PART
I
Item 1. Business.
Overview
TheStreet, Inc.
is
a leading financial news and information provider. Our business-to-business and business-to-consumer
content and products provide individual and institutional investors, advisors and dealmakers with actionable information from the
worlds of finance and business.
Our
business strategy for 2017 is centered on accelerating our growth by successfully implementing initiatives that were put in place
in 2016.
2016
Highlights
|
·
|
Recruited and hired a new and experienced management team, including
our President and Chief Executive Officer, David Callaway;
|
|
·
|
established one unified newsroom across all business units;
|
|
·
|
identified and optimized synergies between our products in order to
add scale to our data, technology and commercial capabilities;
|
|
·
|
continued to expand our content distribution channels to broaden our
customer base and enhance the user experience;
|
|
·
|
identified new and growing revenue streams and provided support and
resources necessary to maximize them (events, native advertising and custom content); and
|
|
·
|
increased the Board of Directors
to
seven members, with five independent directors.
|
Our Products
and Services
Business-to-Business
Our
business-to-business, or B2B, products provide dealmakers, their advisers, institutional investors and corporate executives with
news, data and analysis of mergers and acquisitions and changes in corporate control, relationship mapping services, and competitive
bank rate data. Our B2B business products, as described in greater detail below, have helped diversify our business from primarily
serving retail investors to also providing an indispensable source of business intelligence for both high net worth individuals
and executives in the top firms in the world.
Our B2B business
derives revenue primarily from subscription products, events/conferences and information services. For the year ended December
31, 2016, our B2B businesses generated 46% of our total revenue.
The Deal
In September 2012, we acquired The Deal,
L.L.C., or The Deal, which began as a broadsheet newspaper for retail investors and transformed its business into a digital subscription
model that delivers sophisticated coverage primarily to institutional investors on changes in corporate control, including merges
and acquisitions, private equity, corporate activism and restructuring. The Deal is a trusted information source for organizations
seeking to generate deal flow, improve client intelligence and enhance market knowledge. It provides full access to proprietary
commentary, analysis and data produced every day by our editors and journalists and content feeds can be customized based on each
client’s job function, deal focus and workflow. Content can be delivered via email, mobile, web or existing corporate platform.
The Deal is headquartered in New York and has offices in London, England, Petaluma, California, Washington DC and Chennai, India.
In April 2013, we also acquired
The DealFlow
Report, The Life Settlements Report
and the PrivateRaise database from DealFlow Media, Inc. to further broaden the information
and services available to institutional investors. These newsletters and this database, and the employees providing their content,
have been incorporated into The Deal.
BoardEx
In October 2014, we acquired Management
Diagnostics Limited, the developer of the leading relationship capital management service BoardEx, collectively, BoardEx. BoardEx
expanded our international operations and furthered our transition from primarily serving retail investors to also becoming an
indispensable data and business intelligence source for institutional clients. Founded in 1999, BoardEx is an institutional relationship
capital management database and platform and currently holds in-depth profiles of almost one million of the world's most important
business leaders. BoardEx’s proprietary software shows the relationships between and among these individuals and a user and
his/her contacts. Clients, including investment banks, consultancies, executive search firms, law firms and universities use BoardEx
to leverage their relationships and facilitate business and corporate development initiatives. BoardEx is headquartered in London,
England and has locations in New York and Chennai, India.
RateWatch
Our third B2B business product, RateWatch, publishes bank rate
market information including competitive deposit, loan and fee rate data, primarily on a subscription basis, to financial
institutions, government agencies, academic researchers, banks, credit unions and other commercial organizations. RateWatch
is headquartered in Wisconsin.
Business-to-Consumer
Our business-to-consumer,
or B2C, business is led by our namesake website,
TheStreet.com
, and includes free content and houses our premium subscription
products that target varying segments of the retail investing public.
Since its inception in 1996,
we have distinguished ourselves as a trusted and reliable source for financial news and information with journalistic excellence,
an unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial
planning.
Our
B2C business generates revenue primarily from premium subscription products and advertising. For the year ended December 31, 2016,
our B2C business generated 54% of our total revenue.
