Attached files
file | filename |
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10-K/A - FORM 10-K/A - Actua Corp | c98099e10vkza.htm |
EX-32.1 - EXHIBIT 32.1 - Actua Corp | c98099exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - Actua Corp | c98099exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - Actua Corp | c98099exv32w2.htm |
EX-23.3 - EXHIBIT 23.3 - Actua Corp | c98099exv23w3.htm |
EX-23.1 - EXHIBIT 23.1 - Actua Corp | c98099exv23w1.htm |
EX-31.1 - EXHIBIT 31.1 - Actua Corp | c98099exv31w1.htm |
EX-21.1 - EXHIBIT 21.1 - Actua Corp | c98099exv21w1.htm |
EX-23.2 - EXHIBIT 23.2 - Actua Corp | c98099exv23w2.htm |
EX-99.1 - EXHIBIT 99.1 - Actua Corp | c98099exv99w1.htm |
Exhibit 99.2
STARCITE, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(With Independent Auditors Report Thereon)
STARCITE, INC. AND SUBSIDIARIES
Table of Contents
Page | ||||
Independent Auditors Report |
1 | |||
Consolidated Balance Sheets, December 31, 2009 and 2008 |
2 | |||
Consolidated Statements of Operations, Years ended December 31, 2009, 2008 and 2007 |
3 | |||
Consolidated Statements of Stockholders Equity and Comprehensive Loss, Years ended
December 31, 2009, 2008 and 2007 |
4 | |||
Consolidated Statements of Cash Flows, Years ended December 31, 2009, 2008 and 2007 |
5 | |||
Notes to Consolidated Financial Statements |
6 |
Independent Auditors Report
The Board of Directors
StarCite, Inc.:
StarCite, Inc.:
We have audited the accompanying consolidated balance sheets of StarCite, Inc. and subsidiaries
(the Company) as of December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders equity and comprehensive loss, and cash flows for each of the years in
the three-year period ended December 31, 2009. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of StarCite, Inc. and subsidiaries as of December 31,
2009 and 2008, and the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2009 in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
Philadelphia,
Pennsylvania
March 19, 2010
1
STARCITE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2009 and 2008
(Amounts in thousands, except share and per share data)
Consolidated Balance Sheets
December 31, 2009 and 2008
(Amounts in thousands, except share and per share data)
Assets | 2009 | 2008 | ||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,423 | 2,873 | |||||
Accounts receivable, net of allowance for doubtful accounts of $1,158
and $1,299 |
9,444 | 11,726 | ||||||
Prepaid expenses and other current assets |
1,092 | 1,775 | ||||||
Deferred commissions |
2,997 | 3,963 | ||||||
Total current assets |
15,956 | 20,337 | ||||||
Property and equipment, net |
2,943 | 5,012 | ||||||
Other assets |
478 | 513 | ||||||
Restricted cash |
| 8 | ||||||
Intangible assets, net |
20,066 | 22,630 | ||||||
Goodwill |
11,847 | 11,847 | ||||||
Total assets |
$ | 51,290 | 60,347 | |||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Short-term borrowings |
$ | 67 | 3,689 | |||||
Current portion of notes payable |
1,305 | 4,898 | ||||||
Current portion of obligations under capital leases |
| 4 | ||||||
Accounts payable |
2,796 | 3,690 | ||||||
Accrued liabilities |
5,443 | 6,777 | ||||||
Deferred revenue |
17,788 | 19,395 | ||||||
Total current liabilities |
27,399 | 38,453 | ||||||
Notes payable |
2,695 | | ||||||
Other long-term liabilities |
1,643 | 988 | ||||||
Total liabilities |
31,737 | 39,441 | ||||||
Stockholders equity: |
||||||||
Series A convertible preferred stock, $0.001 par value. Authorized
20,000,000 shares; issued and outstanding 20,000,000 shares
(liquidation value of $26,000) |
23,888 | 23,888 | ||||||
Series A-1 convertible preferred stock, $0.001 par value. Authorized
200,000 shares; issued and outstanding 200,000 (liquidation value
of $10,000) |
9,187 | 9,187 | ||||||
Series B preferred stock, $0.001 par value. Authorized 3,304,347 shares;
issued and outstanding 3,260,869 shares (liquidation value of $15,000) |
15,000 | 15,000 | ||||||
Common stock, $0.001 par value. Authorized 33,304,347 shares; issued
and outstanding 1,173,185 shares in 2009 and 1,155,534 shares in 2008 |
1 | 1 | ||||||
Additional paid-in capital |
79,797 | 74,326 | ||||||
Accumulated other comprehensive income |
521 | 92 | ||||||
Accumulated deficit |
(108,841 | ) | (101,588 | ) | ||||
Total stockholders equity |
19,553 | 20,906 | ||||||
Total liabilities and
stockholders equity |
$ | 51,290 | 60,347 | |||||
See accompanying notes to consolidated financial statements.
2
STARCITE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2009, 2008 and 2007
(Amounts in thousands)
Consolidated Statements of Operations
Years ended December 31, 2009, 2008 and 2007
(Amounts in thousands)
2009 | 2008 | 2007 | ||||||||||
Net sales |
$ | 47,882 | 50,548 | 44,944 | ||||||||
Costs and operating expenses: |
||||||||||||
Cost of sales |
10,991 | 14,151 | 12,922 | |||||||||
Selling and marketing |
17,702 | 21,127 | 15,488 | |||||||||
Research and development |
8,942 | 10,802 | 13,158 | |||||||||
General and administrative |
10,061 | 15,799 | 12,981 | |||||||||
Depreciation and amortization |
4,649 | 5,076 | 4,499 | |||||||||
Severance and restructuring |
1,697 | 2,008 | | |||||||||
Total costs and operating
expenses |
54,042 | 68,963 | 59,048 | |||||||||
Operating loss |
(6,160 | ) | (18,415 | ) | (14,104 | ) | ||||||
Other income (expense): |
||||||||||||
Other expense |
(116 | ) | (538 | ) | (87 | ) | ||||||
Interest income |
101 | 127 | 43 | |||||||||
Interest expense |
(1,028 | ) | (620 | ) | (517 | ) | ||||||
Total other expense, net |
(1,043 | ) | (1,031 | ) | (561 | ) | ||||||
Net loss before income tax |
(7,203 | ) | (19,446 | ) | (14,665 | ) | ||||||
Income tax expense |
(50 | ) | (53 | ) | | |||||||
Net loss |
$ | (7,253 | ) | (19,499 | ) | (14,665 | ) | |||||
See accompanying notes to consolidated financial statements.
