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Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2011
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                      TO                     
COMMISSION FILE NUMBER: 000-27577
(HARRISLOGO)
HARRIS INTERACTIVE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
     
DELAWARE
(State or Other Jurisdiction of
  16-1538028
(I.R.S. Employer
Incorporation or Organization)   Identification No.)
161 Sixth Avenue, New York, New York 10013
(Address of principal executive offices)
(212) 539-9600
(Registrant’s telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
     Indicate by 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 þ No o
     Indicate by checkmark 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 was required to submit and post such files).
Yes o No o
     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 o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
        (Do not check if a 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 o No þ
     On April 29, 2011, 54,755,324 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.
 
 


 

HARRIS INTERACTIVE INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2011
INDEX
         
    Page  
       
 
       
       
    3  
    4  
    5  
    6  
    17  
    26  
    27  
 
       
       
 
       
    27  
    28  
    28  
    29  
    29  
    29  
 
       
    30  
 EX-10.1
 EX-10.2
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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Part I: Financial Information
Item 1 — Financial Statements
HARRIS INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
                 
    March 31,     June 30,  
    2011       2010  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 12,500     $ 14,158  
Accounts receivable, net
    23,614       23,735  
Unbilled receivables
    8,200       7,566  
Prepaid expenses and other current assets
    4,682       3,722  
Deferred tax assets
    547       375  
 
           
Total current assets
    49,543       49,556  
 
               
Property, plant and equipment, net
    3,964       5,626  
Other intangibles, net
    15,217       16,382  
Other assets
    1,589       1,566  
 
           
Total assets
  $ 70,313     $ 73,130  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 6,742     $ 8,952  
Accrued expenses
    16,697       16,768  
Current portion of long-term debt
    4,794       4,794  
Deferred revenue
    14,942       11,612  
 
           
Total current liabilities
    43,175       42,126  
 
               
Long-term debt
    7,191       10,787  
Deferred tax liabilities
    2,363       2,391  
Other long-term liabilities
    1,518       1,792  
Commitments and contingencies (Note 14)
               
Stockholders’ equity:
               
Preferred stock, $.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2011 and June 30, 2010
           
Common stock, $.001 par value, 100,000,000 shares authorized; 54,755,324 shares issued and outstanding at March 31, 2011 and 54,465,449 shares issued and outstanding at June 30, 2010
    55       54  
Additional paid-in capital
    186,405       185,726  
Accumulated other comprehensive income
    5,240       2,558  
Accumulated deficit
    (175,634 )     (172,304 )
 
           
Total stockholders’ equity
    16,066       16,034  
 
           
Total liabilities and stockholders’ equity
  $ 70,313     $ 73,130  
 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Revenue from services
  $ 38,087     $ 41,203     $ 120,041     $ 124,767  
 
                               
Operating expenses:
                               
Cost of services
    25,138       26,569       78,892       79,083  
Selling, general and administrative
    12,870       13,829       37,745       40,641  
Depreciation and amortization
    1,517       1,656       4,560       5,130  
Restructuring and other charges
    448       92       1,127       623  
 
                       
Total operating expenses
    39,973       42,146       122,324       125,477  
 
                       
Operating loss
    (1,886 )     (943 )     (2,283 )     (710 )
Interest and other income
    (13 )     (30 )     (35 )     (57 )
Interest expense
    285       524       1,070       1,560  
 
                       
Loss from operations before income taxes
    (2,158 )     (1,437 )     (3,318 )     (2,213 )
 
                       
Provision (benefit) for income taxes
    177       121       12       (1,354 )
 
                       
Net loss
  $ (2,335 )   $ (1,558 )   $ (3,330 )   $ (859 )
 
                       
 
                               
Basic and diluted net loss per share
  $ (0.04 )   $ (0.03 )   $ (0.06 )   $ (0.02 )
 
                       
 
                               
Weighted-average shares outstanding — basic and diluted
    54,658,105       54,247,286       54,516,793       54,027,408  
 
                       
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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HARRIS INTERACTIVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                 
    For the Nine Months Ended March 31,  
    2011     2010  
Cash flows from operating activities:
               
Net loss
  $ (3,330 )   $ (859 )
Adjustments to reconcile net loss to net cash provided by operating activities —
               
 
Depreciation and amortization
    5,715       6,225  
Deferred taxes
    (122 )     (359 )
Stock-based compensation
    523       523  
Amortization of deferred financing costs
    53       333  
(Increase) decrease in assets —
               
Accounts receivable
    1,133       (175 )
Unbilled receivables
    (8 )     (336 )
Prepaid expenses and other current assets
    (2,019 )     (48 )
Other assets
    1       123  
(Decrease) increase in liabilities —
               
Accounts payable
    (2,442 )     426  
Accrued expenses
    (990 )     (1,754 )
Deferred revenue
    2,862       (1,236 )
Other liabilities
    (276 )     (896 )
 
           
Net cash provided by operating activities
    1,100       1,967  
 
           
Cash flows from investing activities:
               
Proceeds from maturities and sales of marketable securities
          500  
Capital expenditures
    (577 )     (480 )
 
           
Net cash provided by (used in) investing activities
    (577 )     20  
 
           
Cash flows from financing activities:
               
Repayment of borrowings
    (3,596 )     (5,194 )
Proceeds from employee stock purchases and stock option exercises
    157       116  
 
           
Net cash used in financing activities
    (3,439 )     (5,078 )
 
           
Effect of exchange rate changes on cash and cash equivalents
    1,258       (964 )
 
           
Net decrease in cash and cash equivalents
    (1,658 )     (4,055 )
Cash and cash equivalents at beginning of period
    14,158       16,752  
 
           
Cash and cash equivalents at end of period
  $ 12,500     $ 12,697  
 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.

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HARRIS INTERACTIVE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Financial Statements
     The unaudited consolidated financial statements included herein reflect, in the opinion of the management of Harris Interactive Inc. and its subsidiaries (collectively, the “Company”), all normal recurring adjustments necessary for a fair statement of the Company’s financial position, operating results and cash flows for the interim periods presented.
2. Basis of Presentation
     The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated balance sheet as of June 30, 2010 has been derived from the audited consolidated financial statements of the Company.
     These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed by the Company with the Securities and Exchange Commission (“SEC”) on August 31, 2010.
3. Recent Accounting Pronouncements
   Fair Value Disclosures
     In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 provides amendments to subtopic 820-10 that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements, in addition to the presentation of purchases, sales, issuances and settlements for Level 3 fair value measurements. ASU 2010-06 also provides amendments to subtopic 820-10 that clarify existing disclosures about the level of disaggregation and inputs and valuation techniques. The new disclosure requirements are effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements of Level 3 fair value measurements. Those disclosures are effective for interim and annual periods beginning after December 15, 2010. The Company adopted the disclosures involving Level 1 and Level 2 fair value measurements on January 1, 2010, and on January 1, 2011, adopted the disclosures involving Level 3 fair value measurements. Adoption did not have a material effect on the Company’s consolidated financial statements.
4. Restructuring and Other Charges
   Restructuring Charges
     The following table summarizes activity during the nine months ended March 31, 2011 with respect to the Company’s remaining reserves for the restructuring activities undertaken in prior fiscal years:
                                                 
    Balance,                                     Balance,  
    July 1,     Costs     Changes in     Cash     Non-Cash     March 31,  
    2010     Incurred     Estimate     Payments     Settlements     2011  
Lease commitments
  $ 408     $     $ 45     $ (107 )   $     $ 346  
 
                                   
Remaining reserve
  $ 408     $     $ 45     $ (107 )   $     $ 346  
 
                                   

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   Other Charges
     For both the three and nine months ended March 31, 2011, other charges reflected in the “Restructuring and other charges” line shown on the Company’s unaudited consolidated statements of operations included:
    $270 in severance costs incurred in connection with headcount reductions involving 15 employees undertaken by the Company’s U.S. operations, $210 of which have been paid as of March 31, 2011 and all of which are expected to be paid by June 30, 2011, and
    Costs associated with reorganizing the operational structure of the Company’s U.K. operations.
     For the nine months ended March 31, 2011, other charges reflected in the “Restructuring and other charges” line shown on the Company’s unaudited consolidated statements of operations also included:
    $347 in statutorily mandated severance costs incurred in connection with headcount reductions involving 15 employees undertaken by the Company’s U.K. operations, $265 of which have been paid as of March 31, 2011, and all of which are expected to be paid by June 30, 2011, and
    Costs associated with reorganizing the operational structure of the Company’s Canadian operations.
     For the three and nine months ended March 31, 2010, other charges reflected in the “Restructuring and other charges” line included:
    Additional legal fees associated with the fiscal 2009 amendment of the Company’s credit agreement,
    Costs incurred to close the Company’s telephone-based data collection center in Brentford, United Kingdom, and
    Costs associated with reorganizing the operational structure of the Company’s Asian operations.
5. Fair Value Measurements
     The hierarchy for inputs used in measuring fair value for financial assets and liabilities is designed to maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels:
    Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
    Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset and liability, either directly or indirectly.
    Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