Our
most recognizable consumer products include the following:
TheStreet.com
is a free, advertising-supported
digital platform that provides unbiased business news and market analysis to individual investors.
TheStreet.com
provides
us with an ongoing and efficient source of leads for our premium subscription products and for 20 years,
TheStreet.com
has
been recognized as one of the premier providers of investment commentary, analysis and news.
RealMoney and RealMoney Pro
are
the foundation of our premium subscription product line for consumers.
RealMoney
is aimed at active market participants
and self-directed investors looking for timely, action-oriented market commentary and analysis.
RealMoney
contributors include
dozens of experienced financial analysts, traders, money managers and journalists, including James J. Cramer and Douglas Kass.
Action Alerts
PLUS
is our premium subscription offering that teaches consumers how to manage money for long term growth with former
hedge fund manager James J. Cramer. Members are privy to the day-to-day activity surrounding Mr. Cramer’s personal charitable
portfolio including alerts notifying them when Mr. Cramer is about to make a trade. Surrounding content includes Mr. Cramer’s
explanations regarding what stocks he is buying or selling and, more importantly, why he is taking that position.
Action Alerts
Plus
members also have access to live monthly conference calls where Mr. Cramer addresses their questions about the market,
specific stocks in the portfolio and trade ideas. We also host an interactive online forum where members can post questions for
the
Action Alerts Plus
team, share ideas and engage in a dialogue with each other. In addition, subscribers receive a weekly
roundup of analysis of all stocks in the portfolio and have access to
http://www.actionalertsplus.com
for a continuously
updated view of the portfolio and its performance.
Action Alerts PLUS
is aimed at investors looking for exclusive
access to specific, action-oriented investment ideas.
Segments
Our operations consist of three reportable
segments: TheDeal/BoardEx, RateWatch and Business to Consumer. Further information regarding our operating segments may be found
in Note 17 to our Consolidated Financial Statements.
Sales, Marketing and Distribution
We pursue a variety of sales and marketing
initiatives to increase traffic to our sites, license our content, sell advertising, increase subscriptions for our B2B and B2C
products and expose our brands to new audiences. These initiatives include promotion through online, search marketing, email, social,
direct mail and telemarketing channels. We employ marketers and designers who plan and create campaigns for the various business
units which are then implemented by our technical and operations team as well as by third-party service providers. Our business
intelligence group, responsible for reporting and analysis, helps determine the effectiveness of our campaigns and make informed
decisions. In addition to these marketing efforts, we employ a sales force that sells directly to advertisers and their agencies,
as well as to institutional clients as outlined above.
We use content syndication
and subscription distribution to capitalize on the cost efficiencies of digital distribution and to garner additional value from
content we have produced for our own properties. By syndicating our content to other leading digital properties, we expose our
brands and top-quality journalism to millions of potential users/subscribers. For example, we provide digital properties in our
vertical, including Yahoo! Finance, AOL Finance, Marketwatch and MSN Money, with selected content to host along with additional
article headlines that these partners display on their stock quote result pages, in both instances providing links back to our
site. This type of content licensing exposes new audiences to our brands and generates additional traffic to our sites, creating
the opportunity for us to increase our advertising revenue and subscription sales.
To attract additional visitors to our sites,
we utilize search engine optimization tools to increase the visibility of our content on Google, Yahoo, Bing and similar search
engines. We also have a social media team that works across platforms such as Facebook, LinkedIn and Twitter to increase awareness
and drive traffic to our content, events and subscription products.
With digital traffic now almost evenly split
between desktop and mobile platforms and devices, we continually improve our products to be as mobile-friendly as possible, while
developing and distributing mobile and tablet applications to deliver our content to mobile-first audiences. The Deal and BoardEx
both have robust mobile sites and apps and are using mobile alerts to continually engage with users/subscribers. In the first half
of 2017, we expect to launch a “unified” TheStreet app which will allow users to access our free and paid content in
a single environment. Finally, we continue to focus on increasing the engagement our visitors have with our online and mobile offerings,
measured by visits per visitor, page views per visit and by time spent on site, and we continuously seek to improve the experience
our digital products offer.