3
STARCITE, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity and Comprehensive Loss
Years ended December 31, 2009, 2008 and 2007
(Amounts in thousands, except share data)
Consolidated Statements of Stockholders Equity and Comprehensive Loss
Years ended December 31, 2009, 2008 and 2007
(Amounts in thousands, except share data)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||
Preferred stock | Additional | other | ||||||||||||||||||||||||||||||||||||||||||
Comprehensive | Series A, Series A-1 | Series B preferred stock | Common stock | paid-in | comprehensive | Accumulated | ||||||||||||||||||||||||||||||||||||||
loss | Shares | Amount | Shares | Amount | Shares | Amount | capital | income (loss) | deficit | Total | ||||||||||||||||||||||||||||||||||
Balance, January 1, 2007 |
20,200,000 | $ | 33,075 | | $ | | | $ | | 68,544 | (14 | ) | (67,424 | ) | 34,181 | |||||||||||||||||||||||||||||
Net loss |
$ | (14,665 | ) | | | | | | | | | (14,665 | ) | (14,665 | ) | |||||||||||||||||||||||||||||
Foreign currency translation |
146 | | | | | | | | 146 | | 146 | |||||||||||||||||||||||||||||||||
Comprehensive loss |
$ | (14,519 | ) | |||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | 1,192 | | 2 | | | 2 | ||||||||||||||||||||||||||||||||||
Net issuance of nonvested stock |
| | | | 1,516,547 | 1 | 1,730 | | | 1,731 | ||||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | | 1,117 | | | 1,117 | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2007 |
20,200,000 | 33,075 | | | 1,517,739 | 1 | 71,393 | 132 | (82,089 | ) | 22,512 | |||||||||||||||||||||||||||||||||
Net loss |
$ | (19,499 | ) | | | | | | | | | (19,499 | ) | (19,499 | ) | |||||||||||||||||||||||||||||
Foreign currency translation |
(40 | ) | | | | | | | | (40 | ) | | (40 | ) | ||||||||||||||||||||||||||||||
Comprehensive loss |
$ | (19,539 | ) | |||||||||||||||||||||||||||||||||||||||||
Issuance of Series B preferred stock |
| | 3,260,869 | 15,000 | | | | | | 15,000 | ||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | 7,540 | | 13 | | | 13 | ||||||||||||||||||||||||||||||||||
Net
cancellations of nonvested
stock |
| | | | (369,745 | ) | | 883 | | | 883 | |||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | | 2,037 | | | 2,037 | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2008 |
20,200,000 | 33,075 | 3,260,869 | 15,000 | 1,155,534 | 1 | 74,326 | 92 | (101,588 | ) | 20,906 | |||||||||||||||||||||||||||||||||
Net loss |
$ | (7,253 | ) | | | | | | | | | (7,253 | ) | (7,253 | ) | |||||||||||||||||||||||||||||
Foreign currency translation |
429 | | | | | | | | 429 | | 429 | |||||||||||||||||||||||||||||||||
Comprehensive loss |
$ | (6,824 | ) | |||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | 72,752 | | 132 | | | 132 | ||||||||||||||||||||||||||||||||||
Repurchase
of common stock |
| | | | (32,735 | ) | | (111 | ) | | | (111 | ) | |||||||||||||||||||||||||||||||
Net
cancellations of nonvested stock |
| | | | (22,366 | ) | | 282 | | | 282 | |||||||||||||||||||||||||||||||||
Capitalization
of Maritz loan pay-off (note 6) |
| | | | | | 3,581 | | | 3,581 | ||||||||||||||||||||||||||||||||||
Stock-based compensation |
| | | | | | 1,587 | | | 1,587 | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2009 |
20,200,000 | $ | 33,075 | 3,260,869 | $ | 15,000 | 1,173,185 | $ | 1 | 79,797 | 521 | (108,841 | ) | 19,553 | ||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
STARCITE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2009, 2008 and 2007
(Amounts in thousands)
Consolidated Statements of Cash Flows
Years ended December 31, 2009, 2008 and 2007
(Amounts in thousands)
2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (7,253 | ) | (19,499 | ) | (14,665 | ) | |||||
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities: |
||||||||||||
Depreciation and amortization |
4,908 | 5,335 | 4,671 | |||||||||
Imputed interest on note payable |
21 | 66 | 115 | |||||||||
Stock-based compensation |
1,869 | 2,920 | 2,848 | |||||||||
Issuance of warrant |
128 | | | |||||||||
Loss on disposal of fixed asset |
7 | | | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
Increase (decrease) in accounts receivable |
2,281 | 1,123 | (4,431 | ) | ||||||||
Increase (decrease) in prepaid expenses and other assets |
1,614 | (2,302 | ) | (2,611 | ) | |||||||
(Decrease) increase in accounts payable and accrued liabilities |
(1,891 | ) | (2,020 | ) | 2,429 | |||||||
(Decrease) increase in deferred revenue |
(1,605 | ) | 4,094 | 8,194 | ||||||||
Increase in other liabilities |
527 | 766 | 43 | |||||||||
Net cash (used in) provided by
operating activities |
606 | (9,517 | ) | (3,407 | ) | |||||||
Cash flows from investing activities: |
||||||||||||
Purchases of property and equipment |
(171 | ) | (2,514 | ) | (4,255 | ) | ||||||
Decrease in restricted cash |
8 | 177 | 294 | |||||||||
Cash paid for purchase of Travent assets |
| | (1,244 | ) | ||||||||
Net cash (used in) investing activities |
(163 | ) | (2,337 | ) | (5,205 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Issuance of preferred stock |
| 15,000 | | |||||||||
Net proceeds from short-term borrowings |
| 390 | 3,493 | |||||||||
Proceeds from notes payable |
4,000 | | 1,530 | |||||||||
Repayments of capital lease obligations |
(4 | ) | (137 | ) | (482 | ) | ||||||
Repayments of short-term borrowings |
(3,622 | ) | (194 | ) | | |||||||
Repayments of notes payable |
(1,426 | ) | (1,033 | ) | (374 | ) | ||||||
Exercise of stock options |
21 | 13 | 2 | |||||||||
Net cash provided by (used in)
financing activities |
(1,031 | ) | 14,039 | 4,169 | ||||||||
Effect of exchange rate changes on cash and cash equivalents |
138 | 358 | (16 | ) | ||||||||
Net (decrease) increase in cash and
cash equivalents |
(450 | ) | 2,543 | (4,459 | ) | |||||||
Cash and cash equivalents, beginning of year |
2,873 | 330 | 4,789 | |||||||||
Cash and cash equivalents, end of year |
$ | 2,423 | 2,873 | 330 | ||||||||
See accompanying notes to consolidated financial statements.
5
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(1) | Background and Summary of Significant Accounting Policies |
(a) | The Company, Liquidity, and Going Concern |
||
StarCite, Inc., with its subsidiaries is an Internet business that delivers content and
services for both professional and occasional meeting planners. StarCite, Inc. (StarCite)
was incorporated in Delaware in 2006 in connection with the merger of StarCite, Inc. (the
predecessor, incorporated in Delaware and began operations in January 1999) and
OnVantage, Inc. (OnVantage). |
|||
The Company has a history of net losses and negative operating cash flows since its
inception. As of December 31, 2009, the Company has an accumulated deficit of $108,841.
The Companys primary sources of liquidity have been the issuance of preferred stock,
borrowings from stockholders, and borrowings from banks. |
|||
During 2009, 2008 and 2007, the Company has continued to make investments in ongoing business
development efforts in anticipation of future growth. In order
to complete its future growth strategy, the Company is likely to require additional
equity and/or debt financing. There is no assurance that additional equity and/or debt
financing will be available to the Company as needed. |
|||
Based upon the Companys cash balance, order backlog and availability under its February
2009 Credit Facility (see note 5), as of December 31, 2009, management of the Company
believes that it has adequate resources to satisfy its liquidity requirements through at least
calendar 2010. However, if anticipated revenue growth is not achieved, the Company
may be required to further curtail or limit certain general and administrative, selling
and marketing and research and development activities in order to reduce its cash
outflows. |
|||
(b) | Principles of Consolidation |
||
The accompanying consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation. |
|||
(c) | Cash Equivalents |
||
The Company considers all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents. Cash equivalents of $734 and $3,189 at
December 31, 2009 and 2008, respectively, consists of investments in money market funds
and overnight repurchase agreements. |
|||
(d) | Allowance for Doubtful Accounts |
||
The allowance for doubtful accounts is the Companys best estimate of the amount of
probable credit losses in the Companys existing accounts receivable. The Company
determines the allowance based on a specific review of aged accounts as well as
historical write-off experience. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is
considered remote. |
6
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(e) | Property and Equipment |
||
Property and equipment are stated at cost. Depreciation and amortization are provided on
the straight-line basis over the assets estimated useful lives or, if shorter, the lease
terms for leasehold improvements. Gains and losses on sales and retirements of assets are
reflected in the results of operations. |
|||
(f) | Intangible Assets |
||
Intangible assets primarily consist of customer relationships and acquired technology.
