||||||
Premium
services
|
$ | 9,428,936 | 63 | % | $ | 10,289,939 | 56 | % | -8 | % | ||||||||||
Marketing
services
|
5,563,305 | 37 | % | 8,113,882 | 44 | % | -31 | % | ||||||||||||
Total
revenue
|
$ | 14,992,241 | 100 | % | $ | 18,403,821 | 100 | % | -19 | % |
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 June 30, 2009 decreased by 8% when
compared to the three months ended June 30, 2008. The decrease is
primarily attributable to a 12% decrease in revenue from the Company’s equity
investment information services and a 3% decrease in revenue from its equity
ratings services, partially offset by a 6% increase in revenue from its 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 June 30, 2009 as compared to the prior year period.
For the three months ended June 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 2% when compared to the three months
ended June 30, 2008.
21
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
June 30,
|
||||||||||||
2009
|
2008 (As
restated)
|
Percent
Change
|
||||||||||
Marketing
services:
|
||||||||||||
Advertising
and sponsorships
|
$ | 4,567,715 | $ | 6,377,852 | -28 | % | ||||||
Interactive
marketing services (Promotions.com)
|
995,590 | 1,736,030 | -43 | % | ||||||||
Total
|
$ | 5,563,305 | $ | 8,113,882 | -31 | % |
Marketing
services revenue for the three months ended June 30, 2009, decreased by 31% when
compared to the three months ended June 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 June 30,
|
||||||||||||||||||||
Operating expense:
|
2009
|
Percent
of Total
Revenue
|
2008 (As
restated)
|
Percent
of Total
Revenue
|
Percent
Change
|
|||||||||||||||
Cost
of services
|
$ | 7,264,697 | 48.5 | % | $ | 8,320,717 | 45.2 | % | -13 | % | ||||||||||
Sales
and marketing
|
2,785,929 | 18.6 | % | 3,630,394 | 19.7 | % | -23 | % | ||||||||||||
General
and administrative
|
3,430,233 | 22.9 | % | 4,078,822 | 22.2 | % | -16 | % | ||||||||||||
Depreciation
and amortization
|
1,207,710 | 8.1 | % | 1,584,780 | 8.6 | % | -24 | % | ||||||||||||
Restructuring
and other charges
|
574,281 | 3.8 | % | - | N/A | N/A | ||||||||||||||
Total
operating expense
|
$ | 15,262,850 | $ | 17,614,713 | -13 | % |
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 $1.1 million over the periods. The
decrease was largely the result of lower compensation and related costs totaling
approximately $0.9 million resulting from a reduction of approximately 17% in
the average headcount in this expense category. Although the dollar amount of
cost of services expense decreased over the periods, cost of services expense as
a percentage of revenue increased to 48.5% for the three months ended June 30,
2009, as compared to 45.2% the three months ended June 30, 2008, as the
Company’s cost cutting initiatives did not reduce costs by as large a percentage
as the decline in revenue.
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 $0.8 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 $0.3 million resulting from a reduction of
approximately 13% in the average headcount in this expense
category. These savings were partially offset by increased consulting
fees approximating $0.1 million. As a percentage of revenue, sales
and marketing expense was 18.6% in the three months ended June 30, 2009, as
compared to 19.7% in the three months ended June 30, 2008.
22
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 decreased by $0.6 million over the periods. The
decrease was partially the result of lower compensation and related costs
totaling approximately $0.5 million, primarily related to a reduction of
approximately 12% in the average headcount within this expense category and a
related decrease in noncash stock compensation cost. In addition, the
decrease in general and administrative expense was the result of reduced costs
related to occupancy and bad debt expense, the sum of which totaled
approximately $0.3 million. These decreased costs were partially
offset by higher professional and consulting fees, the sum of which totaled
approximately $0.2 million. Although the dollar amount of general and
administrative expense decreased over the periods, general and administrative
expense as a percentage of revenue totaled 22.9% for the three months ended June
30, 2009, relatively flat from the three months ended June 30, 2008, in light of the
decline in the Company’s revenue.
Depreciation and
amortization. Depreciation and amortization expense decreased
by $0.4 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, and lower
depreciation expense resulting from reduced capital expenditures. As
a percentage of revenue, depreciation and amortization expense was 8.1% in the
three months ended June 30, 2009, as compared to 8.6% in the three months ended
June 30, 2008.