We consistently obtain exposure through
other media outlets who cite our journalists and our content or who invite our editorial staff to appear on segments to provide
key market commentary and consumer advice. In 2016, we were mentioned or featured in almost 100 reports by national publications
and national and local broadcast media including
The Wall Street Journal, The New York Times
and CNBC, NBC, ABC, CBS and
Fox, among others.
Competition
We compete with
a broad range of content providers, newsletter publishers, event producers and information services. We face competition primarily
from:
|
·
|
with respect to our B2B business, particularly The Deal, providers
of business intelligence on mergers and acquisitions, restructurings and financings primarily to investment banks, law firms, hedge
funds, private equity firms and corporate institutions, such as Bloomberg, S&P Capital IQ, Dealogic, ThomsonOne and Mergermarket
Group;
|
|
·
|
with respect to our B2B business, particularly BoardEx, providers
of relationship capital management services and director, officer and dealmaker data, including Bloomberg, S&P Capital IQ,
Dow Jones, The New York Stock Exchange, LexisNexis, Relationship Science, and Thomson Reuters;
|
|
·
|
with respect to our B2B business, particularly RateWatch, established
ratings services, such as Standard & Poor’s, Morningstar and Lipper as well as rate database providers such as Informa
and SNL Financial;
|
|
·
|
with respect to our B2C business, online content providers focused
on business, personal finance or investing content, such as The Wall Street Journal Digital Network, CNN Money, Forbes.com, Reuters.com,
Bloomberg.com, Seeking Alpha, Business Insider and CNBC.com, as well as portals such as Yahoo! Finance, AOL Daily Finance and MSN
Money; and
|
|
·
|
with respect to our B2B and B2C businesses, publishers and distributors
of traditional media with a focus on business, finance or investing, such as The Wall Street Journal and the Financial Times, personal
finance talk radio programs and business television networks such as Bloomberg, CNBC and the Fox Business Channel as well as investment
newsletter publishers, such as The Motley Fool, Stansberry & Associates Investment Research and InvestorPlace Media.
|
Many of these competitors
have significantly greater scale and resources than we do. Additionally, advances in technology have reduced the cost of production
and online distribution of written, audio and video content, which has resulted in the proliferation of small, often self-published
providers of free content.
Advertisers and their agencies often look
to independent measurement data such as that provided by comScore, Inc., a
leading cross-platform
measurement company that measures audiences and consumer behavior
, or comScore, in order to gain a sense of the performance
of various sites, in relation to their peer category, when determining where to allocate advertising dollars.
TheStreet.com
has consistently ranked as one of the top websites by comScore for users having a portfolio value over $1 million, a household
income over $75,000 and those checking stock quotes.
Our ability to compete
successfully depends on many factors, including the format, quality, originality, timeliness, insightfulness and trustworthiness
of our content and that of our competitors, the reputations of our contributors and our brands, the success of our recommendations
and research, our ability to introduce products and services that keep pace with new technology and distribution methods, investing
trends, the experience we and our competitors offer our users and the effectiveness of our sales and marketing efforts.
Infrastructure, Operations and Technology
B2B
The Deal and BoardEx
are based on proprietary and commercial systems developed for consumption by institutional clients. Both our BoardEx and The Deal
systems consist of a mixture of proprietary and commercial software hosted within the Amazon Web Services environment. The
Deal system distributes the content via an email delivery system or web based platform. The BoardEx system distributes data
to multiple client platforms either hosted within Amazon Web Services or on the clients’ premises via commercial software
before redistributing it via a standard email delivery system, data feed processes, or to a web interface.
R
ateWatch maintains a constantly-updated
database of deposit, loan and fee rate data from over 100,000 financial institutions using proprietary software and commercial
software both internally and within the Amazon Web Services environment. This historical and real-time rate data is licensed to
financial institutions, government agencies, educational researchers and commercial organizations. Data is provided in formats
ranging from standard rate templates to large raw data files for use with third party analytical tools. The RateWatch product line
also includes banking-related product and fee comparisons, financial strength reporting, educational webinars, mystery shopping
and consumer and financial institution surveys.