Amortization of intangible assets is provided on a straight-line basis over the assets
estimated useful life. |
|||
(g) | Fair Value of Financial Instruments |
||
Carrying amounts of financial
instruments held by the Company, which include cash
equivalents, accounts receivable, other current assets, accounts payable, and accrued
liabilities, approximate fair value due to the short-term nature of those
instruments. The fair value of debt approximates the carrying value of debt
at December 31, 2009. |
|||
(h) | Long-Lived Assets |
||
Long-lived assets, such as
property and equipment, and other intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, then an impairment charge is recognized by
the amount by which the carrying amount of the asset exceeds the fair value of the asset. |
|||
The Company did not record any impairment charges related to property and equipment or
intangibles during the years ended December 31, 2009, 2008 and 2007, as its carrying
amounts were not impaired. |
|||
(i) | Goodwill |
||
Goodwill is an asset representing the future economic benefits arising from other assets
acquired in a business combination that are not individually identified and separately
recognized. Goodwill is reviewed for impairment at least annually in accordance with the
provisions of Financial Accounting Standards Board (FASB) ASC Topic 350, Intangibles Goodwill and Other. |
7
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
FASB ASC Topic 350 requires the Company to assess whether there is an indication that
goodwill is impaired. The Company estimates the fair value of is single reporting unit
and compares it to its carrying amount. To the extent the carrying amount of the
reporting unit exceeds its fair value, the Company would perform the second step of the
impairment test, as this is an indication that the reporting unit goodwill may be
impaired. The second step requires a comparison of the implied fair value of goodwill to
the carrying amount of goodwill to determine if there is impairment. |
|||
In December 2009, the Company completed its annual
goodwill impairment test. The Company determined that its fair value was greater than the
carrying amount as of December 31, 2009, 2008 and 2007. Accordingly, there was no indication
that goodwill was impaired. |
|||
(j) | Restricted Cash |
||
The Company is required to maintain an escrow account for the benefit of its landlord.
The cash and any related investment income may not be withdrawn until certain conditions
are met as defined in
the agreement. At December 31, 2009 and 2008, $0 and $108, respectively, were classified
as prepaid expenses and other current assets, as the amount was scheduled to be returned
to the Company within twelve months of the balance sheet date. |
|||
(k) | Revenue Recognition |
||
The Company generates revenue primarily from fees from customers accessing its on-demand
application service, transactions (prepaid or pay-as-you-go), professional services (site
selection and software implementation), as well as advertising and marketing packages.
Its customers are corporations that utilize its on-demand meeting management software and
suppliers of meeting venues. |
|||
The Companys corporate products are on-demand web-based solutions to manage and automate
every element of corporate meetings and events. This includes planning, budgeting,
sourcing of meeting venues, electronic attendee management, expense reconciliations, and
measurement reporting. The Companys corporate solutions include StarCite MarketView and
MeetingView. |
|||
Through the Companys solutions, meeting planners have the ability to research meeting
venues and submit Requests for Proposals (RFPs). Suppliers of meeting venues utilize
MarketView, the Companys gateway for hotels and other venues, or private label solutions
to receive and respond to RFPs submitted by the Companys corporate clients through one
of its on-demand web-based solutions. Suppliers of meeting venues are able to advertise
their properties on the Companys web-based solutions through StarCites marketing
programs. |
|||
Customers pay a licensing fee for access to the Companys solutions, which is recognized
ratably over the license period, which is typically three years. In addition, many
customers will prepurchase transactions associated with attendee registrations, which are
also recognized over the relevant licensing period. Fees associated with implementation
and outsourced meeting planning services, included in such agreements, are also
recognized ratably over the licensing period. Hotel marketing packages, intended to reach
corporate meeting planners, provide various levels of images and information concerning
the property. The revenue from the packages is recognized ratably over the life of the
contract, which is typically twelve months. |
8
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
In addition, the Company earns commissions associated with the negotiation and
contracting of hotel meeting space on behalf of corporate meeting planners. The
commissions, which are paid by the hotels, are recognized at the time the meeting occurs
as no significant performance obligations remain. |
|||
Deferred revenue represents advanced billings associated with customer agreements less
revenue recognized related thereto. Such amounts are recognized as revenue when the
related significant performance obligations have been satisfied. |
|||
(l) | Research and Development |
||
Research and development costs are charged to expense as incurred. |
|||
(m) | Advertising Expense |
||
Advertising costs are expensed as incurred. Advertising expense amounted to $9, $74 and
$184 in 2009, 2008 and 2007, respectively. |
|||
(n) | Income Taxes |
||
The Company records income taxes using the asset and liability method which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Companys financial statements or
tax returns. In estimating future
tax consequences, expected future events other than enactments or changes in the tax law
or rates are considered. Valuation allowances are provided when necessary to reduce
deferred tax assets to the amount expected to be realized. |
|||
The Company operates in various tax jurisdictions and is subject to audit by various tax
authorities. The Company provides for tax contingencies whenever it is deemed probable
that a tax asset has been impaired or a tax liability has been incurred for events such
as tax claims or changes in tax laws. Tax contingencies are based upon their technical
merits, relative tax law, and the specific facts and circumstances as of each reporting
period. Changes in facts and circumstances could result in material changes to the
amounts recorded for such tax contingencies. |
|||
On January 1, 2009, the Company adopted
FASB ASC Subtopic 740-10 Income Taxes
Overall, by defining the confidence level that a tax position must meet in order to be
recognized in the financial statements. FASB ASC Subtopic 740-10 requires that the tax
effects of a position be recognized only if it is more-likely-than-not to be sustained
based solely on its technical merits as of the reporting date. The Company considers many
factors when evaluating and estimating its tax positions and tax benefits, which may
require periodic adjustments and which may not accurately anticipate
actual outcomes. The adoption of FASB ASC Subtopic 740-10 had no impact on
2009 results. See note 7 for additional information. |
9
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(o) | Concentration of Credit Risk |
||
Financial instruments that potentially subject the Company to concentration of credit
risk consist principally of cash balances and trade receivables. The Company does not
require collateral from its customers. |
|||
For the years ended December 31, 2009, 2008 and 2007, no single customer represented more
than 10% of the Companys net sales. |
|||
(p) | Stock-Based Compensation |
||
The Company accounts for
stock-based payments in accordance with FASB ASC Topic 718, Compensation -
Stock Compensation. FASB ASC Topic 718 requires that all stock-based payments, including grants of
employee stock options and nonvested shares, be recognized in the financial statements
based on their fair values at date of grant. Under FASB ASC Topic 718, the cost of services
received in exchange for stock options and similar awards are
recognized in the statement of operations over the period during which an award recipient is required to provide service
in exchange for the award. |
|||
The Companys policy is to recognize compensation expense for awards granted on a
straight-line basis over the requisite service period, net of actual forfeitures. The
Company uses the Black-Scholes-Merton (Black Scholes) model to determine the grant date
fair value of its stock-based awards. |
|||
(q) | Use of Estimates |
||
The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results
could differ from these estimates. These estimates include evaluation of the Companys
goodwill, intangible assets, revenue recognition and commitments and contingencies. These
estimates and assumptions are based on managements best judgments. Management evaluates
its estimates and assumptions on an ongoing basis using historical experience and other
factors, including the current economic environment, which management believes to be
reasonable under the circumstances. Management adjusts such estimates and assumptions
when facts and circumstances dictate. Illiquid credit markets, volatile equity markets
and reductions in information technology spending have combined to increase the
uncertainty inherent in such estimates and assumptions. It is reasonably possible that
the Companys accounting estimates with respect to the useful life of intangible assets
and the ultimate recoverability of goodwill and intangible assets could change in the
near term and that the effect of such changes on the financial statements could be
material. The Company believes the recorded amount of goodwill and intangible assets is
not impaired at December 31, 2009. |
10
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(r) | Supplemental Cash Flow Information |
||
For the years ended December 31, 2009, 2008 and 2007, the Company paid interest of $568,
$310 and $147, respectively. The Company paid $197, $67 and $50 of income taxes during the
years ended December 31, 2009, 2008 and 2007, respectively. In 2009, a stockholder repaid a debt on behalf
of the Company which was treated as a capital contribution (see note 6). |
|||
(s) | Deferred Commissions |
||
The Company capitalizes commission costs that are incremental and directly related to the
acquisition of customer contracts. Commission costs are accrued and capitalized upon
execution of the sales contract by the customer. Payments to sales personnel are made
shortly after the receipt of the related customer payment. Deferred commissions are
amortized over the term of the related customer contract and are recoverable through the
related future revenue streams. |
|||
(t) | Reclassifications |
||
Certain reclassifications were made to prior years financials to conform to 2009
presentation. Certain costs were reclassified from general and administrative expenses in
the Consolidated Statement of Operations to cost of sales. |
|||
Additionally, certain costs of promoting the Companys products were reclassified from
cost of sales in the Consolidated Statement of Operations to sales and marketing
expenses. |
|||
(u) | Recent Accounting Pronouncements |
||
In January 2010, the FASB issued amended
guidance requiring additional fair value disclosures related to inputs
and valuation techniques used to measure fair value as well as disclosures about
significant transfers between levels in the hierarchy of fair value measurement.