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     The following table presents the fair value hierarchy for the Company’s financial assets and liabilities measured at fair value on a recurring basis:
                                 
    Quoted     Significant              
    Prices in     Other     Significant        
    Active     Observable     Unobservable        
    Markets     Inputs     Inputs        
    (Level 1)     (Level 2)     (Level 3)     Total  
At March 31, 2011
                               
Financial liabilities:
                               
Interest rate swap contract
  $     $ 581     $     $ 581  
 
                               
At June 30, 2010
                               
Financial liabilities:
                               
Interest rate swap contract
  $     $ 889     $     $ 889  
     The fair value of the Company’s interest rate swap was based on quotes from the respective counterparty, which are corroborated by the Company using discounted cash flow calculations based upon forward interest-rate yield curves obtained from independent pricing services.
6. Derivative Financial Instruments
     As discussed in Note 8, “Borrowings”, the Company uses an interest rate swap to manage the economic effect of the variable interest obligation on its outstanding debt under its credit facilities so that the interest payable on the outstanding debt effectively becomes fixed at a certain rate, thereby reducing the impact of future interest rate changes on the Company’s future interest expense. The critical terms of the interest rate swap match those of the outstanding debt, including the notional amounts, interest rate reset dates, maturity dates and underlying market indices. Accordingly, the Company has designated its interest rate swap as a qualifying instrument. The unrealized losses on the interest rate swap are included in accumulated other comprehensive loss and the corresponding fair value payables are included in other liabilities in the Company’s unaudited consolidated balance sheet. The periodic interest settlements, which occur at the same interval as the outstanding debt, are recorded as interest expense.
                 
    March 31,     June 30,  
Balance Sheet Location   2011     2010  
Derivative instruments designated as hedging instruments:
               
Interest rate swap contracts
               
Other liabilities
  $ 581     $ 889  
Effects of Derivative Instruments on Income and Accumulated Other Comprehensive Income (OCI)
                         
    Amount of Gain              
    (Loss) Recognized in     Amount and Location of     Amount and Location of Gain (Loss)  
    Accumulated OCI on     Gain (Loss) Reclassified     Recognized in Income on Derivative  
    Derivative (Effective     from Accumulated OCI into     (Ineffective Portion and Amount  
    Portion)     Income (Effective Portion)     Excluded from Effectiveness Testing)  
    Three Months Ended     Three Months Ended     Three Months Ended  
    March 31, 2011     March 31, 2011     March 31, 2011  
Cash flow hedges:
                       
Interest rate swap
  $ 20     $72 Interest expense   $— Interest and other income
                         
    Amount of Gain              
    (Loss) Recognized in     Amount and Location of     Amount and Location of Gain (Loss)  
    Accumulated OCI on     Gain (Loss) Reclassified     Recognized in Income on Derivative  
    Derivative (Effective     from Accumulated OCI into     (Ineffective Portion and Amount  
    Portion)     Income (Effective Portion)     Excluded from Effectiveness Testing)  
    Three Months Ended     Three Months Ended     Three Months Ended  
    March 31, 2010     March 31, 2010     March 31, 2010  
Cash flow hedges:
                       
Interest rate swap
  $ 72     $173 Interest expense   $— Interest and other income

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    Amount of Gain              
    (Loss) Recognized in     Amount and Location of     Amount and Location of Gain (Loss)  
    Accumulated OCI on     Gain (Loss) Reclassified     Recognized in Income on Derivative  
    Derivative (Effective     from Accumulated OCI into     (Ineffective Portion and Amount  
    Portion)     Income (Effective Portion)     Excluded from Effectiveness Testing)  
    Nine Months Ended     Nine Months Ended     Nine Months Ended  
    March 31, 2011     March 31, 2011     March 31, 2011  
Cash flow hedges:
                       
Interest rate swap
  $ 62     $233 Interest expense   $— Interest and other income
                         
    Amount of Gain              
    (Loss) Recognized in     Amount and Location of     Amount and Location of Gain (Loss)  
    Accumulated OCI on     Gain (Loss) Reclassified     Recognized in Income on Derivative  
    Derivative (Effective     from Accumulated OCI into     (Ineffective Portion and Amount  
    Portion)     Income (Effective Portion)     Excluded from Effectiveness Testing)  
    Nine Months Ended     Nine Months Ended     Nine Months Ended  
    March 31, 2010     March 31, 2010     March 31, 2010  
Cash flow hedges:
                       
Interest rate swap
  $ 295     $686 Interest expense   $— Interest and other income
7. Acquired Intangible Assets Subject to Amortization
     At March 31, 2011 and June 30, 2010, acquired intangible assets subject to amortization consisted of the following:
                                 
    March 31, 2011  
    Weighted-                      
    Average                      
    Useful                      
    Amortization     Gross             Net  
    Period (in     Carrying     Accumulated     Book  
    years)     Amount     Amortization     Value  
Contract-based intangibles
    3     $ 1,768     $ 1,768     $  
Internet respondent database
    7       3,390       2,737       653  
Customer relationships
    10       22,499       10,952       11,547  
Trade names
    16       5,335       2,318       3,017  
 
                         
Total
          $ 32,992     $ 17,775     $ 15,217  
 
                         
                                 
    June 30, 2010  
    Weighted-                      
    Average                      
    Useful                      
    Amortization     Gross             Net  
    Period (in     Carrying     Accumulated     Book  
    years)     Amount     Amortization     Value  
Contract-based intangibles
    3     $ 1,768     $ 1,768     $  
Internet respondent database
    7       3,000       2,187       813  
Customer relationships
    10       21,039       8,677       12,362  
Trade names
    16       5,283       2,076       3,207  
 
                         
Total
          $ 31,090     $ 14,708     $ 16,382  
 
                         
     The gross carrying amount and accumulated amortization of the Company’s acquired intangible assets for the nine months ended March 31, 2011, as well as the related amortization expense, reflect the impact of foreign currency exchange rate fluctuations during the period.

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    For the Three     For the Nine  
    Months Ended     Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Amortization expense
  $ 723     $ 701     $ 2,127     $ 2,106  
 
                       
 
                               
Estimated amortization expense for the fiscal years ending June 30:
                               
2011
  $ 2,611                          
 
                             
2012
  $ 2,912                          
 
                             
2013
  $ 2,743                          
 
                             
2014
  $ 2,306                          
 
                             
2015
  $ 1,727                          
 
                             
2016
  $ 1,603                          
 
                             
Thereafter
  $ 3,442                          
 
                             
8. Borrowings
     On June 30, 2010, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMC”), as Administrative Agent (the “Administrative Agent”) and Issuing Bank (the “Issuing Bank”), and the Lenders party thereto (the “Lenders”). The Amended and Restated Credit Agreement supersedes and replaces the Credit Agreement, dated September 21, 2007, as amended on December 31, 2008, March 6, 2009 and May 6, 2009 (the “Original Credit Agreement”), by and among the Company, JPMC, as Administrative Agent, and the Lenders party thereto. Pursuant to the Amended and Restated Credit Agreement, the Lenders made available certain credit facilities (the “Credit Facilities”) as more fully described below. The Credit Facilities replace existing credit arrangements under the Original Credit Agreement. In accordance with ASC Topic 470, the Company evaluated the change in cash flows, determined that there was a greater than 10% change, and concluded that treatment of the amendment and restatement of its credit agreement as an extinguishment of debt was appropriate.
     On August 27, 2010, the Company entered into Amendment Agreement No. 1 to the Amended and Restated Credit Agreement (the “Amendment”), dated as of August 26, 2010, among the Company, JPMC, as Administrative Agent for itself and the Lenders, and the Lenders parties thereto. The Amendment provides that certain banking services furnished to the Company and its subsidiaries by JPMC and its affiliates, including among others corporate credit cards and treasury management services, constitute obligations under the Amended and Restated Credit Agreement and are collateralized by the security interests in the assets, including among others patents and trademarks, of the Company and its domestic subsidiaries, and the pledges of the outstanding stock and membership interests in the Company’s domestic subsidiaries (but not the pledges of 66% of the outstanding stock and membership interests in first tier foreign subsidiaries of the Company and its domestic subsidiaries).

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     The principal terms of the Original Credit Agreement and Amended and Restated Credit Agreement are described below:
     
     
 
   
Original Credit Agreement   Amended and Restated Credit Agreement
Availability:
   
 
   
$5,000 Revolving Line
 
$5,000 Revolving Line
 
   
   Until certain leverage ratios are achieved, advances require minimum cash balances and no outstanding balance may exist at least 5 consecutive days in every 30-day period
 
   The Revolving Line may be used to back Letters of Credit.
 