B2C
Our main technological
infrastructure consists of proprietary and Drupal-based content management systems, and in 2017, subscription management and e-commerce
systems provided by third party vendors. We also utilize the services of third-party cloud computing providers, more specifically
Amazon Web Services, as well as content delivery networks such as Fastly, to help us efficiently distribute our content to our
customers and ensure resiliency and scalability of service. Our content-management systems are based on proprietary software,
Drupal and Kaltura Content Management Systems. They allow our stories, videos and data to be prepared for distribution online
to a large audience. These systems enable us to distribute and syndicate our content economically and efficiently to multiple
destinations in a variety of technical formats.
Intellectual Property
To protect our intellectual property, or
IP, we rely on a combination of trademarks, copyrights, patent protection, confidentiality agreements and various other contractual
arrangements with our employees, affiliates, customers, strategic partners, vendors and others. We have many trademark registrations
and copyrights in the United States and internationally, and have pending trademark and patent applications in the United States
and internationally. In addition, our Code of Conduct and Business Ethics, employee handbook, and other internal policies seek
to protect our IP against misappropriation, infringement, and unfair competition. We also utilize various tools to police the Internet
to monitor piracy and unauthorized use of our content. Finally, whether we are contracting out our IP or licensing third-party
content and/or technology, we incorporate contractual provisions to protect our IP and seek indemnification for any third-party
infringement claims.
However, we cannot
provide any guarantee that the foregoing provisions will be adequate to protect us from third-party claims or that these provisions
will prevent the theft of our IP, as we may be unable to detect the unauthorized use of, or take appropriate steps to enforce,
our IP rights. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content,
and affect our ability to compete effectively. Further, any infringement claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources on our part, which could materially adversely affect our business,
results of operations and financial condition.
Customers
For the
year ended December 31, 2016, no single customer accounted for 10% or more of our consolidated revenue. As of December 31,
2016, no single customer accounted for more than 10% of our gross accounts receivable balance.
Employees
As of
December 31, 2016, we had approximately 650 full-time employees with approximately 54% located in Chennai, India. We have
never had a work stoppage and none of our employees are represented under collective bargaining agreements. We consider our
relations with our employees to be good.
Government Regulation
We are subject to government regulation
in connection with securities laws and regulations applicable to all publicly-owned companies, as well as laws and regulations
applicable to businesses generally, including privacy regulations and taxes levied adopted at the local, state, national and international
levels. In recent years, consumer protection regulations, particularly in connection with the Internet, has become more aggressive,
and we expect that new laws and regulations will continue to be enacted at the local, state, national and international levels.
Such new legislation, alone or combined with increasingly aggressive enforcement of existing laws, could have a material adverse
effect on our future operating performance and business due to increased compliance costs.
Available Information
We were founded in 1996 as a limited liability
company, and reorganized as a C corporation in 1998. We consummated our initial public offering in 1999 and we file annual, quarterly
and current reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. Our Corporate
Website is located at http://www.t.st. We make available free of charge, on or through our Website, our annual, quarterly and current
reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the
SEC. Information contained on our Website is not part of this Report or any other report filed with the SEC.
You may download
the information that we file with the SEC at
www.sec.gov
.
Item 1A. Risk
Factors.
Investing in our Common Stock involves
a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this Report,
before deciding whether to invest in our Common Stock. Our business, prospects, financial condition or operating results could
be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently consider
immaterial. The trading price of our Common Stock could decline as a result of any of these risks, and you could lose part or all
of your investment in our Common Stock. When deciding whether to invest in our Common Stock, you should also refer to the other
information in this Report, including our consolidated financial statements and related notes and the information contained in
Part II, Item 7 of this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.” Please also refer to the Special Note Regarding Forward-Looking Statements appearing in this Annual Report.
Our quarterly financial results
may fluctuate and our future revenue is difficult to forecast.