This guidance is effective for the Company beginning on January 1, 2010, and
is not expected to have a significant impact on its consolidated financial statements |
|||
In October 2009, the FASB issued accounting guidance
related to revenue recognition for transactions with multiple deliverables, which impacts the
determination of when the individual deliverables included in a multiple-element arrangement
may be treated as separate units of accounting. This guidance is effective for the Company
beginning on January 1, 2011, however, early adoption is permitted. The Company is
currently evaluating the effect this guidance will have on its consolidated financial statements. |
|||
In May 2009, the FASB issued new guidance for accounting
for subsequent events, which establishes general standards of accounting for and disclosures of
events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. In particular, this guidance establishes that entities must evaluate
subsequent events through the date the financial statements are issued, the circumstances under
which a subsequent event should be recognized, and the circumstances for which a subsequent event
should be disclosed. The Company evaluated subsequent events through March 19, 2010. |
|||
In December 2007, the FASB issued revised guidance for
the accounting for business combinations. The revised guidance requires most identifiable assets,
liabilities, noncontrolling interests and goodwill acquired in a business combination to be
recorded at full fair value. This guidance is required to be applied prospectively to business
combinations that occur after the effective date. This guidance became effective for the Company
beginning on January 1, 2009. The adoption of this guidance did not have a material impact on the
Companys consolidated financial statements. |
11
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(2) | Property and Equipment |
|
Property and equipment consist of the following at December 31, 2009 and 2008: |
Estimated | December 31 | |||||||||
useful life | 2009 | 2008 | ||||||||
Computer equipment and software |
3 years | $ | 8,580 | 8,426 | ||||||
Furniture and fixtures |
7 years | 917 | 899 | |||||||
Leasehold improvements |
8 - 9 years | 1,252 | 1,356 | |||||||
10,749 | 10,681 | |||||||||
Less accumulated depreciation and
amortization |
(7,806 | ) | (5,669 | ) | ||||||
$ | 2,943 | 5,012 | ||||||||
Depreciation and amortization expense amounted to $2,266, $2,365 and $1,303 for the years
ended December 31, 2009, 2008 and 2007, respectively. |
12
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(3) | Intangible Assets and Goodwill |
(a) | Intangible Assets |
||
Intangible assets consist of the following at December 31, 2009 and 2008: |
Weighted | ||||||||||
average | ||||||||||
amortization | December 31 | |||||||||
period | 2009 | 2008 | ||||||||
Acquired technology |
4.6 years | $ | 8,490 | 8,490 | ||||||
Customer relationships |
12.8 years | 28,664 | 28,575 | |||||||
Covenant not to compete |
5 years | 210 | 210 | |||||||
Domain names/trademarks |
4.2 years | 430 | 430 | |||||||
37,794 | 37,705 | |||||||||
Less accumulated amortization |
(17,728 | ) | (15,075 | ) | ||||||
$ | 20,066 | 22,630 | ||||||||
Amortization expense for intangible assets amounted to $2,383, $2,711 and $3,196 for the
years ended December 31, 2009, 2008 and 2007, respectively. |
|||
On May 14, 2007, the Company entered into an Asset Purchase Agreement with
Travent Limited (Travent), a company incorporated in the United Kingdom, primarily
to acquire Travents customers. The Company paid $1,244 for Travent, which was
allocated to customer relationships and is being amortized over their useful lives. |
|||
The Company entered into an Asset Purchase Agreement (Purchase Agreement) and Strategic
Distribution and License Agreement (Service Agreement) with Maritz Travel Company
(Maritz) on December 15, 2006 (together, the Maritz Agreements). As part of the Maritz
Agreements, StarCite acquired certain developed technology for $1,297. Maritz entered
into a five-year Service Agreement with the Company during which Maritz will utilize the
Companys spend and attendee management applications with a minimum commitment of $3,600.