   
   The Revolving Line may be used to back Letters of Credit
 
   Requires the Company to maintain a minimum cash balance of the greater of $5,000 and 1.2 times the outstanding amount under the Revolving Line (including outstanding letters of credit)
 
   
Term Loan A – original principal, $12,000
 
New Term Loan – original principal, $15,581
 
   
Term Loan B, as consolidated with Term Loan C – original
principal $22,625
   
 
   
Pricing Grid:
   
 
   
Not applicable
 
See below
 
   
Interest:
   
 
   
Company option:
 
Company option:
 
   
   Base Rate (greater of Federal Funds Rate plus 0.5%, LIBOR plus 1%, or Prime) plus 4%
 
   Base Rate (greater of Federal Funds Rate plus 0.5%, LIBOR plus 1%, or Prime) plus an Applicable Rate based on the pricing grid tied to the Company’s Consolidated Total Leverage Ratio, as described below (the “Pricing Grid”)
 
   
OR
   
 
   
   LIBOR plus 5%
  OR
 
   
 
 
   LIBOR plus an Applicable Rate based on the Pricing Grid
 
   
The Company elected LIBOR and the interest swap agreement, which fixed the LIBOR-based portion of the rate at 5.08%, remained unchanged. With the spread, the effective rate on the Term Loans was 10.08%.
 
The Company elected LIBOR and the interest swap agreement fixes the LIBOR-based portion of the rate at 4.32%. At March 31, 2011, with the spread at 4.50%, the effective rate on the New Term Loan was 8.82%.
 
   
Interest payments are due at end of LIBOR interest periods, but at least quarterly in arrears
 
Interest payments are due at end of LIBOR interest periods, but at least quarterly in arrears
 
   
Letter of credit participation fees equal to 5% of outstanding face amounts
 
Letter of credit fees equal to 5% of outstanding face amounts until the first quarterly adjustment pursuant to the Pricing Grid, and are set under the Pricing Grid thereafter
 
   
Interest Rate Swap:
   
 
   
Fixes the floating LIBOR interest portion of the rates on the amounts outstanding under the Term Loans at 5.08% through September 21, 2012
 
Fixes the floating LIBOR interest portion of the rates on the amounts outstanding under the New Term Loan (reflecting the consolidation of Term Loans A and B into a single New Term Loan) at 4.32% through September 30, 2013

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Original Credit Agreement     Amended and Restated Credit Agreement
 
     
Three-month LIBOR rate received on the swap matches the
LIBOR base rate paid on the Term Loans
   
Three-month LIBOR rate received on the swap matches the
LIBOR base rate paid on the New Term Loan
 
     
Notional amount equal to outstanding amount of the Term Loans
   
Notional amount of $11,985 at March 31, 2011, equal to outstanding amount of the New Term Loan
 
     
Unused Facility Fees:
     
 
     
Fee fixed at 1.0% of unused Revolving Line amount
   
Fee fixed at 0.75% of unused Revolving Line amount
 
     
Principal Payments:
     
 
     
Term Loans – September 21, 2012
   
New Term Loan Maturity – September 30, 2013
 
     
Revolving Line Maturity – July 15, 2010
   
Revolving Line Maturity – September 30, 2013
 
     
Revolving Line – payable at maturity
   
Revolving Line – payable at maturity
 
     
Quarterly Term Loan Payments – $1,731
   
Quarterly New Term Loan Payments – $1,199
 
     
Financial Covenants:
     
 
     
Minimum Consolidated Interest Coverage Ratio ranging over various quarters between 3.00:1.00 and 1.75:1.00
   
Minimum Consolidated Interest Coverage Ratio of at least 3.00:1.00
 
     
Maximum Consolidated Leverage Ratio ranging over various quarters between 6.40:1.00 and 2.00:1.00
   
Maximum Consolidated Leverage Ratio of 2.90:1.00 for quarterly periods ending through December 31, 2010, 2.70:1.00 for the quarterly period ending March 31, 2011, and 2.50:1.00 for quarterly periods ending thereafter.
 
     
Minimum Consolidated Revenue (trailing 3 months) ranging over various quarters between $33,200 and $45,400
   
Minimum cash balance of the greater of $5,000 and 1.2 times the outstanding amount under the Revolving Line (including outstanding letters of credit)
 
     
Collateral:
     
 
     
Secured by all domestic assets and 66% of equity interests in first tier foreign subsidiaries
   
Secured by all domestic assets and 66% of equity interests in first tier foreign subsidiaries
 
     
     The Pricing Grid provides for quarterly adjustment of rates and fees, and is as follows:
                                         
            ABR                     Commitment  
    Consolidated Total     Applicable     Adjusted LIBO     Letter of Credit     Fee  
Pricing Level   Leverage Ratio     Rate     Applicable Rate     Applicable Rate     Rate  
1
    < 1.0       2.50 %     3.50 %     3.50 %     0.50 %
2
  ≥ 1.0 but < 1.5     3.25 %     4.25 %     4.25 %     0.75 %
3
  ≥ 1.5 but < 2.0     3.50 %     4.50 %     4.50 %     0.75 %
4
  ≥ 2.0 but < 2.5     3.75 %     4.75 %     4.75 %     0.75 %
5
    ≥ 2.5       4.00 %     5.00 %     5.00 %     1.00 %
     The Amended and Restated Credit Agreement contains customary representations, default provisions, and affirmative and negative covenants, including among others prohibitions of dividends, sales of certain assets and mergers, and restrictions related to acquisitions, indebtedness, liens, investments, share repurchases and capital expenditures. Among others, the Company may freely transfer assets and incur obligations among its domestic subsidiaries, but limitations apply to transfers of assets and loans to foreign subsidiaries.
     At March 31, 2011, the Company was in compliance with all of the covenants under the Amended and Restated Credit Agreement.

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     At March 31, 2011, the required principal repayments of the term loan under the Amended and Restated Credit Agreement (the “New Term Loan”) for the remaining three months of the fiscal year ending June 30, 2011 and the three succeeding fiscal years are as follows:
         
    Total  
2011
  $ 1,199  
2012
    4,794  
2013
    4,794  
2014
    1,198  
 
     
 
  $ 11,985  
 
     
     At March 31, 2011, the Company had no outstanding borrowings under its revolving line of credit and $354 in outstanding letters of credit. The letters of credit reduce the remaining undrawn portion of the revolving line of credit that is available for future borrowings.
     Interest Rate Swap
     Effective September 21, 2007, the Company entered into an interest rate swap agreement with JPMC, which effectively fixed the floating LIBOR interest portion of the rates on the term loans outstanding under the Original Credit Agreement at 5.08% through September 21, 2012. The three-month LIBOR rate received on the swap matched the LIBOR base rate paid on the term loans since both used three-month LIBOR. The swap had an initial notional value of $34,625, which declined as payments were made on the term loans so that the amount outstanding under those term loans and the notional amount of the swap were always equal.
     As a result of the Amended and Restated Credit Agreement, the Company modified the terms of its interest rate swap to ensure that the notional amount of the swap matches the outstanding amount of the New Term Loan and the three-month LIBOR rate received on the swap matches the LIBOR base rate on the New Term Loan. The term of the interest rate swap was extended through September 30, 2013 to be consistent with the maturity date of the New Term Loan. As a result of these modifications, the Company re-designated its interest rate swap as a cash flow hedge and determined it to be highly effective at that time.
     The interest rate swap had a notional amount of $11,985 at March 31, 2011, which was the same as the outstanding amount of the New Term Loan. The applicable spread referenced in the Pricing Grid is added to the 4.32% rate fixed by the interest rate swap.
     At March 31, 2011, the Company had a liability of $581 in the “Other liabilities” line item of its unaudited consolidated balance sheet to reflect the fair value of the interest rate swap. As the interest rate swap was effective at March 31, 2011, changes in the fair value of the interest rate swap continue to be recorded through other comprehensive income, with any ineffectiveness recorded through interest expense.
9. Stock-Based Compensation
     The following table illustrates the stock-based compensation expense for stock options and restricted stock issued under the Company’s Long-Term Incentive Plans (the “Incentive Plans”), stock options issued to new employees outside the Incentive Plans and shares issued under the Company’s Employee Stock Purchase Plans (“ESPPs”) included in the Company’s unaudited consolidated statements of operations for the three and nine months ended March 31:
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Cost of services
  $ 4     $ 5     $ 14     $ 12  
Selling, general and administrative
    169       198       509       511  
 
                       
 
  $ 173     $ 203     $ 523     $ 523  
 
                       
The Company did not capitalize stock-based compensation expense as part of the cost of an asset for any periods presented.