Our quarterly operating
results may fluctuate in the future as a result of a variety of factors, many of which are outside our control, including:
|
·
|
the
level of interest and investment in individual stocks versus index funds and exchange-traded
funds (ETF) by both individual and institutional investors, which can impact our ability
to sell premium subscription products and to sell advertising;
|
|
·
|
the
overall willingness of potential and existing customers to pay for content distributed
over the Internet, where a large quantity of content is available for free;
|
|
·
|
demand
and pricing for online advertising on
TheStreet.com
, which is affected by advertising
budget cycles of our customers, general economic conditions, demand for advertising on
the Internet generally, the supply of advertising inventory in the market and actions
by our competitors;
|
|
·
|
the
value to potential and existing customers of the investing ideas we offer in our subscription
services and the performance of those ideas relative to appropriate benchmarks;
|
|
·
|
new
products or services introduced by our competitors;
|
|
·
|
cost
of content production, specifically video, traffic acquisition costs, and/or other costs;
|
|
·
|
for
our B2B businesses, the volatility in mergers and acquisitions, restructuring and financing
activities, interest rates and bank fees;
|
|
·
|
costs
or lost revenue associated with system downtime affecting the Internet generally or our
Websites in particular;
|
|
·
|
general
economic and financial market conditions; and
|
|
·
|
our
ability to attract and retain editorial and managerial talent.
|
We had a net loss
in each of our last two fiscal years 2016 and 2015, and have incurred net losses for most years of our history. We may not generate
net income in future periods. Despite significant strategic investments in technology, marketing and content in 2016 there are
no assurances that they will have the desired effect or impact on our financial condition and results of operations. We cannot
assure you that we will reach profitability in the future or at any specific time in the future or that, if and when we do become
profitable, we will sustain profitability. If we are ultimately unable to generate sufficient revenue and meet our financial targets
and the expectations of public market analysts and investors, the price of our Common Stock is likely to continue to decline.
Key content contributors, particularly James J. Cramer,
are important to our B2C premium subscription offerings.
Some of our products, particularly our editorial
subscription products, reflect the talents, efforts, personalities, investing skills and portfolio returns, and reputations of
their respective writers. As a result, the services of these key content contributors, including our co-founder and chief markets
commentator, James J. Cramer, form an essential element of our subscription revenue. In addition to his content contributions,
we benefit from Mr. Cramer’s popularity and visibility, which have provided public awareness of our services and introduced
our content to new audiences. For example, Mr. Cramer hosts CNBC’s finance television show,
Mad Money
. If, however,
Mr. Cramer no longer appeared on the show or the program was cancelled for any reason, it could negatively impact his public profile
and visibility, and in turn, our subscription products. Further, the continued value of Mr. Cramer’s contributions could
be materially adversely affected if Mr. Cramer were to otherwise lose popularity with the public. While we believe we greatly benefit
from Mr. Cramer’s contributions and his media exposure for other companies, we can give no assurance that our relationship
with Mr. Cramer will lead to higher revenues from our subscription products or improve our organic growth.
Our employment agreement with Mr. Cramer
expires on December 31, 2017. If Mr. Cramer chooses not to enter into a new employment agreement upon the expiration of the current
agreement, or does not complete the term of his employment agreement, our business could be harmed by the loss of his services.
In addition to Mr. Cramer, we seek to compensate
and provide incentives for key content contributors through competitive salaries, stock ownership and bonus plans and/or royalty
arrangements, and we have entered into employment or contributor agreements with certain of them. If we are unable to retain key
content contributors, or, should we lose the services of one or more of our key content contributors to death, disability, loss
of reputation or other reason, or should their popularity diminish or their investing returns and investing ideas fail to meet
or exceed benchmarks and investor expectations, we may fail to attract new content contributors acceptable to readers of our collection
of Websites and editorial subscription products. Thus, the loss of services of one or more of our key content contributors could
have a material adverse effect on our business, results of operations and financial condition.
The price of our Common Stock does not meet the requirements
for continued listing on The NASDAQ Global Market. If we fail to regain compliance with the minimum listing standards, our common
stock will be subject to delisting. The liquidity of our common stock could be adversely affected if our common stock is delisted.