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. Additionally, effective May 8, 2009, the
Company’s then Chief Financial Officer tendered his resignation. As a
result of these activities, the Company has incurred a restructuring and other
charge from continuing operations approximating $0.6 million during the three
months ended June 30, 2009. As a percentage of revenue, restructuring
and other charges was 3.8% in the three months ended June 30, 2009.
Net
Interest Income
For the Three Months Ended
June 30,
|
||||||||||||
2009
|
2008 (As
restated)
|
Percent
Change
|
||||||||||
Net
interest income
|
$ | 359,417 | $ | 400,243 | -10 | % |
The
decrease in net interest income is primarily the result of reduced interest
rates.
Provision
for Income Taxes
For the Three Months Ended
June 30,
|
||||||||||||
2009
|
2008 (As
restated)
|
Change
|
||||||||||
Provision
for income taxes
|
$ | - | $ | 125,693 | N/A |
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.
23
As of
June 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
Income (loss)
Net
income for the three months ended June 30, 2009 totaled $340,022, or $0.01 per
basic and diluted share, compared to net income totaling $1,061,573, or $0.03
per basic and diluted share, for the three months ended June 30,
2008.
Comparison
of Six Months Ended June 30, 2009 and June 30, 2008 (as restated)
Revenue
For the Six Months Ended June 30,
|
||||||||||||||||||||
Revenue:
|
2009
|
Percent
of Total
Revenue
|
2008 (As
restated)
|
Percent of
Total
Revenue
|
Percent
Change
|
|||||||||||||||
Premium
services
|
$ | 18,936,377 | 66 | % | $ | 21,049,408 | 58 | % | -10 | % | ||||||||||
Marketing
services
|
9,556,326 | 34 | % | 15,346,439 | 42 | % | -38 | % | ||||||||||||
Total
revenue
|
$ | 28,492,703 | 100 | % | $ | 36,395,847 | 100 | % | -22 | % |
Premium
services revenue for the six months ended June 30, 2009 decreased by 10% when
compared to the six months ended June 30, 2008. The decrease is
primarily attributable to a 14% decrease in revenue from the Company’s equity
investment information services and a 5% decrease in revenue from its equity
ratings services, partially offset by a 6% increase in revenue from its 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 six months ended June 30, 2009 as compared to
the prior year period. For the six months ended June 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 9%
when compared to the six months ended June 30, 2008.
24
For the Six Months Ended June 30,
|
||||||||||||
2009
|
2008 (as
restated)
|
Percent
Change
|
||||||||||
Marketing
services:
|
||||||||||||
Advertising
and sponsorships
|
$ | 7,731,540 | $ | 12,340,597 | -37 | % | ||||||
Interactive
marketing services (Promotions.com)
|
1,824,786 | 3,005,842 | -39 | % | ||||||||
Total
|
$ | 9,556,326 | $ | 15,346,439 | -38 | % |
Marketing
services revenue for the six months ended June 30, 2009, decreased by 38% when
compared to the six months ended June 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 Six Months Ended June 30,
|
||||||||||||||||||||
Operating expense:
|
2009
|
Percent
of Total
Revenue
|
2008 (As
restated)
|
Percent
of Total
Revenue
|
Percent
Change
|
|||||||||||||||
Cost
of services
|
$ | 15,510,407 | 54.4 | % | $ | 15,931,406 | 43.8 | % | -3 | % | ||||||||||
Sales
and marketing
|
5,762,836 | 20.2 | % | 7,393,989 | 20.3 | % | -22 | % | ||||||||||||
General
and administrative
|
7,971,911 | 28.0 | % | 8,434,367 | 23.2 | % | -5 | % | ||||||||||||
Depreciation
and amortization
|
2,678,447 | 9.4 | % | 2,848,384 | 7.8 | % | -6 | % | ||||||||||||
Impairment
charges
|
24,137,069 | 84.7 | % | - | N/A | N/A | ||||||||||||||
Restructuring
and other charge
|
2,558,810 | 9.0 | % | - | N/A | N/A | ||||||||||||||
Total
operating expense
|
$ | 58,619,480 | $ | 34,608,146 | 69 | % |
Cost of
services. Cost of services expense decreased by $0.4 million
over the periods. The decrease was largely the result of lower
compensation and related costs totaling approximately $0.3 million resulting
from (1) lower salary and temporary help expense approximating $1.6 million due
to a reduction of approximately 15% in the average headcount in this expense
category, partially offset by (2) higher levels of noncash compensation totaling
approximately $0.5 million and (3) incentive compensation accruals totaling
approximately $0.8 million. The year over year savings were also the
result of reduced costs in computer services, fulfillment, recruiting and
consulting fees, the sum of which totaled approximately $0.5 million, partially
offset by increased hosting and internet costs combined with higher fees paid to
nonemployees, the sum of which totaled approximately $0.3
million. Although the dollar amount of cost of services expense
decreased over the periods, cost of services expense as a percentage of revenue
increased to 54.4% for the six months ended June 30, 2009, as compared to 43.8%
the six months ended June 30, 2008, as the Company’s
cost cutting initiatives did not reduce costs by as large a percentage as the
decline in revenue.