Since the Maritz Agreements were negotiated as one transaction, they were accounted for
as a multiple-element agreement. Accordingly, the amortization of the technology cost is
being amortized as a reduction of revenue over the life of the Service Agreement, which
totaled $259 for each of the years ended December 31, 2009 and 2008 and $173 for the year
ended December 31, 2007. |
|||
Amortization of intangible assets is estimated to be as follows: |
Year ending December 31: |
||||
2010 |
$ | 2,397 | ||
2011 |
2,332 | |||
2012 |
1,963 | |||
2013 |
1,877 | |||
2014 |
1,877 | |||
Thereafter |
9,620 | |||
$ | 20,066 | |||
13
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(b) | Goodwill |
||
Goodwill was $11,847 as of December 31, 2009 and 2008. There were no changes to goodwill
during the years ended December 31, 2009 or 2008. |
(4) | Accrued Liabilities |
|
Accrued liabilities consist of the following at December 31, 2009 and 2008: |
December 31 | ||||||||
2009 | 2008 | |||||||
Accrued compensation and benefits |
$ | 3,521 | 2,425 | |||||
Severance and related costs |
124 | 1,204 | ||||||
Consulting and outside services |
93 | 323 | ||||||
Client payable |
167 | 367 | ||||||
Professional fees |
258 | 624 | ||||||
Partnership commissions |
281 | 709 | ||||||
Other accrued liabilities |
999 | 1,125 | ||||||
$ | 5,443 | 6,777 | ||||||
During the year ended December 31, 2008, the Company, in order to better align its cost
structure with its current revenue streams and current economic environment, approved and
implemented a Repositioning Program (the Program) that included a reduction in force and
consolidation of offices. Through this Program, the Company reduced its worldwide workforce by
approximately 18% and closed its office in Twinsburg, Ohio. The Company recorded severance
costs of approximately $1,916 during the year ended December 31, 2008. As a result of closing
its Twinsburg, Ohio office prior to the expiration of its lease, the Company recorded an early
termination charge of $92 which was paid to the landlord in 2009. |
||
During the year ended December 31, 2009, the Company, in order to better align its cost
structure with its current revenue streams and current economic environment, approved and
implemented various reorganizations that included a reorganization of certain development
functions and alignment of various other functions that resulted in severance costs of $757. Additionally,
as part of the 2009 reorganization, the
Company recorded a lease restructuring reserve of $940 for estimated losses at a facility that is
under-utilized and currently marketed for sublease. |
||
At December 31, 2008, the Company had the following accrual related to these events: |
December 31, | 2008 | 2008 | December 31, | |||||||||||||
2007 | Expense | Payments | 2008 | |||||||||||||
Severance and benefits |
$ | | 1,916 | (804 | ) | 1,112 | ||||||||||
Lease termination |
| 92 | | 92 | ||||||||||||
$ | | 2,008 | (804 | ) | 1,204 | |||||||||||
14
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
At December 31, 2009, the Company had the following accrual related to these events: |
December 31, | 2009 | 2009 | December 31, | |||||||||||||
2008 | Expense | Payments | 2009 | |||||||||||||
Severance and benefits |
$ | 1,112 | 757 | (1,745 | ) | 124 | ||||||||||
Lease restructuring |
| 940 | (178 | ) | 762 | |||||||||||
Lease termination |
92 | | (92 | ) | | |||||||||||
$ | 1,204 | 1,697 | (2,015 | ) | 886 | |||||||||||
The lease restructuring reserve of $762
at December 31, 2009 is included within other long-term liabilities on the consolidated
balance sheets.
(5) | Short-Term Borrowings |
|
On July 11, 2008, the Company amended and renewed its line-of-credit
facility (the Line) with Comerica Bank. The renewed Line provided available credit up to
$4,000, revised the financial and reporting covenants and expired on September 18, 2008. At
September 18, 2008, the Company was unable to amend and renew the Line. As of December 31,
2008, the Company was not in compliance with the financial ratios required by the Line. The
outstanding balance against the Line at December 31, 2008 was $3,493, excluding a stand-by
letter of credit in the amount of $235. As of December 31, 2008, the Line was classified as a
short-term borrowing on the accompanying consolidated balance sheet. Interest expense on the
Line was $31, $203 and $126 for the years ended December 31, 2009, 2008 and 2007,
respectively. |
||
On February 3, 2009, the Company secured a two-year revolving line-of-credit facility (the
Credit Facility) with Silicon Valley Bank (SVB). The Credit Facility is a revolving
line-of-credit for a term of 24 months that permits borrowing up to $7,500 (including a
sub-limit of $1,000 for letters of credit) subject to limitations based on the achievement of
certain performance measures (free cash flow and quick ratio, as defined in the Credit
Facility) and 80% of eligible accounts receivable. The Credit Facility is secured by a first
priority secured interest in all of StarCites assets. The Credit Facility subjects the
Company to various financial and reporting covenants, including the achievement of certain
free cash flow milestones measured on a trailing three-month basis (as defined in the Credit
Facility). The Credit Facility bears interest at the U.S. prime rate plus 1.5% to 3.0% based
on the maintenance of certain balance sheet ratios and includes unused line fees, letter of
credit fees and other customary fees. As of December 31, 2009, no amounts (including
letters of credit) were outstanding under the Credit Facility. Interest expense on the
Credit Facility was $135 for the year ended December 31, 2009. In March 2010, the Company
amended the Credit Facility to modify certain financial covenants for the remaining term
of the Credit Facility. |
||
During 2008, the Company incurred additional short-term borrowings of $390 to finance various
aspects of its operations. As of December 31, 2009 and 2008, the outstanding balance on
short-term borrowings was $67 and $196, which is due in monthly installments through 2010. |
15
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(6) | Notes Payable and Capital Lease Obligations |
|
(a) Notes Payable |
||
Notes payable consists of the following at December 31, 2009 and 2008: |
December 31 | ||||||||
2009 | 2008 | |||||||
Note payable |
$ | 4,000 | | |||||
Equipment line |
| 885 | ||||||
Note payable to stockholder (technology purchase) |
| 541 | ||||||
Note payable to stockholder |
| 3,472 | ||||||
4,000 | 4,898 | |||||||
Less current portion |
(1,305 | ) | (4,898 | ) | ||||
Long-term notes payable |
$ | 2,695 | | |||||
On June 20, 2007, the Company entered into a credit facility that provided available credit up
to $2,500 for the financing of capital equipment purchases (Equipment Line). The terms of the
Equipment Line provided for advances from June 20, 2007 to March 20, 2008. During this period,
advances bore interest at a rate of 1.00% above the prime lending rate and monthly payments
were interest-only. Any advances outstanding at March 20, 2008 were payable in twenty-four
equal installments of principal, plus accrued interest, which began on April 1, 2008. At
December 31, 2008, the outstanding balance against the Equipment Line was $885. Interest
expense on the Equipment line was $6, $75 and $54 for the years ended December 31, 2009, 2008
and 2007, respectively. On February 3, 2009, the Company entered into a term loan and
Credit Facility with Horizon Technology Finance and Silicon Valley Bank,
respectively. As a result, the Equipment Line was repaid in full. |
||
On December 15, 2006, the Company entered into an Asset Purchase Agreement to acquire certain
developed technology (note 3) from a stockholder who holds less than 1% interest in the
Company. The purchase price was $1,500 payable over three years. The payments are
noninterest-bearing and, accordingly, the note was recorded net of discount of $203. During
the years ended December 31, 2009, 2008 and 2007, the Company recorded imputed interest
expense of $21, $66 and $115, respectively. The Company made payments of $563 during each of
the years ended December 31, 2009 and 2008 and payments of $374 during the year ended
December 31, 2007. As of December 31, 2008, the outstanding balance was $541.
No amounts were outstanding under the note at December 31, 2009. |
||
On February 3, 2009, the Company secured a $4,000 term loan with Horizon Technology Finance
(the Horizon Loan). The Company used the proceeds from the Horizon Loan as well as cash on
hand to extinguish its outstanding obligations to Comerica Bank. These obligations consisted
of $3,493 related to short-term borrowings under an expired line-of-credit facility, and $885
associated with an equipment line loan. |
16
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
The Horizon Loan is a forty-two month installment loan bearing interest at a rate based on the
greater of 12.05% or 12.05% plus increases in the Libor rate above 3.03%. Payments through
December 31, 2009 are interest only ($41 per month) with the remaining thirty three payments
consisting of principal plus interest of $143 each. In addition, the Company is obligated to
make a one-time payment of $400 with the last installment on September 1, 2012. Pursuant to
the terms of the loan, the Company issued to Horizon a warrant with a 10 year term to purchase
43,478 shares of StarCites Series B preferred stock at an exercise
price per share of $4.60 preferred shares. These warrants are classified as a liability on
the accompanying balance sheet. The fair value of these warrants was $128 at December 31, 2009
using the Black-Scholes pricing model with the following assumptions: volatility of 67.6%,
risk-free interest rate of 2.9%, dividend yield of 0%, and a contractual life of ten years.