The continued listing standards of The NASDAQ
Global Market require, among other things, that the minimum bid price of a listed company’s stock be at or above $1.00. If
the minimum bid price is below $1.00 for a period of more than 30 consecutive trading days, the listed company will fail to be
in compliance with The NASDAQ Global Market’s listing rules and, if it does not regain compliance within the grace period,
will be subject to delisting. Our common stock is currently listed on The NASDAQ Global Market.
As previously reported, on December 14,
2016, we received a notification from the Listing Qualifications Department of The NASDAQ Stock Market LLC, or NASDAQ, indicating
that the minimum bid price of our Common Stock on the NASDAQ Global Market closed below $1.00 per share for 30 consecutive business
days. In accordance with the NASDAQ listing rules, we have 180 calendar days, or until June 12, 2017 to regain compliance with
the requirements. If, at any time before that date the bid price of our Common Stock closes at $1.00 per share or more for a minimum
of 10 consecutive business days, NASDAQ will notify us that we have achieved compliance with the requirements. In the event we
do not regain compliance by June 12, 2017, NASDAQ will notify us that our common stock will be delisted from the NASDAQ Global
Market, unless we request a hearing before a NASDAQ Hearings Panel. Alternatively, we may apply to transfer our securities to the
NASDAQ Capital Market if we satisfy the requirements for initial listing set forth in NASDAQ Listing Rule 5505(a), with the exception
of the minimum bid price. If such an application for transfer were approved, we would have an additional 180 calendar days to comply
with the Rule in order for our common stock to remain listed on the NASDAQ Capital Market.
If our Common Stock is delisted, market
liquidity for our common stock could be severely affected and our stockholders’ ability to sell their shares of our Common
Stock could be limited. In addition, our Common Stock could be subject to “penny stock” rules which impose additional
disclosure requirements on broker-dealers and could further negatively impact our market liquidity for our Common Stock and our
stockholders’ ability to sell their shares of our Common Stock. Accordingly, a delisting of our Common Stock from NASDAQ
would negatively affect the value of our Common Stock. Delisting could also have other negative results, including, but not limited
to, the loss of institutional investor interest.
Our ability
to successfully attract and retain subscribers to our B2B and B2C subscription services may be affected by the perceived quality
of our content and products, and other factors.
Subscription revenue
makes up a significant portion of our overall revenue. For the year ended December 31, 2016, subscription revenue accounted for
approximately 78% of our total revenue.
B2B subscription
revenue accounted for approximately 42% of our total revenue and 91% of our total B2B revenue. Our results of operations, particularly
related to subscription revenue, are affected by certain economic factors, including the performance of the securities markets
and mergers and acquisitions activity. While we believe investors and dealmakers are seeking more information related to the financial
markets and mergers and acquisitions from trusted sources, the existence of adverse or stagnant securities markets conditions
and lack of investor confidence could result in investors decreasing their interest in investor-related and deal-related publications,
which could adversely affect the subscription revenue we derive from our B2B businesses.
B2C subscription
revenue accounted for approximately 36% of our total revenue and 67% of our total B2C revenue. Our ability to successfully attract
and retain subscribers to our B2C subscription products depends on the quality of the content, including the performance of any
investment ideas published. To the extent the returns on such portfolios fail to meet or exceed the expectations of our subscribers
or the performance of relevant benchmarks, our ability to attract new subscribers or retain existing subscribers to such services
will be adversely affected. Additionally, factors such as the expiration of temporary product promotions, changes in our renewal
policies or practices for subscribers, or changes in the degree of credit card failures could have a material impact on customer
retention.
We may have difficulty maintaining
or increasing our advertising revenue, a significant portion of which is concentrated among our top advertisers and subject to
industry and other factors.
Although our reliance
on advertising has decreased as an overall component of our revenues, it remains important to our growth. Our ability to maintain
or increase our advertising revenue may be adversely affected by a variety of factors. Such factors include general market conditions,
seasonal fluctuations in financial news consumption and overall online usage, our ability to maintain or increase our unique visitors,
page view inventory and user engagement, our ability to attract audiences possessing demographic characteristics most desired
by our advertisers, and our ability to retain existing advertisers and win new advertisers in a number of advertising categories
from other Websites, television, newspapers, magazines, newsletters or other new media.