Sales and
marketing. Sales and marketing expense decreased by $1.6
million over the periods. The decrease was largely the result of
reduced advertising and promotion expenditures approximating $0.9 million,
together with lower compensation and related costs totaling approximately $0.4
million resulting primarily from reduced commission payments and noncash stock
compensation expenses. Additional savings were the result of lower
public relations costs, credit card fees and recruiting expenses, the sum of
which approximated $0.3 million. As a percentage of
revenue, sales and marketing expense was 20.2% in the six months ended June 30,
2009, as compared to 20.3% in the six months ended June 30,
2008.
25
General and
administrative. General and administrative expense decreased
by $0.5 million over the periods. The decrease was partially the
result of lower compensation and related costs totaling approximately $0.5
million. The reduced compensation and related costs were primarily related to a
reduction of approximately 11% in the average headcount within this expense
category and a related decrease in noncash stock compensation
cost. In addition, the decrease in general and administrative expense
was the result of reduced costs related to recruiting fees and occupancy costs,
the sum of which totaled approximately $0.2 million. These decreased
costs were partially offset by higher consulting and professional fees, the sum
of which totaled approximately $0.4 million. Although the dollar
amount of general and administrative expense decreased over the periods, general
and administrative expense as a percentage of revenue increased to 28.0% for the
six months ended June 30, 2009, as compared to 23.2% the six months ended June
30, 2008, as
the percentage cost reduction in this category was less than the Company’s
percentage decline in revenue.
Depreciation and
amortization. Depreciation and amortization expense decreased
by $0.2 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. Although the dollar amount of depreciation and amortization
expense decreased over the periods, depreciation and amortization expense as a
percentage of revenue increased to 9.4% for the six months ended June 30, 2009,
as compared to 7.8% the six months ended June 30, 2008, as the percentage cost
reduction in this category was less than the Company’s decline in
revenue.
Impairment
charges. 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 described below. As a percentage of
revenue, impairment charge was 84.7% in the six months ended June 30,
2009.
|
·
|
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.
|
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 a restructuring and other charge from continuing operations
approximating $2.6 million during the six months ended June 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 $0.1 million. As a percentage of revenue,
restructuring and other charges was 9.0% in the six months ended June 30,
2009.
Net
Interest Income
For the Six Months Ended
June 30,
|
||||||||||||
2009
|
2008 (as
restated)
|
Percent
Change
|
||||||||||
Net
interest income
|
$ | 589,554 | $ | 1,086,437 | -46 | % |
26
The
decrease in net interest income is primarily the result of reduced interest
rates.
Provision
for Income Taxes
For the Six Months Ended
June 30,
|
||||||||||||
2009
|
2008 (as
restated)
|
Change
|
||||||||||
Provision
for income taxes
|
$ | 16,227,077 | $ | 271,621 | 5,874 | % |
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
June 30, 2009, the Company has approximately $128 million of 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.
Net
Income (loss)
Net loss
for the six months ended June 30, 2009 totaled $45.4 million, or $1.48 per basic
and diluted share, compared to net income totaling $2.6 million, or $0.09 per
basic and $0.07 per diluted share, for the six months ended June 30,
2008.