The Company is not subject to any financial covenants under the Horizon Loan. The Horizon Loan
contains certain cross-default provisions with the Credit Facility. The balance at December
31, 2009 is $4,000. |
||
Long-term maturities for the Credit Facility as of December 31, 2009 are as follows: |
Year ending December 31: |
||||
2010 |
$ | 1,305 | ||
2011 |
1,470 | |||
2012 |
1,225 | |||
$ | 4,000 | |||
The Company had a note payable to a stockholder of the Company, who holds less than 1%
interest in the Company. The note payable bears interest at 6% per year, and the principal and
accrued interest were due in August 2009. There are no covenants connected with this note
payable. The Company incurred $109, $138 and $138 of interest expense related to this note
payable in the years ended December 31, 2009, 2008 and 2007, respectively. The balance
at December 31, 2009 and 2008 consisted of the following: |
December 31 | ||||||||
2009 | 2008 | |||||||
Note payable to stockholder |
$ | | 2,304 | |||||
Accrued interest |
| 1,168 | ||||||
$ | | 3,472 | ||||||
On February 3, 2009, one of the Companys stockholders, entered into certain arrangements
whereby this stockholder has guaranteed this note payable. Under these arrangements, this
stockholder placed approximately $3,600 into a bank account that was used to repay this debt
when it matured or otherwise became due and payable. In May 2009, the stockholder repaid the
debt on behalf of the Company. The extinguishment of the debt has been recorded as a capital
contribution in 2009. |
(b) Capital Lease Obligations |
||
The Company had several capital lease agreements,
which originally totaled $1,668. The interest rates ranged from 15.2% to 15.7% per year, and
the leases were collateralized by equipment. The minimum lease payments under these leases as
of December 31, 2008 were $4, which were paid in 2009. |
(7) | Income Taxes |
At December 31, 2009 and 2008, the Company had federal net operating loss carryforwards of
approximately $147,351 and $147,558, respectively, which begin to expire in 2017. At December
31, 2009 and 2008, the Company had net operating loss carryforwards for state tax purposes of
approximately $128,084 and $79,950, respectively, which begin to expire in 2010. At December
31, 2009 and 2008, the Company had foreign net operating loss carryforwards of approximately
$436 and $994, respectively. |
17
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
OnVantage had net operating loss carryforwards for federal and state income tax purposes of
approximately $138,349 at the date of acquisition, which have been fully reserved. Under
current tax laws, if the Company is acquired by or merges with another company, the net
operating losses of the Company (including those of OnVantage) may be substantially reduced or
eliminated. Under the Tax Reform Act of 1986, the utilization of a corporations net operating
loss carryforwards is limited following a change in ownership of greater than 50% within a
three-year period. Due to the Companys prior equity transactions, the Companys net operating
loss carryforwards may be subject to an annual limitation generally determined by multiplying
the market value of the Company on the date of the ownership change by the federal long-term
tax-exempt rate. Any amount exceeding the annual limitation may be carried forward to future
years for the balance of the net operating loss carryforward period. |
||
The components of deferred tax assets and liabilities were as follows: |
December 31 | ||||||||
2009 | 2008 | |||||||
Allowance for doubtful accounts |
$ | 459 | 518 | |||||
Bonus accruals |
| 46 | ||||||
Deferred revenue |
6,779 | 7,734 | ||||||
Deferred rent |
451 | 192 | ||||||
Long-lived assets |
1,954 | 2,322 | ||||||
Other |
1,593 | 1,301 | ||||||
Net operating loss carryforward |
57,001 | 56,539 | ||||||
Tax credits |
2,381 | 1,729 | ||||||
Net deferred income tax assets |
70,618 | 70,381 | ||||||
Less valuation allowance |
(70,602 | ) | (70,320 | ) | ||||
Total assets |
16 | 61 | ||||||
Long-lived assets |
| (61 | ) | |||||
Other |
(16 | ) | | |||||
Total liabilities |
(16 | ) | (61 | ) | ||||
Deferred tax asset, net |
| | ||||||
Deferred income taxes reflect the net tax effects of temporary differences between carrying
amounts of assets and liabilities for financial reporting purposes and the carrying amounts
used for income tax purposes. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due to the
uncertainty of the Companys ability to realize the benefit of the deferred tax asset, the
deferred tax assets are fully offset by a valuation allowance at December 31, 2009 and 2008. |
18
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
The change in the valuation allowance for the years ended December 31, 2009 and 2008 was an
increase of $282 and an increase of $7,548, respectively. |
||
For the years ended December 31, 2009, 2008 and 2007, loss before taxes consists of the
following: |
2009 | 2008 | 2007 | ||||||||||
U.S. operations |
$ | (7,928 | ) | (20,199 | ) | (14,809 | ) | |||||
Foreign
operations - income |
725 | 753 | 144 | |||||||||
Loss before taxes |
$ | (7,203 | ) | (19,446 | ) | (14,665 | ) | |||||
The following summarizes the Companys current income tax expense for the years ended December
31, 2009, 2008 and 2007: |
Years ended December 31 | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Current: |
||||||||||||
Federal |
$ | (95 | ) | | | |||||||
Foreign |
145 | 53 | | |||||||||
State |
| | | |||||||||
Total current |
50 | 53 | | |||||||||
Total income tax expense |
$ | 50 | 53 | | ||||||||
There was no deferred income tax expense for the years ended December 31, 2009, 2008 and 2007.
19
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
A reconciliation between the provision (benefit) for income taxes, computed by applying the
statutory federal income tax rate of 35% to income before income taxes, and the actual
provision for income taxes follows: |
Years ended December 31 | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Federal income tax provision at statutory tax rate |
35.00 | % | 35.00 | % | 35.00 | % | ||||||
State income taxes, net of federal income tax provision |
(0.04 | ) | | | ||||||||
Change in valuation allowance |
(32.92 | ) | (34.01 | ) | (32.60 | ) | ||||||
Nondeductible expenses |
(2.74 | ) | (1.69 | ) | (2.43 | ) | ||||||
Foreign rate difference |
0.84 | 0.43 | 0.03 | |||||||||
Annual income tax provision effective tax rate |
0.14 | % | (0.27 | )% | | % | ||||||
(8) | Commitments and Contingencies |
(a) | Lease Commitments |
||
The Company rents certain office space under noncancelable operating leases which expire
between 2010 and 2013. The total amount of all payments due under this lease is being
charged to expense on the straight-line method over the term of the lease. Additionally,
the Company has recorded deferred rent to reflect the excess rent expense over actual
cash payments since the inception of the lease. Rent expense under
these leases (excluding lease restructuring reserves discussed in
Note 4) amounted to
$1,282, $1,795 and $1,620 for the years ended December 31, 2009, 2008 and 2007,
respectively. |
|||
Future minimum lease
payments (including the lease that is reserved - see Note 4) for each of the following years are as follows: |
Year ending December 31: |
||||
2010 |
$ | 1,262 | ||
2011 |
742 | |||
2012 |
660 | |||
2013 |
681 | |||
$ | 3,345 | |||
(b) | Litigation |
||
The Company is party to certain legal actions arising in the ordinary course of business.