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     The following table provides a summary of the status of the Company’s employee and director stock options (including options issued under the Incentive Plans and options issued outside the Incentive Plans to new employees) for the nine months ended March 31, 2011:
                 
            Weighted-  
            Average  
            Exercise  
    Shares     Price  
Options outstanding at July 1
    3,873,452     $ 2.38  
Granted
    1,257,500       0.88  
Forfeited
    (714,235 )     2.13  
Exercised
    (39,583 )     0.45  
 
             
Options outstanding at March 31
    4,377,134       2.00  
 
             
     The following table provides a summary of the status of the Company’s employee and director restricted stock awards for the nine months ended March 31, 2011:
                 
            Weighted-  
            Average  
            Fair Value at  
    Shares     Date of Grant  
Restricted shares outstanding at July 1
    73,751     $ 2.09  
Granted
    117,274       0.90  
Forfeited
    (3,351 )     2.63  
Vested
    (97,807 )     1.38  
 
             
Restricted shares outstanding at March 31
    89,867       1.47  
 
             
     At March 31, 2011, there was $1,215 of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements granted under the Incentive Plans, outside the Incentive Plans and under the ESPPs. That expense is expected to be recognized over a weighted-average period of 3.2 years.
10. Income Taxes
     For the three months ended March 31, 2011, the Company recorded an income tax provision of $177, compared with an income tax provision of $121 for the same prior year period. The tax provision for the three months ended March 31, 2011 and 2010 was comprised primarily of tax expense related to income in certain of the Company’s foreign jurisdictions.
     For the nine months ended March 31, 2011, the Company recorded an income tax provision of $12, compared with an income tax benefit of $1,354 for the same prior year period. The tax provision for the nine months ended March 31, 2011 was comprised primarily of tax expense related to income in certain of the Company’s foreign jurisdictions. The tax benefit for the nine months ended March 31, 2010 was principally impacted by the tax benefits related to operating losses in certain of the Company’s foreign jurisdictions and a tax law change, which resulted in an additional tax benefit of $1,103.
     During the three months ended March 31, 2011, the Company concluded that the undistributed earnings of its foreign subsidiaries would no longer be considered permanently reinvested. After assessing the assets of the subsidiaries relative to the specific opportunities for reinvestment, as well as the forecasted uses of cash for both its domestic and foreign operations, the Company concluded that it was prudent to change its indefinite reinvestment assertion to allow for greater flexibility in its cash management. As a result of this change, the Company recorded a deferred tax liability of $2,732 during the three months ended March 31, 2011. However, this change in assertion had no net impact on tax expense for the period, as the deferred tax liability was fully offset by a corresponding decrease to the Company’s U.S. valuation allowance.
     A full valuation allowance continues to be recorded at March 31, 2011 against the Company’s deferred tax assets in the U.S., U.K., and Asia. The Company will continue to assess the realizability of its deferred tax assets in accordance

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with the FASB guidance for income taxes and will adjust the valuation allowances should all or a portion of the deferred tax assets become realizable in the future.
11. Comprehensive Loss
     The following table sets forth the components of the Company’s total comprehensive loss for the three and nine months ended March 31:
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Net loss, as reported
  $ (2,335 )   $ (1,558 )   $ (3,330 )   $ (859 )
Foreign currency translation adjustments
    724       (916 )     2,599       362  
Change in fair value of interest rate swap
    76             237       (27 )
Change in postretirement obligation
    (51 )           (153 )      
Unrealized loss on marketable securities
          (3 )     (1 )     (12 )
 
                       
Total comprehensive loss
  $ (1,586 )   $ (2,477 )   $ (648 )   $ (536 )
 
                       
12. Net Loss Per Share
     Basic net loss per share is computed by dividing net loss by the weighted-average number of shares outstanding for the period. When the impact of stock options or other stock-based compensation is anti-dilutive, as they are when there is a net loss, they are excluded from the calculation.
     The following table sets forth the reconciliation of the basic and diluted net loss per share computations for the three and nine months ended March 31:
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Numerator:
                               
Net loss used for calculating basic and diluted net loss per share of stock
  $ (2,335 )   $ (1,558 )   $ (3,330 )   $ (859 )
 
                       
 
                               
Denominator:
                               
Weighted average number of shares used in the calculation of basic net loss per share
    54,658,105       54,247,286       54,516,793       54,027,408  
Dilutive effect of outstanding stock options and restricted stock
                       
 
                       
Shares used in the calculation of diluted net loss per share
    54,658,105       54,247,286       54,516,793       54,027,408  
 
                       
 
                               
Net loss per share:
                               
Basic and diluted
  $ (0.04 )   $ (0.03 )   $ (0.06 )   $ (0.02 )
 
                       
     Unexercised stock options to purchase 4,467,001 and 3,905,366 shares of the Company’s stock for the three and nine months ended March 31, 2011 and 2010, respectively, at weighted-average prices per share of $2.12 and $2.60, respectively, were not included in the computations of diluted net loss per share because their impact was anti-dilutive during the respective periods.
13. Enterprise-Wide Disclosures
     The Company is comprised principally of operations in North America, Europe, and Asia. Non-U.S. market research is comprised of operations in United Kingdom, Canada, France, Germany, Hong Kong, and Singapore. The Company also maintains a representative office in mainland China. There were no intercompany transactions that materially affected the financial statements, and all intercompany sales have been eliminated upon consolidation.

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     The Company’s business model for offering custom market research is consistent across the geographic regions in which it operates. Geographic management facilitates local execution of the Company’s global strategies. The Company maintains global leaders with responsibility across all geographic regions for the majority of its critical business processes, and the most significant performance evaluations and resource allocations made by the Company’s chief operating decision-maker are made on a global basis. Accordingly, the Company has concluded that it has one reportable segment.
     The Company has prepared the financial results for geographic information on a basis that is consistent with the manner in which management internally disaggregates information to assist in making internal operating decisions. The Company has allocated common expenses among these geographic regions differently than it would for stand-alone information prepared in accordance with GAAP. Geographic operating income (loss) may not be consistent with measures used by other companies.
     Geographic information for the periods presented herein is as follows:
                                 
    Three Months Ended     Nine Months Ended  
    March 31,     March 31,  
    2011     2010     2011     2010  
Revenue from services
                               
United States
  $ 21,557     $ 22,568     $ 68,137     $ 72,199  
United Kingdom
    4,231       6,927       17,072       20,283  
Canada
    6,067       5,578       16,752       15,247  
Other European countries
    5,134       4,634       14,524       13,516  
Asia
    1,098       1,496       3,556       3,522  
 
                       
Total revenue from services
  $ 38,087     $ 41,203     $ 120,041     $ 124,767  
 
                       
 
                               
Operating income (loss)
                               
United States
  $ (1,167 )   $ (1,065 )   $ 251     $ 1,471  
United Kingdom
    (1,453 )     (99 )     (2,583 )     (403 )
Canada
    268       (331 )     (1,126 )     (1,848 )
Other European countries
    533       478       1,211       962  
Asia
    (67 )     74       (36 )     (892 )
 
                       
Total operating loss
  $ (1,886 )   $ (943 )   $ (2,283 )   $ (710 )
 
                       
                 
    At March 31,     At June 30,  
    2011     2010  
Long-lived assets
               
United States
  $ 1,809     $ 2,964  
United Kingdom
    1,149       1,300  
Canada
    610       1,093  
Other European countries
    230       210  
Asia
    166       59  
 
           
Total long-lived assets
  $ 3,964     $ 5,626  
 
           
 
               
Deferred tax assets (liabilities)
               
United States
  $     $  
United Kingdom
           
Canada
    (1,597 )     (1,709 )
Other European countries
    (219 )     (307 )
Asia
           
 
           
Total deferred tax assets (liabilities)
  $ (1,816 )   $ (2,016 )
 
           

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14. Commitments and Contingencies
     The Company has several non-cancelable operating leases for office space and equipment. There were no material changes to the financial obligations for such leases during the nine months ended March 31, 2011 from those disclosed in Note 19, “Commitments and Contingencies,” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010.
15. Legal Proceedings
     In the normal course of business, the Company is at times subject to pending and threatened legal actions and proceedings. After reviewing any pending and threatened actions and proceedings with legal counsel, management does not expect the outcome of such actions or proceedings to have a material adverse effect on the Company’s business, financial condition or results of operations.
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The discussion in this Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding expectations, beliefs, plans, objectives, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by terminology such as, “may”, “should”, “expects”, “plans”, “anticipates”, “feel”, “believes”, “estimates”, “predicts”, “potential”, “continue”, “consider”, “possibility”, or the negative of these terms or other comparable terminology. All forward-looking statements included in this document are based on the information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statement. Actual results could differ materially from the results discussed herein. Factors that might cause or contribute to such differences include but are not limited to, those discussed in the Risk Factors section set forth in reports or documents the Company files from time to time with the Securities and Exchange Commission (“SEC”), such as its Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed by the Company with the SEC on August 31, 2010. Risks and uncertainties also include the Company’s ability to sustain and grow its revenue base, the Company’s ability to maintain and improve cost efficient operations, quarterly variations in financial results, actions of competitors, the Company’s ability to develop and maintain products and services attractive to the market, and uncertainties surrounding continued compliance with certain Nasdaq listing requirements.
Note: Amounts shown below are in thousands of U.S. Dollars, unless otherwise noted. Also, references herein to “we”, “our”, “us”, “its”, the “Company” or “Harris Interactive” refer to Harris Interactive Inc. and its subsidiaries, unless the context specifically requires otherwise.
Overview
     Harris Interactive Inc. is a leading global custom market research firm that uses web-based, telephone and other research methodologies to provide clients with information about the views, behaviors and attitudes of people worldwide.
     For the three months ended March 31, 2011:
    Revenue from services was $38,087, down 7.6% from the same prior year period. Excluding foreign currency exchange rate differences, revenue was down 9.2% from last fiscal year’s third quarter. The decrease was primarily due to revenue declines in the U.K. and U.S.
 