Liquidity
and Capital Resources
The
Company has generally invested in money market funds and other short-term,
investment grade instruments that are highly liquid and of high quality, with
the intent that such funds could easily be made available for operating
purposes. As of June 30, 2009, the Company’s cash, cash equivalents, marketable
securities, and restricted cash amounted to $82.1 million, representing 62% of
total assets. 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 $14.8 million of
corporate floating rate notes, which mature at various times within the next 31
months, and approximately $1.6 million of two auction rate securities issued by
the District of Columbia, with a par value of $1.9 million, currently rated as A
by Standard & Poor’s. The total cash related position of
the Company is as follows:
27
June 30, 2009
|
December 31, 2008
|
|||||||
Cash
and cash equivalents
|
$ | 63,411,600 | $ | 72,399,461 | ||||
Current
and noncurrent marketable securities
|
16,491,541 | 1,658,178 | ||||||
Current
and noncurrent restricted cash
|
2,160,371 | 2,160,371 | ||||||
Total
cash and cash equivalents, current and noncurrent restricted cash and
current and noncurrent marketable securities
|
$ | 82,063,512 | $ | 76,218,010 |
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 financial institutions, although substantially all of
the balance is within one institution. The Company periodically
obtains current Dun and Bradstreet reports in order to evaluate the relative
credit standing of the six institutions.
Cash
generated from operations was sufficient to cover expenses during the six-month
period ended June 30, 2009. Net cash provided by operating activities
totaled $9.1 million and $6.6 million for the six-month period ended June 30,
2009 and 2008, respectively. The increase in net cash provided by
operating activities is primarily related to the following:
|
·
|
A decrease in the growth of
receivables in the six months ended June 30, 2009, as compared to the six
months ended June 30, 2008, primarily related to improved collection
efforts and decreased
revenue;
|
|
·
|
An increase in accrued expenses
in the six months ended June 30, 2009, primarily related to the Company’s
restructuring and incentive compensation accruals, as compared to a
decrease in accrued expenses in the six months ended June 30, 2008
primarily related to incentive compensation and professional fees
accruals;
|
|
·
|
An increase in the growth of
accounts payable in the six months ended June 30, 2009, as compared to the
six months ended June 30, 2008, primarily related to the accelerated
timing of payments made in the fourth quarter of
2008.
|
These
increases in net cash provided by operating activities were partially offset by
a decrease in income from continuing operations, which offset in turn was
partially offset by increased noncash expenses.
Net cash
used in investing activities of $16.1 million for the six-month period ended
June 30, 2009 was primarily the result of the net purchase of marketable
securities and capital expenditures.
Net cash
used in financing activities of $2.0 million for the six-month period ended June
30, 2009 primarily consisted of cash dividends paid and the purchase of treasury
stock.
The
Company has a total of $2.2 million of cash invested in certificates of deposit
that serve as collateral for outstanding letters of credit, and is therefore
restricted. The letters of credit serve as security deposits for the
Company’s office space in New York City.
The
Company believes that its current cash and cash equivalents will be sufficient
to meet its anticipated cash needs for at least the next 12 months. The Company
is committed to cash expenditures in an aggregate amount of approximately $3.7
million through June 30, 2010, in respect of contractual obligations, primarily
related to operating leases and employment agreements. Additionally, the
Company’s Board of Directors declared a quarterly cash dividend in the amount of
$0.025 per share of common stock during both the first and second quarters of
2009, which resulted in cash expenditures of approximately $0.9 million and $1.8
million in the three- and six-month periods ended June 30, 2009, respectively.
Additionally, the Company’s Board of Directors declared a quarterly cash
dividend in the amount of $0.025 per share of common stock during both the third
and fourth quarters of 2009, which resulted in additional cash expenditures of
approximately $0.9 million in each period. 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.
28
Treasury
Stock
As
discussed in Note 5 to Notes to Condensed Consolidated Financial Statements, 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 six months ended June
30, 2009, 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 $7.3
million. 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 June 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.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
The
Company believes that its market risk exposures are immaterial as the Company
does not have instruments for trading purposes, and reasonable possible
near-term changes in market rates or prices will not result in material
near-term losses in earnings, material changes in fair values or cash flows for
all instruments.
The
Company maintains all of its cash, cash equivalents, marketable securities and
restricted cash in six financial institutions, although substantially all of the
balance is within one institution, and performs periodic evaluations of the
relative credit standing of these institutions. However, no
assurances can be given that the third party institutions will retain acceptable
credit ratings or investment practices.