While it is not possible to determine with certainty the outcome of these matters, in the
opinion of management the eventual resolution of these claims and actions outstanding
will not have a material adverse effect on the Companys consolidated financial position,
results of operations, or liquidity. |
20
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
(c) | Guarantees |
||
Under the indemnification of the Companys standard product license agreement, the
Company guarantees to defend and indemnify the licensee against any proceeding based upon
any failure to satisfy the warranty set forth in the contract associated with license
infringements on any patent, copyright, trade secret, or other intellectual property
right on products licensed to its customers. As of December 31, 2009, the Company does
not expect to incur any infringement liability as a result of the customer
indemnification clauses. |
|||
(d) | Stockholder Agreements |
||
All stockholders have entered into stockholder agreements that define and provide for,
among other things, the purchase, sale, and transfer of shares in accordance with
agreements. |
|||
(e) | 401(k) Plan |
||
The Company sponsors a 401(k) defined contribution plan, which is available for
participation to all eligible employees. Company contributions to the plan are subject to
the discretion of the board of directors. Company contributions are allocated to the
participants accounts based on the percentage of each participants contributions to the
plan during the given year to the total of all participant contributions. The Company
made discretionary contributions of $195, $285 and $346 for the years ended December 31,
2009, 2008 and 2007, respectively. |
|||
(f) | Severance Arrangements |
||
The Company has severance arrangements with certain key employees that provide for
severance payments and other benefits upon termination and/or change of control. Such
arrangements were entered into outside of the Companys 2008
Repositioning Program and 2009 cost realignment (see note 4). |
(9) | Preferred Stock |
|
As of December 31, 2009 and 2008, the Company is authorized to issue 20,000,000 shares of
Series A convertible preferred stock (Series A Preferred Stock), $0.001 par value; 200,000
shares of Series A-1 convertible preferred stock (Series A-1 Preferred Stock), $0.001 par
value; and 3,304,347 shares of Series B convertible preferred stock (Series B Preferred
Stock). |
(a) | Series A and A-1 Preferred Stock |
||
Conversion |
|||
Each share of Series A Preferred Stock and any dividends accrued but unpaid are
convertible at the option of the holder into shares of the Companys common stock. The
number of shares of common stock is determined by dividing the original issue price of
the preferred stock, which was $1.30 per share, by the applicable Conversion Price
(Conversion Price). The initial Conversion Price for the Series A Preferred Stock is the
original issue price for the Series A Preferred Stock. |
21
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
The Conversion Price of the Series A Preferred Stock shall be subject to adjustment when
a Common Stock Event (as defined) occurs. Upon the occurrence of a Common Stock Event,
the Conversion Price of the Series A Preferred Stock shall be adjusted by multiplying the
Conversion Price of the Series A Preferred Stock in effect immediately prior to the
Common Stock Event by a fraction of which the numerator shall be the number of shares of
common stock issued and outstanding immediately prior to the Common Stock Event and the
denominator shall be the number of shares of common stock issued and outstanding
immediately after such Common Stock Event. Following each adjustment of the Conversion
Price, such adjusted Conversion Price shall remain in effect until a subsequent Common
Stock Event occurs. A Common Stock Event is defined as (i) the issue by the Company of
additional shares of common stock as a dividend or other distribution; (ii) a stock
split; or (iii) a reverse stock split. |
||
Each share of Series A-1 Preferred Stock shall automatically be converted into common
stock immediately prior to the closing of a public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended, covering the
offer and sale of common stock of the Company in which the aggregate public offering
price equals or exceeds $25,000 and the offering price per share of common stock equals
or exceeds $13.50 (Qualified IPO). |
||
Each share of Series A Preferred Stock shall automatically be converted into common stock
(i) immediately prior to the closing of a Qualified IPO or (ii) upon the Companys
receipt of the written consent of the holders of not less than two-thirds of the then
outstanding shares of Series A Preferred Stock to the conversion of all outstanding
Series A Preferred Stock to common stock. |
||
Dividends |
||
The holders of the Series A Preferred Stock are entitled to receive dividends at the rate
of $0.10 per share per year. These dividends are paid only when declared by the board of
directors and are noncumulative. The payment of dividends to the holders of Series A
Preferred Stock is in preference to all other classes of stock. For the years ended
December 31, 2009, 2008, and 2007, no dividends were declared by the board of directors. |
||
Voting |
||
Each share of Series A Preferred Stock shall be entitled to vote on all matters on which
the holders of common stock are entitled to vote. The number of votes allocated for each
share of preferred stock is determined by the number of shares of common stock into which
such share of preferred stock could be converted into common stock. |
||
Liquidation Preference |
||
In the event of any liquidation, the holders of the Series A-1 Preferred Stock shall be
entitled to receive prior to all other classes of stock an amount equal to $50.00 per
share. The holders of the Series A Preferred Stock shall be entitled to receive after
amounts set aside for the holders of the Series A-1 Preferred Stock an amount equal to
$1.30 per share, plus all declared but unpaid dividends. As of December 31, 2009, the
liquidation value of the Series A-1 and Series A Preferred Stock is $10,000 and $26,000,
respectively. |
22
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
A merger or consolidation of the Company that results in the Companys stockholders
immediately prior to the transaction not holding at least 50% of the voting power of the
surviving entity shall be deemed a liquidation event. |
|||
(b) | Series B Preferred Stock |
||
In 2008, the Company authorized and issued 3,260,869 shares of Series B Preferred Stock,
$0.001 par value, at $4.60 per share for cash proceeds of $15,000. In
2009, the Company increased the authorized shares of Series B
Preferred Stock by 43,478 to 3,304,347 as a result of the Horizon
warrants (see note 6). |
|||
Following the issuance of the Series B Preferred Stock, significant terms of the
convertible preferred stock were amended as follows. |
|||
Conversion |
|||
Each share of Series A and Series B Preferred Stock shall be convertible, at the option
of the holder at any time after the date of issuance into shares of the Companys common
stock. The number of shares of common stock is determined by dividing the original issue
price of the preferred stock, which was $1.30 and $4.60, respectively, by the applicable
Conversion Price (Conversion Price). The initial Conversion Price for the Series A and
Series B Preferred Stock is the original issue price for the Series A and Series B
Preferred Stock, respectively. |
|||
Each share of Series A-1 Preferred Stock shall automatically be converted into common
stock immediately prior to the closing of a public offering pursuant to an effective
registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale of common
stock of the Company in which the aggregate public offering price equals or exceeds
$50,000, and the offering price per share of common stock equals or exceeds $23.00
(Qualified IPO). |
|||
Each share of Series A and Series B Preferred Stock shall automatically be converted into
common stock (i) immediately prior to the closing of a Qualified IPO or (ii) upon the
Companys receipt of the written consent of the holders of not less than two-thirds of
the then outstanding shares of Series A and Series B Preferred Stock to the conversion of
all outstanding Series A and Series B Preferred Stock to common stock. |
|||
Dividends |
|||
The holders of Series B Preferred Stock are entitled to receive dividends at the rate of
$0.3538 per share, per year, prior to and in preference to any declaration or payment of
any dividend on the Series A Preferred Stock and common stock. The holders of the Series
A Preferred Stock are entitled to receive dividends at the rate of $0.10 per share, per
year, prior to and in preference to any declaration or payment of any dividend on the
common stock. These dividends are paid only when declared by the board of directors and
are noncumulative. For the years ended December 31, 2009, 2008
and 2007, no dividends were
declared by the board of directors. |
23
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
The holders of Series A-1 Preferred Stock are not entitled to receive of any dividends. |
|||
Voting |
|||
Each share of Series A and Series B Preferred Stock shall be entitled to vote on all
matters on which the holders of common stock are entitled to vote. The number of votes
allocated for each share of Series A and Series B Preferred Stock is determined by the
number of shares of common stock into which such share of preferred stock could be
converted into common stock. |
|||
The Series A-1 Preferred Stock is a nonvoting stock. |
|||
Liquidation Preference |
|||
In the event of any liquidation, the holders of the Series B Preferred Stock shall be
entitled to receive prior to all other classes of stock an amount equal to $4.60 per
share, plus any and all accrued but unpaid dividends. The holders of the Series A-1
Preferred Stock shall be entitled to receive prior to any distribution to the holders of
Series A and common stock, an amount equal to $50.00 per share. The holders of the Series
A Preferred Stock shall be entitled to receive prior to any distribution to the holders
of common stock, an amount equal to $1.30 per share, plus any and all accrued but unpaid
dividends. As of December 31, 2009, the liquidation value of the Series B Preferred Stock
is $15,000. |
(10) | Stock-Based Compensation |
|
The Companys 2006 Stock Option Plan (the 2006 Plan) authorizes up to 6,000,000 common shares,
which can be granted as incentive stock options, nonqualified stock options or nonvested stock
awards. Option grants under this plan generally expire 10 years from the date of grant, 90
days after termination, or one year after the date of death or termination due to disability.