    Bookings were down 13.1% compared with the same prior year period, excluding foreign exchange rate differences. This decrease was driven by bookings declines in Canada, U.S., U.K. and Asia.
 
    Our operating loss was $1,886, compared with an operating loss of $943 for the same prior year period. Operating loss for the three months ended March 31, 2011 included $448 in restructuring and other charges,

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      compared with $92 for the same prior year period. The increase in our operating loss was caused mainly by the revenue decline for the quarter.
 
    We had $12,500 in cash at March 31, 2011, down from $14,158 at June 30, 2010.
 
    Our outstanding debt at March 31, 2011 was $11,985, down from $15,581 at June 30, 2010 as a result of quarterly principal payments made during fiscal 2011.
Critical Accounting Policies and Estimates
     The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The most significant of these areas involving difficult or complex judgments made by management with respect to the preparation of our consolidated financial statements in fiscal 2011 include:
    Revenue recognition,
 
    Impairment of other intangible assets,
 
    Income taxes,
 
    Stock-based compensation,
 
    HIpoints loyalty program, and
 
    Contingencies and other accruals.
     In each situation, management is required to make estimates about the effects of events that are inherently uncertain.
     During the nine months ended March 31, 2011, there were no changes to the items that we disclosed as our critical accounting policies and estimates in management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed by us with the SEC on August 31, 2010.

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Results of Operations
     Three Months Ended March 31, 2011 Versus Three Months Ended March 31, 2010
     The following table sets forth the results of our operations, expressed both as a dollar amount and as a percentage of revenue from services, for the three months ended March 31, 2011 and 2010, respectively:
                                 
    2011     %     2010     %  
Revenue from services
  $ 38,087       100.0 %   $ 41,203       100.0 %
 
                               
Operating expenses:
                               
Cost of services
    25,138       66.0       26,569       64.5  
Selling, general and administrative
    12,870       33.8       13,829       33.6  
Depreciation and amortization
    1,517       4.0       1,656       4.0  
Restructuring and other charges
    448       1.2       92       0.2  
 
                       
Operating loss
    (1,886 )     (5.0 )     (943 )     (2.3 )
Interest and other income
    (13 )     (0.0 )     (30 )     (0.1 )
Interest expense
    285       0.7       524       1.3  
 
                       
Loss from operations before taxes
    (2,158 )     (5.7 )     (1,437 )     (3.5 )
 
                       
Provision for income taxes
    177       0.5       121       0.3  
 
                       
Net loss
  $ (2,335 )     (6.1 )   $ (1,558 )     (3.8 )
 
                       
     Revenue from services. Revenue from services decreased by $3,116, or 7.6%, to $38,087 for the three months ended March 31, 2011 compared with the same prior year period. Excluding foreign currency exchange rate differences, revenue from services for the three months ended March 31, 2011 decreased by 9.2% compared with the same prior year period. As more fully described below, revenue from services was impacted by several factors.
     North American revenue decreased by $522 to $27,624 for the three months ended March 31, 2011 compared with the same prior year period, a decrease of 1.9%. By country, North American revenue for the three months ended March 31, 2011 was comprised of:
    Revenue from U.S. operations of $21,557, down 4.5% compared with $22,568 for the same prior year period. This decline was driven mainly by a 16.4% decline in our Healthcare sector and an 8.1% decline in our Technology, Media & Telecom sector. The decline in our Healthcare sector was due primarily to reduced spending at certain key clients, along with the continued revenue impact of bookings decreases experienced during the first nine months of fiscal 2011. The decline in our Technology, Media and Telecom sector was driven mainly by the loss of a large tracking study. These declines were offset partially by a 15.0% increase in our Business and Industrial sector, due primarily to increased spending on stakeholder and reputation solutions by existing clients in the sector.
 
    Revenue from Canadian operations of $6,067, up 8.8% compared with $5,578 for the same prior year period. In local currency (Canadian Dollar), Canadian revenue for the three months ended March 31, 2011 increased by 2.1% compared with the same prior year period. The increase was mainly attributable to revenue from work on a large tracking study that was won during the second quarter of fiscal 2011.
     European revenue decreased by $2,195 to $9,365 for the three months ended March 31, 2011 compared with the same prior year period, a decrease of 19.0%. By country, European revenue for the three months ended March 31, 2011 was comprised of:
    Revenue from U.K. operations of $4,231, down 38.9% compared with $6,927 for the same prior year period. In local currency (British Pound), U.K. revenue for the three months ended March 31, 2011 decreased by 42.4% compared with the same prior year period. The decrease was due primarily to the revenue impact of a large tracking study that was not renewed during the second quarter of fiscal 2011, as well as challenging market conditions across several industry sectors. The loss of this tracking study will have a $7.7 million negative impact on annual U.K. revenue.

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    Revenue from French operations of $3,549, up 14.7% compared with $3,095 for the same prior year period. In local currency (Euro), French revenue for the three months ended March 31, 2011 increased by 13.3% compared with the same prior year period. The increase was due primarily to continued success in selling to new and existing clients across several industry sectors.
 
    Revenue from German operations of $1,585, up 3.1% compared with $1,538 for the same prior year period. In local currency (Euro), German revenue for the three months ended March 31, 2011 increased by 2.8% compared with the same prior year period. Similar to our French operations, the increase was driven by continued success in selling to new and existing clients across several industry sectors.
     Asian revenue decreased by $398 to $1,098 for the three months ended March 31, 2011, a decrease of 26.6% compared with the same prior year period. The impact of the foreign exchange rate on Asian revenue for the three months ended March 31, 2011 was inconsequential compared with the same prior year period. The decrease in Asian revenue was due primarily to the revenue impact of bookings declines in Asia during the first nine months of fiscal 2011.
     Cost of services. Cost of services was $25,138 or 66.0% of total revenue for the three months ended March 31, 2011, compared with 26,569 or 64.5% of total revenue for the same prior year period. The increase in cost of services as a percentage of total revenue for the three months ended March 31, 2011 was impacted by the differing types of custom research projects performed during the quarter when compared with the same prior year period.
     Selling, general and administrative. Selling, general and administrative expense for the three months ended March 31, 2011 was $12,870 or 33.8% of total revenue, compared with $13,829 or 33.6% of total revenue for the same prior year period. The decrease in selling, general and administrative expense was principally impacted by the following:
    a $341 decrease in payroll-related expense, driven primarily by our continued focus on managing headcount relative to the needs of our business; and
 
    a $135 decrease in facilities-related expense, driven primarily by space reductions taken during fiscal 2010;
     The remainder of the decrease in selling, general and administrative expense was the result of decreases across a number of other operating expense categories because of our continued efforts to properly align our cost structure with the needs of our business.
     Depreciation and amortization. Depreciation and amortization was $1,517 or 4.0% of total revenue for the three months ended March 31, 2011, compared with $1,656 or 4.0% of total revenue for the same prior year period. The decrease in depreciation and amortization expense for the three months ended March 31, 2011 when compared with the same prior year period was the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2010 and the first nine months of fiscal 2011, combined with decreased capital spending as part of our continued focus on controlling costs.
     Restructuring and other charges. Restructuring and other charges were $448 or 1.2% of total revenue for the three months ended March 31, 2011, compared with $92 or less than 1% of total revenue for the same prior year period. Other charges for the three months ended March 31, 2011 consisted of $270 in severance costs incurred in connection with headcount reductions undertaken by our U.S. operations, as well as costs associated with reorganizing the operational structure of our U.K. operations. Other charges for the three months ended March 31, 2010 consisted primarily of costs associated with reorganizing the operational structure of our Asian operations. There were no restructuring activities during the three months ended March 31, 2011 or 2010.
     Interest and other income. Interest and other income was $13 or less than 1% of total revenue for the three months ended March 31, 2011, compared with $30 or less than 1% of total revenue for the same prior year period. The decrease in interest and other income was principally the result of a lower average cash balance during the three months ended March 31, 2011 when compared with the same prior year period.
     Interest expense. Interest expense was $285 or less than 1% of total revenue for the three months ended March 31, 2011, compared with $524 or 1.3% of total revenue for the same prior year period. Interest expense for the three months