Item
4.
|
Controls
and Procedures.
|
The
Company’s management identified a material weakness in the Company’s internal
control relating to its revenue accounting in its former Promotions.com
subsidiary (“Promotions.com”), which the Company sold in December
2009. Specifically, the Company determined that it did not have in
place adequate systems and documentation to properly record revenue on certain
promotional contracts with milestones. The Company also determined that while it
recorded revenue, upon delivery, for the value of certain software products that
Promotions.com developed and delivered in connection with promotions with
respect to which Promotions.com also provided hosting services, the value of
such software instead should have been recognized during the hosting period for
the applicable promotions, as the software did not have independent utility
outside of its use during the applicable promotions. In addition, the Company
lacked adequate supervisory and review controls over accounting for promotional
services for transactions with certain third parties (including parties in which
certain executives of the Promotions.com subsidiary had an interest), in which
the Company contracted both to provide property and services to, and receive
property and services from, such parties. Aspects of certain of these
transactions were determined by the Company to have lacked economic substance
and proper authorization. As a result of the material weakness
described above, management concluded that the Company’s disclosure controls and
procedures were not effective within its Promotions.com
subsidiary.
29
The
Company has since implemented new processes and controls in the third and fourth
quarters of 2009 in order to remediate the material weakness. These actions
include implementing a new process for recording Promotions.com revenue
transactions, new procedures for the review, tracking and processing of
Promotions.com contracts as well as the assignment of new finance personnel
responsible for the accounting for these transactions. In addition, the Chief
Accounting Officer is reviewing Promotions.com’s contracts to determine the
revenue recognized by Promotions.com is in accordance with the revenue
recognition standards under U.S. GAAP. These controls were not fully in place as
of June 30, 2009.
The
Company carried out, under the supervision and with the participation of the
Company’s management, including its Chief Executive Officer and Chief Accounting
Officer, an evaluation of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934) as of the end of the quarterly period
covered by this report. Based upon that evaluation, the Chief
Executive Officer and Chief Accounting Officer concluded that, as of June 30,
2009, the design and operation of these disclosure controls and procedures were
not effective. Nevertheless, the Company believes that, as a result
of the process completed to restate its financial results the information
contained in this Form 10-Q report fairly presents, in all material respects,
the financial condition and results of operations of the Company for the periods
presented.
It should
be noted that any system of controls, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. The design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any
system of controls is based in part on certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness
to future periods are subject to risks. Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
PART
II - OTHER INFORMATION
Item
1.
|
Legal
Proceedings.
|
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.
30
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.
31
Item
1A.
|
Risk
Factors.
|
In addition to the other information
set forth in this report, you should carefully consider the information set
forth in Part 1, Item 1A. “Risk Factors” in our 2008 Form 10-K/A.
We
determined that we had material weaknesses in our internal control over
financial reporting as of the end of our most recent fiscal year, December 31,
2008 and for the six months ended June 30, 2009. While the Company
has enacted a plan to remediate such material weakness, there can be no
assurance that a material weakness will not arise in the future. As a
result, current and potential stockholders could lose confidence in our
financial reporting, which would harm our business and the trading price of our
common stock.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
The
following table presents information related to repurchases of its common stock
made by the Company during the three months ended June 30, 2009.
Period
|
(a) Total
Number
of Shares
(or Units)
Purchased
|
(b)
Average
Price
Paid per
Share (or
Unit)
|
(c) Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs
|
(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs *
|
||||||||||||
April
1 – 30, 2009
|
- | $ | - | - | $ | 2,678,878 | ||||||||||
May
1 – 31, 2009
|
- | $ | - | - | $ | 2,678,878 | ||||||||||
June
1 – 30, 2009
|
- | $ | - | - | $ | 2,678,878 | ||||||||||
Total
|
- | $ | - | - | $ | 2,678,878 |
*
|
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 approved the resumption of this program under new price
and volume parameters, leaving unchanged the maximum amount available for
repurchase under the program. The program does not have a specified
expiration date and is subject to certain
limitations.
|
Item
3.
|
Defaults
Upon Senior Securities.
|
Not
applicable.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders.