Stock options generally vest over a period of four years, with options becoming exercisable in
equal installments over the vesting period. As of December 31, 2009,
1,460,613 common shares were available for grant under the 2006 Plan. |
||
The Company recorded $1,587, $2,037, $1,117 of stock
compensation related to stock option awards in the Companys consolidated statements of
operations for the years ended December 31, 2009, 2008 and 2007, respectively. |
24
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
The estimated fair value of options granted was calculated using a Black Scholes option
pricing model. The Black Scholes model incorporates assumptions to value stock-based awards.
The Company uses historical data on exercise timing to determine the expected life assumption.
The risk-free rate of interest for periods within the contractual life of the option is based
on U.S. Government Securities Treasury Constant Maturities over the expected term of the
equity instrument. The Companys common stock is not publicly traded; therefore, expected
volatility is based on the historical volatilities of selected companies whose services are
comparable to that of the Company. The table below outlines the weighted average assumptions
for these grants: |
Year ended December 31 | ||||||||
2009 | 2008 | |||||||
Weighted average expected volatility |
71.6 | % | 58.5 | % | ||||
Expected term (years) |
6.2 | 6.3 | ||||||
Risk-free interest rate |
2.7 | % | 3.7 | % | ||||
Expected dividend yield |
| |
The fair value of share-based awards is recognized as expense over the requisite service
period, net of forfeitures. |
||
The following table
summarizes stock option activity during the years ended December 31, 2009,
2008 and 2007: |
Weighted | ||||||||||||
average | ||||||||||||
Weighted | remaining | |||||||||||
average | contractual | |||||||||||
Number of | exercise | term | ||||||||||
shares | price | (years) | ||||||||||
Outstanding,
January 1, 2007 |
| $ | | |||||||||
Granted |
2,936,141 | 2.18 | ||||||||||
Exercised |
(1,192 | ) | 1.79 | |||||||||
Forfeited |
(151,871 | ) | 1.81 | |||||||||
Outstanding,
December 31, 2007 |
2,783,078 | 2.20 | ||||||||||
Granted |
1,545,000 | 3.38 | ||||||||||
Exercised |
(7,540 | ) | 1.79 | |||||||||
Forfeited |
(936,685 | ) | 2.43 | |||||||||
Outstanding, December 31, 2008 |
3,383,853 | 2.68 | ||||||||||
Granted |
2,725,792 | 1.48 | ||||||||||
Exercised |
(72,752 | ) | 1.79 | |||||||||
Forfeited |
(1,754,800 | ) | 3.20 | |||||||||
Outstanding, December 31, 2009 |
4,282,093 | 1.69 | 6.77 | |||||||||
Options exercisable, December 31, 2009 |
2,039,071 | 1.89 | 4.42 | |||||||||
The weighted average grant
date fair value of options granted during 2009, 2008 and 2007 was $1.48,
$3.14 and $2.75, respectively. |
25
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
As of December 31, 2009, there was $2,938 of total unrecognized compensation cost, which
includes the impact of expected forfeitures, related to unvested stock options. The cost is
expected to be recognized over a weighted average period of 2.7 years. |
||
In 2009, 32,735 shares of common stock valued at $111 were tendered to net share settle the
exercise of 61,812 options. |
||
Additional information regarding stock options outstanding at December 31, 2009, is as
follows: |
Options outstanding | Options outstanding and exercisable |
|||||||||||||||||||||||
Weighted | ||||||||||||||||||||||||
average | Weighted | Weighted | ||||||||||||||||||||||
remaining | average | average | ||||||||||||||||||||||
Number | contractual | exercise | Number | exercise | ||||||||||||||||||||
Exercise prices | outstanding | life (years) | price | vested | price | |||||||||||||||||||
$ | 1.48 | 2,690,686 | 9.02 | $ | 1.48 | 539,005 | $ | 1.48 | ||||||||||||||||
1.79 | 1,325,394 | 3.12 | 1.79 | 1,263,342 | 1.79 | |||||||||||||||||||
3.38 | 266,013 | 2.25 | 3.38 | 236,724 | 3.38 | |||||||||||||||||||
4,282,093 | 6.77 | 1.69 | 2,039,071 | 1.89 | ||||||||||||||||||||
Nonvested Shares |
||
The Company may grant nonvested share awards to employees, nonemployee directors, and
consultants. A nonvested share award is an award of common shares that is subject to certain
restrictions during a specified period, such as an employees continued employment combined
with the Company achieving certain financial goals. The Company holds the common shares during
the restriction period, and the grantee cannot transfer the shares before the termination of
that period. The grantee is, however, generally entitled to vote the common shares and receive
any dividends declared and paid on the Companys common shares during the restriction period.
Stock-based compensation resulting from nonvested awards for the years ended December 31,
2009, 2008 and 2007 was $282, $883 and $1,731, respectively, and is included in the
accompanying consolidated statements of operations. Total unrecognized compensation cost of
nonvested shares granted as of December 31, 2009 was $55, which is expected to be recognized
over a weighted average period of 0.6 years. |
26
STARCITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
(Amounts in thousands, except share and per share data)
A summary of the activity of the Companys nonvested stock as of and for the years ended
December 31, 2009 and 2008 is presented below: |
Weighted | ||||||||
average | ||||||||
Number of | grant-date | |||||||
shares | fair value | |||||||
Nonvested at
January 1, 2007 |
| $ | | |||||
Granted |
1,528,289 | 2.60 | ||||||
Vested |
(673,157 | ) | 2.60 | |||||
Forfeited |
(11,742 | ) | 2.60 | |||||
Nonvested at
December 31, 2007 |
843,390 | 2.60 | ||||||
Granted |
| | ||||||
Vested |
(339,862 | ) | 2.60 | |||||
Forfeited |
(369,745 | ) | 2.60 | |||||
Nonvested at December 31, 2008 |
133,783 | 2.60 | ||||||
Granted |
| | ||||||
Vested |
(108,476 | ) | 2.60 | |||||
Forfeited |
(22,366 | ) | 2.60 | |||||
Nonvested at December 31, 2009 |
2,941 | 2.60 | ||||||
The following table sets forth the total stock-based compensation expense for the years ended
December 31, 2009 and 2008: |
Year ended December 31 | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Cost of sales |
$ | 434 | 304 | 293 | ||||||||
Selling and marketing |
521 | 342 | 287 | |||||||||
General and administrative |
519 | 1,869 | 1,751 | |||||||||
Research and development |
395 | 405 | 517 | |||||||||
$ | 1,869 | 2,920 | 2,848 | |||||||||
27