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ended March 31, 2011 reflects the impact of the decline in our outstanding debt as we continue to make required principal payments, as well as the decline in our effective interest rate as a result of amending our credit agreement in June 2010.
     Income taxes. We recorded an income tax provision of $177 for the three months ended March 31, 2011, compared with an income tax provision of $121 for the same prior year period. The tax provision for the three months ended March 31, 2011 and 2010 was comprised primarily of tax expense related to income in certain of our foreign jurisdictions. Based upon management’s assessment of the realizability of our deferred tax assets in the U.S., U.K., and Asia, a full valuation allowance continued to be recorded at March 31, 2011.
     During the three months ended March 31, 2011, we concluded that the undistributed earnings of our foreign subsidiaries would no longer be considered permanently reinvested. After assessing the assets of the subsidiaries relative to the specific opportunities for reinvestment, as well as the forecasted uses of cash for both our domestic and foreign operations, we concluded that it was prudent to change our indefinite reinvestment assertion to allow for greater flexibility in our cash management. As a result of this change, we recorded a deferred tax liability of $2,732 during the three months ended March 31, 2011. However, this change in assertion had no net impact on tax expense for the period, as the deferred tax liability was fully offset by a corresponding decrease to our U.S. valuation allowance.
     Nine Months Ended March 31, 2011 Versus Nine Months Ended March 31, 2010
     The following table sets forth the results of our operations, expressed both as a dollar amount and as a percentage of revenue from services, for the nine months ended March 31, 2011 and 2010, respectively:
                                 
    2011     %     2010     %  
Revenue from services
  $ 120,041       100.0 %   $ 124,767       100.0 %
 
                               
Operating expenses:
                               
Cost of services
    78,892       65.7       79,083       63.4  
Selling, general and administrative
    37,745       31.4       40,641       32.6  
Depreciation and amortization
    4,560       3.8       5,130       4.1  
Restructuring and other charges
    1,127       0.9       623       0.5  
 
                       
Operating loss
    (2,283 )     (1.9 )     (710 )     (0.6 )
Interest and other income
    (35 )     (0.0 )     (57 )     (0.0 )
Interest expense
    1,070       0.9       1,560       1.3  
 
                       
Loss from operations before taxes
    (3,318 )     (2.8 )     (2,213 )     (1.8 )
 
                       
Provision (benefit) for income taxes
    12       0.0       (1,354 )     (1.1 )
 
                       
Net loss
  $ (3,330 )     (2.8 )   $ (859 )     (0.7 )
 
                       
     Revenue from services. Revenue from services decreased by $4,726, or 3.8%, to $120,041 for the nine months ended March 31, 2011 compared with the same prior year. Excluding foreign currency exchange rate differences, revenue from services for the nine months ended March 31, 2011 decreased by 3.5% compared with the same prior year period. As more fully described below, revenue from services was impacted by several factors.
     North American revenue decreased by $2,556 to $84,889 for the nine months ended March 31, 2011 compared with the same prior year period, a decrease of 2.9%. By country, North American revenue for the nine months ended March 31, 2011 was comprised of:
    Revenue from U.S. operations of $68,137, down 5.6% compared with $72,199 for the same prior year period. This revenue decline was driven mainly by a 14.7% decline in our Healthcare sector, an 8.8% decline in our Financial Services sector, and an 8.2% decline in our Public Affairs and Policy sector. The decline in our Healthcare sector was due primarily to reduced spending at certain key clients, along with the continued revenue impact of bookings decreases experienced during the first nine months of fiscal 2011. The decline in our Financial Services sector was due primarily to the loss of a large tracking study in the prior year, while the decline in our Public Affairs and Policy sector was due primarily to lower spending by association, non-profit, and government clients. These declines were offset partially by a 5.6% increase in our Technology, Media & Telecom sector, a 9.5% increase in our Service Bureau Research business, and a 3.8% increase in our Business and Industrial sector.

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    Revenue from Canadian operations of $16,752, up 9.9% compared with $15,247 for the same prior year period. On a local currency basis (Canadian Dollar), Canadian revenue for the nine months ended March 31, 2011 increased by 4.4% compared with the same prior year period. The increase was mainly attributable to revenue from work on a large tracking study that was won during the second quarter of fiscal 2011.
     European revenue decreased by $2,203 to $31,596 for the nine months ended March 31, 2011 compared with the same prior year period, a decrease of 6.5%. By country, European revenue for the nine months ended March 31, 2011 was comprised of:
    Revenue from U.K. operations of $17,072, down 15.8% compared with $20,283 for the same prior year period. In local currency (British Pound), U.K. revenue for the nine months ended March 31, 2011 was down 14.8% compared with the same prior year period. The decrease was due primarily to the revenue impact of a large tracking study that was not renewed during the second quarter of fiscal 2011, as well as challenging market conditions across several industry sectors. The loss of this tracking study will have a $7.7 million negative impact on annual U.K. revenue.
 
    Revenue from French operations of $9,126, up 2.5% compared with $8,901 for the same prior year period. In local currency (Euro), French revenue for the nine months ended March 31, 2011 increased by 8.3% compared with the same prior year period. The increase was due primarily to continued success in selling to new and existing clients across several industry sectors.
 
    Revenue from German operations of $5,398, up 17.0% compared with $4,615 for the same prior year period. In local currency (Euro), German revenue for the nine months ended March 31, 2011 increased by 24.3% compared with the same prior year period. Similar to our French operations, the increase was driven by continued success in selling to new and existing clients across several industry sectors.
     Asian revenue increased by $34 to $3,556 for the nine months ended March 31, 2011, an increase of 0.9% compared with the same prior year period. The impact of the foreign exchange rate on Asian revenue for the nine months ended March 31, 2011 was inconsequential compared with the same prior year period.
     Cost of services. Cost of services was $78,892 or 65.7% of total revenue for the nine months ended March 31, 2011, compared with $79,083 or 63.4% of total revenue for the same prior year period. The increase in cost of services as a percentage of total revenue for the nine months ended March 31, 2011 was impacted by the differing types of custom research projects performed during such period when compared with the same prior year period.
     Selling, general and administrative. Selling, general and administrative expense for the nine months ended March 31, 2011 was $37,745 or 31.4% of total revenue, compared with $40,641 or 32.6% of total revenue for the same prior year period. The decrease in selling, general and administrative expense was principally impacted by the following:
    a $635 decrease in payroll-related expense, driven primarily by our continued focus on managing headcount relative to the needs of our business;
 
    a $607 decrease in facilities-related expense, driven primarily by space reductions taken during fiscal 2010;
 
    a $238 decrease in travel expense, driven primarily by our continued monitoring of travel activity; and
 
    a $217 decrease in legal expenses, driven primarily by improved operational efficiency of our legal function.
     The remainder of the decrease in selling, general and administrative expense was the result of decreases across a number of other operating expense categories because of our continued efforts to properly align our cost structure with the needs of our business.
     Depreciation and amortization. Depreciation and amortization was $4,560 or 3.8% of total revenue for the nine months ended March 31, 2011, compared with $5,130 or 4.1% of total revenue for the same prior year period. The