|
The
following matters were submitted to a vote at the annual meeting of stockholders
of the Company, held on May 28, 2009, and the results of the voting were as
follows:
|
·
|
The
election of James J. Cramer (votes for: 19,545,066; withheld: 7,628,154),
Martin Peretz (votes for: 17,891,471; withheld: 9,281,749) and Derek Irwin
(votes for: 18,656,909; withheld: 8,516,311) as Class I
directors of the Company, to serve until the annual meeting in 2012 or
until their successors are elected and qualified;
and
|
|
·
|
The
ratification of the appointment of KPMG LLP as the Company’s independent
registered public accounting firm for the fiscal year ending December 31,
2009 (votes for: 26,749,359; votes against: 412,599; abstain:
11,262).
|
32
Item
5.
|
Other
Information.
|
On May 14, 2009, the
“Final Expiration Date” occurred as defined in the Rights Agreement as of May
14, 1999 between the Company and American Stock Transfer & Trust Company, as
rights agent. Consequently, holders of the Company’s Common Stock no
longer have any right to acquire Series A Junior Participating Preferred
Stock.
33
Item
6.
|
Exhibits.
|
The
following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Commission:
Exhibit
Number
|
Description
|
|
*3.1
|
Amended
and Restated Certificate of Incorporation of the Company, incorporated by
reference to the Exhibits to the Company’s Registration Statement on Form
S-1 filed February 23, 1999.
|
|
*3.2
|
Amended
and Restated Bylaws of the Company, incorporated by reference to the
Exhibits to the Company’s Annual Report on Form 10-K filed March 30,
2000.
|
|
*4.1
|
Amended
and Restated Registration Rights Agreement dated December 21, 1998, by and
among the Company and the stockholders named therein, incorporated by
reference to the Exhibits to the Company’s Registration Statement on Form
S-1 filed February 23, 1999.
|
|
*4.2
|
Certificate
of Designation of the Company’s Series A Junior Participating Preferred
Stock, as filed with the Secretary of State of the State of Delaware on
May 14, 1999, incorporated by reference to the Exhibits to the Company’s
Registration Statement on Form S-1 filed February 23,
1999.
|
|
*4.3
|
Certificate
of Designation of the Company’s Series B Preferred Stock, as filed with
the Secretary of State of the State of Delaware on November 15, 2007,
incorporated by reference to the Exhibits to
the
Company’s Current Report on Form 8-K filed November 20,
2007.
|
|
*4.4
|
Option
to Purchase Common Stock dated November 1, 2007, incorporated by reference
to the Company’s Current Report on Form 8-K filed November 6,
2007.
|
|
*4.5
|
Investor
Rights Agreement dated November 15, 2007 by and among the Company, TCV VI,
L.P. and TCV Member Fund, L.P., incorporated by reference to the Exhibits
to the Company’s Current Report on Form 8-K filed November 20,
2007.
|
|
*4.6
|
Warrant
dated November 15, 2007 issued by the Company to TCV VI, L.P.,
incorporated by reference to the Exhibits to the Company’s Current Report
on Form 8-K filed November 20, 2007.
|
|
*4.7
|
Warrant
dated November 15, 2007 issued by the Company to TCV Member Fund, L.P.,
incorporated by reference to the Exhibits to the Company’s Current Report
on Form 8-K filed November 20, 2007.
|
|
*4.8
|
Specimen
certificate for the Company’s shares of common stock, incorporated by
reference to the Exhibits to Amendment 3 to the Company’s Registration
Statement on Form S-1 filed April 19, 1999.
|
|
10.1
|
Term
Sheet between the Company and Daryl Otte dated as of May 15,
2009.
|
|
10.2
|
Agreement
for Grant of Restricted Stock Units Under 2007 Performance Incentive Plan
dated as of June 9, 2009 between the Company and Daryl
Otte.
|
|
10.3
|
Change
of Control and Severance Agreement dated as of June 9, 2009 between the
Company and Daryl Otte.
|
|
10.4
|
Term
Sheet between the Company and Gregory Barton dated as of June 2,
2009.
|
|
10.5
|
Notice
of Waiver dated April 2, 2009 by James Cramer under Employment Agreement,
as amended, between the Company and James Cramer.
|
|
10.6
|
Letter
agreement dated April 30, 2009 between the Company and Richard
Broitman.
|
|
10.7
|
Letter
agreement dated May 8, 2009 between the Company and Eric
Ashman.
|
|
10.8
|
Letter
agreement dated June 10, 2009 between the Company and Teresa
Santos.
|
|
31.1
|
Rule
13a-14(a) Certification of principal executive officer.
|
|
31.2
|
Rule
13a-14(a) Certification of principal financial officer.
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer.
|
|
32.2
|
Section
1350 Certification of Chief Accounting Officer.
|
|
*
Incorporated by
reference.
|
34
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THESTREET.COM,
INC.
|
|||
Date:
February 8, 2010
|
By:
|
/s/
Daryl Otte
|
|
|
Name:
Daryl Otte
|
||
|
Title:
Chief Executive Officer (principal executive officer)
|
||
Date:
February 8, 2010
|
By:
|
/s/
Richard Broitman
|
|
|
Name:
Richard Broitman
|
||
|
Title:
Chief Accounting Officer (principal financial
officer)
|
35
EXHIBIT
INDEX
Exhibit
Number
|
Description
|
|
*3.1
|
Amended
and Restated Certificate of Incorporation of the Company, incorporated by
reference to the Exhibits to the Company’s Registration Statement on Form
S-1 filed February 23, 1999.
|
|
*3.2
|
Amended
and Restated Bylaws of the Company, incorporated by reference to the
Exhibits to the Company’s Annual Report on Form 10-K filed March 30,
2000.
|
|
*4.1
|
Amended
and Restated Registration Rights Agreement dated December 21, 1998, by and
among the Company and the stockholders named therein, incorporated by
reference to the Exhibits to the Company’s Registration Statement on Form
S-1 filed February 23, 1999.
|
|
*4.2
|
Certificate
of Designation of the Company’s Series A Junior Participating Preferred
Stock, as filed with the Secretary of State of the State of Delaware on
May 14, 1999, incorporated by reference to the Exhibits to the Company’s
Registration Statement on Form S-1 filed February 23,
1999.
|
|
*4.3
|
Certificate
of Designation of the Company’s Series B Preferred Stock, as filed with
the Secretary of State of the State of Delaware on November 15, 2007,
incorporated by reference to the Exhibits to
the
Company’s Current Report on Form 8-K filed November 20,
2007.
|
|
*4.4
|
Option
to Purchase Common Stock dated November 1, 2007, incorporated by reference
to the Company’s Current Report on Form 8-K filed November 6,
2007.
|
|
*4.5
|
Investor
Rights Agreement dated November 15, 2007 by and among the Company, TCV VI,
L.P. and TCV Member Fund, L.P., incorporated by reference to the Exhibits
to the Company’s Current Report on Form 8-K filed November 20,
2007.
|
|
*4.6
|
Warrant
dated November 15, 2007 issued by the Company to TCV VI, L.P.,
incorporated by reference to the Exhibits to the Company’s Current Report
on Form 8-K filed November 20, 2007.
|
|
*4.7
|
Warrant
dated November 15, 2007 issued by the Company to TCV Member Fund, L.P.,
incorporated by reference to the Exhibits to the Company’s Current Report
on Form 8-K filed November 20, 2007.
|
|
*4.8
|
Specimen
certificate for the Company’s shares of common stock, incorporated by
reference to the Exhibits to Amendment 3 to the Company’s Registration
Statement on Form S-1 filed April 19, 1999.
|
|
10.1
|
Term
Sheet between the Company and Daryl Otte dated as of May 15,
2009.
|
|
10.2
|
Agreement
for Grant of Restricted Stock Units Under 2007 Performance Incentive Plan
dated as of June 9, 2009 between the Company and Daryl
Otte.
|
|
10.3
|
Change
of Control and Severance Agreement dated as of June 9, 2009 between the
Company and Daryl Otte
|
|
10.4
|
Term
Sheet between the Company and Gregory Barton dated as of June 2,
2009.
|
|
10.5
|
Notice
of Waiver dated April 2, 2009 by James Cramer under Employment Agreement,
as amended, between the Company and James Cramer.
|
|
10.6
|
Letter
agreement dated April 30, 2009 between the Company and Richard
Broitman.
|
|
10.7
|
Letter
agreement dated May 8, 2009 between the Company and Eric
Ashman.
|
|
10.8
|
Letter
agreement dated June 10, 2009 between the Company and Teresa
Santos.
|
|
31.1
|
Rule
13a-14(a) Certification of principal executive officer.
|
|
31.2
|
Rule
13a-14(a) Certification of principal financial officer.
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer.
|
|
32.2
|
Section
1350 Certification of Chief Accounting
Officer.
|
*
Incorporated by reference.