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decrease in depreciation and amortization expense for the nine months ended March 31, 2011 when compared with the same prior year period was the result of fixed and intangible assets that became fully depreciated or amortized during fiscal 2010 and the first nine months of fiscal 2011 combined with decreased capital spending as part of our overall focus on controlling costs.
     Restructuring and other charges. Restructuring and other charges were $1,127 or less than 1% of total revenue for the nine months ended March 31, 2011, compared with $623 or less than 1% of total revenue for the same prior year period. Other charges for the nine months ended March 31, 2011 consisted of $270 in severance costs incurred in connection with headcount reductions undertaken by our U.S. operations and $347 in statutorily mandated severance costs incurred in connection with headcount reductions undertaken by our U.K. operations. It also included costs associated with reorganizing the operational structure of our Canadian and U.K. operations. Other charges for the nine months ended March 31, 2010 included additional legal fees associated with the amendment of our credit agreement during fiscal 2009, costs incurred to close our telephone-based data collection center in Brentford, United Kingdom, and costs associated with reorganizing the operational structure of our Asian operations. There were no restructuring activities during the nine months ended March 31, 2011 or 2010.
     Interest and other income. Interest and other income was $35 or less than 1% of total revenue for the nine months ended March 31, 2011, compared with $57 or less than 1% of total revenue for the same prior year period. The decrease in interest and other income was principally the result of a lower average cash balance during the nine months ended March 31, 2011 when compared with the same prior year period.
     Interest expense. Interest expense was $1,070 or 0.9% of total revenue for the nine months ended March 31, 2011, compared with $1,560 or 1.3% of total revenue for the same prior year period. Interest expense for the nine months ended March 31, 2011 reflects the impact of the decline in our outstanding debt as we continue to make required principal payments, as well as the decline in our effective interest rate as a result of amending our credit agreement in June 2010.
     Income taxes. We recorded an income tax provision of $12 for the nine months ended March 31, 2011, compared with an income tax benefit of $1,354 for the same prior year period. The tax provision for the nine months ended March 31, 2011 was comprised primarily of tax expense related to income in certain of our foreign jurisdictions. The tax benefit for the nine months ended March 31, 2010 was principally impacted by the tax benefits related to operating losses in certain of our foreign jurisdictions and a tax law change which resulted in an additional tax benefit of $1,103. Based upon management’s assessment of the realizability of our deferred tax assets in the U.S., U.K., and Asia, a full valuation allowance continued to be recorded at March 31, 2011.
     During the three months ended March 31, 2011, we concluded that the undistributed earnings of our foreign subsidiaries would no longer be considered permanently reinvested. After assessing the assets of the subsidiaries relative to the specific opportunities for reinvestment, as well as the forecasted uses of cash for both our domestic and foreign operations, we concluded that it was prudent to change our indefinite reinvestment assertion to allow for greater flexibility in our cash management. As a result of this change, we recorded a deferred tax liability of $2,732 during the three months ended March 31, 2011. However, this change in assertion had no net impact on tax expense for the period, as the deferred tax liability was fully offset by a corresponding decrease to our U.S. valuation allowance.
Significant Factors Affecting our Performance
     Key Operating Metrics
     We closely track certain key operating metrics, specifically bookings and secured revenue. These key operating metrics enable us to measure the current and forecasted performance of our business relative to historical trends.

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     Key operating metrics for the three months ended March 31, 2011 and the four preceding fiscal quarters were as follows (U.S. Dollar amounts in millions):
                                         
    Q3     Q4     Q1     Q2     Q3  
    FY2010     FY2010     FY2011     FY2011     FY2011  
Bookings
  $ 44.9     $ 35.7     $ 35.4     $ 55.3     $ 40.9  
Secured revenue
  $ 52.9     $ 46.6     $ 45.0     $ 55.4     $ 56.5  
     Additional information regarding each of the key operating metrics noted above is as follows:
     Bookings are defined as the contract value of revenue-generating projects that are anticipated to take place during the next four fiscal quarters for which a firm client commitment was received during the current period, less any adjustments to prior period bookings due to contract value adjustments or project cancellations during the current period.
     Bookings for the three months ended March 31, 2011 were $40.9 million, a decrease of 8.9% compared with $44.9 million for the same prior year period. Excluding foreign currency exchange rate differences, bookings were down 13.1% compared with the same prior year period. Bookings in local currency for the three months ended March 31, 2011 compared with the same prior year period were principally impacted by the following:
    U.S. bookings decreased 6.2%, driven mainly by declines in our Technology, Media and Telecom, Financial Services, and Healthcare sectors.
 
    U.K. bookings decreased 29.2%, driven primarily by challenging market conditions encountered across all industry sectors.
 
    French bookings increased 16.9%, due primarily to continued success in maintaining and growing tracking studies with existing clients while also selling increased levels of ad-hoc work to both new and existing clients.
 
    German bookings increased 78.5%, due primarily to increased sales to both new and existing clients.
 
    Canadian bookings were down 37.0%, driven primarily by the early booking of two large tracking studies during the second quarter of fiscal 2011. These same tracking studies booked during the third quarter of fiscal 2010.
 
    Asian bookings decreased 23.5%, driven primarily by our need to rebuild the Asian sales team.
     Monitoring bookings enhances our ability to forecast long-term revenue and to measure the effectiveness of our marketing and sales initiatives. However, we also are mindful that bookings often vary significantly from quarter to quarter. Information concerning our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenue over time. There are no third-party standards or requirements governing the calculation of bookings. New bookings involve estimates and judgments regarding new contracts and renewals, as well as extensions and additions to existing contracts. Subsequent cancellations, suspensions and other matters may affect the amount of bookings previously reported.
     Secured Revenue (formerly referred to as ending sales backlog) is defined as prior period secured revenue plus current period bookings, less revenue recognized on outstanding projects as of the end of the period.
     Secured revenue helps us manage our future staffing levels more accurately and is also an indicator of the effectiveness of our marketing and sales initiatives. Based on our experience from prior years, projects included in secured revenue at the end of a fiscal period generally convert to revenue from services during the following twelve months, based on our experience from prior years.
     Secured revenue for the three months ended March 31, 2011 was $56.5 million, an increase of 6.9% compared with $52.9 million for the same prior year period. Excluding foreign currency exchange rate differences, secured revenue was up 4.8% compared with the same prior year period. The increase in secured revenue was due primarily to significant

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sales growth in Canada during the second quarter of fiscal 2011, as well as strong sales performance throughout the fiscal year in France and Germany.
Financial Condition, Liquidity and Capital Resources
     Liquidity and Capital Resources
     At March 31, 2011, we had cash of $12,500, compared with $14,158 at June 30, 2010. Available sources of cash to support known or reasonably likely cash requirements over the next 12 months include cash on hand, additional cash that may be generated from our operations, and funds to the extent available through our credit facilities discussed in Note 8, “Borrowings,” to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q. Under our credit agreement, we must maintain a minimum cash balance of the greater of $5,000 and 1.2 times the amount of borrowings we make under the revolving line that is part of our credit facilities (including outstanding letters of credit). While we believe that our available sources of cash, including funds available through our revolving line and cash from operations, will support known or reasonably likely cash requirements over the next 12 months, including quarterly principal payments of $1,199 and interest payments due under our credit agreement, our ability to generate cash from our operations is dependent upon our ability to profitably generate revenue, which requires that we continually develop new business, both for growth and to replace completed projects. Although work for no one client constitutes more than 10% of our revenue, we have had to find significant amounts of replacement and additional revenue as client relationships and work for continuing clients change and will likely have to continue to do so in the future. Our ability to profitably generate revenue depends not only on execution of our business plans, but also on general market factors outside of our control. As many of our clients treat all or a portion of their market research expenditures as discretionary, our ability to profitably generate revenue is adversely impacted whenever there are adverse macroeconomic conditions in the markets we serve.
     Our capital requirements depend on numerous factors, including but not limited to, market acceptance of our products and services, the resources we allocate to the continuing development of new products and services, our technology infrastructure and online panel, and the marketing and selling of our products and services. We are able to control or defer certain capital and other expenditures in order to help preserve cash if necessary. During the fourth quarter of fiscal 2011, we expect to incur capital expenditures at a rate consistent with the first nine months of fiscal 2011.
     The following table sets forth net cash provided by operating activities, net cash provided by (used in) investing activities, and net cash used in financing activities, for the nine months ended March 31:
                 
    2011     2010  
Net cash provided by operating activities
  $ 1,100     $ 1,967  
Net cash provided by (used in) investing activities
    (577 )     20  
Net cash used in financing activities
    (3,439 )     (5,078 )
     Net cash provided by operating activities. Net cash provided by operating activities was $1,100 for the nine months ended March 31, 2011, compared with $1,967 for the same prior year period. The decrease in cash provided by operating activities for the nine months ended March 31, 2011 compared with the same prior year period was principally the result of an increase in the current year net loss compared with the same prior year period.
     Net cash provided by (used in) investing activities. Net cash used in investing activities was $577 for the nine months ended March 31, 2011, compared with $20 provided by investing activities for the same prior year period. Investing activities for the nine months ended March 31, 2010 included capital expenditures, which were offset by $500 in proceeds from the sale and maturities of marketable securities. Investing activities for the nine months ended March 31, 2011 consisted solely of capital expenditures.
     Net cash used in financing activities. Net cash used in financing activities was $3,439 for the nine months ended March 31, 2011, compared with $5,078 for the same prior year period. Cash used during both periods was for required principal payments on our outstanding debt, offset by cash received from the purchase of shares by employees through our Employee Stock Purchase Plan and exercise of stock options. The required quarterly principal payments on our outstanding debt decreased from $1,731 to $1,199 as a result of amending our credit agreement in June 2010.

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Credit Facilities
     The principal terms of our credit agreement are described in Note 8, “Borrowings,” to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
     At March 31, 2011, we were in compliance with all of the covenants under our credit agreement. For the three months ended March 31, 2011, our financial covenants were:
                 
Covenant   Required     Actual  
Minimum Consolidated Interest Coverage Ratio
    3.00:1.00       4.23:1.00  
Maximum Consolidated Leverage Ratio
    2.70:1.00       1.98:1.00  
Interest Rate Swap
     The principal terms of our interest rate swap are described in Note 8, “Borrowings,” to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements and Contractual Obligations
     At March 31, 2011, we did not have any transaction, agreement, or other contractual arrangement constituting an “off-balance sheet arrangement” as defined in Item 303(a)(4) of Regulation S-K.
     There have been no material changes outside the ordinary course of business during the three months ended March 31, 2011 to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed by us with the SEC on August 31, 2010.
Recent Accounting Pronouncements
     See Note 3, “Recent Accounting Pronouncements”, to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q for a discussion of the impact of recently issued accounting pronouncements on our unaudited consolidated financial statements at March 31, 2011 and for the nine months then ended, as well as the expected impact on our consolidated financial statements for future periods.
Item 3 — Quantitative and Qualitative Disclosures about Market Risk
     We have two kinds of market risk exposures, interest rate exposure and foreign currency exposure. We have no market risk sensitive instruments entered into for trading purposes.
     We continuously review any cash equivalents and marketable securities held by us and do not believe that our holdings have a material liquidity risk under current market conditions.
Interest Rate Exposure
     At March 31, 2011, we had outstanding debt under our credit facilities of $11,985. The debt matures September 30, 2013 and bears interest at the floating adjusted LIBOR plus an applicable margin. Our interest rate swap fixes the floating adjusted LIBOR portion of the interest rate at 4.32% through September 30, 2013. The additional applicable margin is determined quarterly using a pricing grid based on our consolidated total leverage ratio. At March 31, 2011, the additional applicable margin was 4.50%, resulting in an effective interest rate of 8.82% on our outstanding debt.
     Using a sensitivity analysis based on a hypothetical 1% increase in prevailing interest rates over a 12-month period, each 1% increase from prevailing interest rates at March 31, 2011 would have increased the fair value of the interest rate swap by $182 and each 1% decrease from prevailing interest rates at March 31, 2011 would have decreased the fair value of the interest rate swap by $194.

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Foreign Currency Exposure
     As a result of operating in foreign markets, our financial results could be affected by significant changes in foreign currency exchange rates. We have international sales and operations in North America, Europe, and Asia. Therefore, we are subject to foreign currency rate exposure. Non-U.S. transactions are denominated in the functional currencies of the respective countries in which our foreign subsidiaries reside. Our consolidated assets and liabilities are translated into U.S. Dollars at the applicable exchange rates in effect as of the balance sheet date. Consolidated income and expense items are translated into U.S. Dollars at the average exchange rates for each period presented. Accumulated net translation adjustments are recorded in the accumulated other comprehensive income component of stockholders’ equity. We measure our risk related to foreign currency rate exposure on two levels, the first being the impact of operating results on the consolidation of foreign subsidiaries that are denominated in the functional currencies of their home countries, and the second being the extent to which we have instruments denominated in foreign currencies.
     Foreign exchange translation gains and losses are included in our results of operations since we consolidate the results of our international operations, which are denominated in each country’s functional currency, with our U.S. results. The impact of translation gains or losses on net income from consolidating foreign subsidiaries was not material for the periods presented. We have historically had low exposure to changes in foreign currency exchange rates upon consolidating the results of our foreign subsidiaries with our U.S. results due to the size of our foreign operations in comparison to our consolidated operations. However, if the operating profits of our international operations increase as a percentage of our consolidated operations, our exposure to the appreciation or depreciation in the U.S. Dollar could have a more significant impact on our net income and cash flows. Thus, we evaluate our exposure to foreign currency fluctuation risk on an ongoing basis.
     Since our foreign operations are conducted using foreign currencies, we bear additional risk of fluctuations in exchange rates because of instruments denominated in foreign currencies. We have historically had low exposure to changes in foreign currency exchange rates with regard to instruments denominated in foreign currencies, given the amount and short-term nature of the maturity of these instruments. The carrying values of financial instruments denominated in foreign currencies, including cash, cash equivalents, accounts receivable and accounts payable, approximate fair value because of the short-term nature of the maturity of these instruments.
     We performed a sensitivity analysis at March 31, 2011. Holding all other variables constant, we have determined that the impact of a near-term 10% appreciation or depreciation of the U.S. Dollar would have an insignificant effect on our financial condition, results of operations and cash flows.
Item 4 — Controls and Procedures
     Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of March 31, 2011 (the end of the period covered by this Quarterly Report on Form 10-Q) were effective. Further, there have been no changes in our internal control over financial reporting identified in connection with management’s evaluation thereof during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: Other Information
Item 1 — Legal Proceedings
     In the normal course of business, we are at times subject to pending and threatened legal actions and proceedings. After reviewing with legal counsel any pending and threatened actions and proceedings, management does not expect the outcome of such actions or proceedings to have a material adverse effect on our business, financial condition or results of operations.

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Item 1A — Risk Factors
     In addition to the risk factors related to our business as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed by us with the SEC on August 31, 2010, our business has the additional risk described below.
     Our business may be harmed if we cannot maintain our listing on the Nasdaq Global Select Stock Market.
     Variations in our operating results may cause our stock price to fluctuate. Our quarterly operating results have in the past, and may in the future, fluctuate significantly and we may incur losses in any given quarter. Our future results of operations may fall below the expectations of public market analysts and investors. If this happens, the price of our common stock would likely decline. Other factors, such as general market conditions and investor’s perceptions of our longer term prospects, also may cause fluctuations in the price of our common stock.
     To maintain our listing on the Nasdaq Global Select Market we must satisfy certain minimum financial and other continued listing standards, including, among other requirements:
    minimum $10,000,000 stockholder’s equity,
 
    minimum 750,000 publicly traded shares,
 
    minimum $5,000,000 market value of publicly held shares,
 
    $1.00 per share minimum bid price, and
 
    two registered and active market makers.
     Any failure to meet the market value requirement must continue for 10 consecutive days and may be cured within 30 days after notification by Nasdaq of non-compliance by meeting the standard for 10 consecutive business days. Any failure to meet the minimum bid price requirement must continue for 30 consecutive business days and may be cured within 180 days after notification by Nasdaq of non-compliance by meeting the standard for 10, or in Nasdaq’s discretion 20 or more, consecutive business days. If we fail to meet these requirements, we would have the option to apply to transfer our securities to the Nasdaq Capital Market, which would provide us with an additional 180 days to meet the $1.00 minimum bid requirement. If we fail to meet the minimum bid requirement after that additional 180 days have elapsed, Nasdaq may provide written notification to us regarding the de-listing of our common stock. At that time, we would have the right to request a hearing to appeal the Nasdaq de-listing determination.
     On April 5, 2011, we received a letter from Nasdaq (the “Notice”) notifying us that for 30 consecutive trading days preceding the date of the Notice, the bid price of our common stock had closed below the $1.00 per share minimum required for continued trading on the Nasdaq Global Select Market. On April 25, 2011, we received a separate letter stating that we had regained compliance with Nasdaq’s minimum bid price requirement and that this matter is now closed with Nasdaq.
     If our common stock loses its status on the Nasdaq Global Select Market in the future and we are not successful in obtaining a listing on the Nasdaq Capital Market, shares of our common stock would likely trade in the over-the-counter market bulletin board, commonly referred to as the “pink sheets.” If our stock were to trade on the over-the-counter market, selling our common stock could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event our common stock is de-listed, broker-dealers have certain regulatory burdens imposed upon them, which may discourage broker-dealers from effecting transactions in our common stock, further limiting the liquidity of our common stock. These factors could have a material adverse effect on the trading price, liquidity, value and marketability of our common stock.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
     None.

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Item 3 — Defaults Upon Senior Securities
     None.
Item 5 — Other Information
     None.
Item 6 — Exhibits
10.1*    Provisions of Separation Agreement between Harris Interactive UK Limited and Robert Salvoni, dated February 4, 2011 (filed herewith)
 
10.2*    Modification to Compensation Arrangement for Executive Officer by and between the Company and Patti B. Hoffman (filed herewith).
 
31.1   Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2   Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1   Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
 
32.2   Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
 
*   Denotes management contract or arrangement

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SIGNATURE
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
May 5, 2011   Harris Interactive Inc.
 
 
  By:   /s/ Eric W. Narowski    
    Eric W. Narowski   
    Principal Accounting Officer and Senior Vice President, Global Controller
(On Behalf of the Registrant and as
Principal Accounting Officer) 
 

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Exhibit Index
10.1*    Provisions of Separation Agreement between Harris Interactive UK Limited and Robert Salvoni, dated February 4, 2011 (filed herewith)
 
10.2*    Modification to Compensation Arrangement for Executive Officer by and between the Company and Patti B. Hoffman (filed herewith).
 
31.1   Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2   Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1   Certificate of the Chief Executive Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
 
32.2   Certificate of the Chief Financial Officer pursuant to 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
 
*   Denotes management contract or arrangement

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