As a general matter,
the continued fragmentation of digital media has intensified competition for advertising revenues. Advertising revenue could decline
if the relationships we have with high-traffic Websites are adversely affected. In addition, our advertising revenue may decline
as a result of demand for our products and services, pricing pressures on Internet advertising rates due to industry developments,
changes in consumer interest in the financial media and other factors in and outside of our control, including in particular as
a result of any significant or prolonged downturn in, or periods of extreme volatility of, the financial markets. Also, our advertising
revenue would be adversely affected if advertisers sought to use third-party networks to attempt to reach our audience while they
visit third-party sites instead of purchasing advertising from us to reach our audience on our own sites. Further, any advertising
revenue that is performance-based may be adversely impacted by the foregoing and other factors. If our advertising revenue significantly
decreases, our business, results of operations and financial condition could be materially adversely affected.
In addition to the
headwinds facing digital media advertising, technologies have been developed, and will likely continue to be developed, that can
block the display of our ads, particularly advertising displayed on personal computers. We generate a portion of our revenue from
advertising, including revenue resulting from the display of ads on personal computers. These technologies may have had an adverse
effect on our financial results and, if such technologies continue to proliferate, in particular with respect to mobile platforms,
our ability to generate advertising revenue may be harmed.
Advertising revenue,
of which our top five advertisers accounted for approximately 50%, generated 16% of our total revenue in 2016. Although we have
advertisers from outside the financial services industry, such as travel, automotive and technology, a large proportion of our
top advertisers are concentrated in financial services, particularly in the online brokerage business. Recent consolidation of
financial institutions and other factors could cause us to lose a number of our top advertisers, which could have a material adverse
effect on our business, results of operations and financial condition. As is typical in the advertising industry, generally, our
advertising contracts have short notice cancellation provisions.
Technology in the media industry
continues to evolve rapidly.
Technology in the
media industry continues to evolve rapidly. Advances in technology have led to an increasing number of methods for delivery of
content and have resulted in a wide variety of consumer demands and expectations, which are also rapidly evolving. If we are unable
to exploit new and existing technologies to distinguish our products and services from those of our competitors or adapt to new
distribution methods that provide optimal user experiences, our business and financial results may be adversely affected.
The increasing number
of digital media options available on the Internet, through social networking tools and through mobile and other devices distributing
content is expanding consumer choice significantly. Faced with a multitude of media choices and a dramatic increase in accessible
information, consumers may place greater value on when, where, how and at what price they consume digital content.
In
addition, the expenditures necessary to implement these new technologies could be substantial and other companies employing such
technologies before we are able to do so could aggressively compete with our business.
Many individuals are increasingly
using mobile devices rather than personal computers to access news and other online services. If we are unable to effectively
provide our content and subscription products to users of these devices, our business could be adversely affected.
The number of people who access news and
other online services through mobile devices continues to increase at a rapid rate. As the use of mobile accelerates as the “go-to”
method of consuming digital content, our ability to monetize mobile content, for which CPMs (cost per thousand impressions) are
lower but on the rise, is increasingly important. We may not be able to generate revenue from advertising or content delivered
to mobile devices as effectively as we have for advertising or content delivered to personal computers. As our members increasingly
use mobile devices to access our digital products if we are unable to successfully implement monetization strategies for our content
on mobile devices, if these strategies are not as successful as our offerings for personal computers, or if we incur excessive
expenses in this effort, our financial performance and ability to grow revenue would be negatively affected. Additionally, as new
devices, such as wearables, and innovative platforms are continually being released, it is difficult to predict the problems we
may encounter in developing versions of our solutions for use on these alternative devices, and we may need to devote significant
resources to the creation, support, and maintenance of such new services and products.
We face significant competition.
Many of our competitors and potential competitors have larger customer bases, more established brand recognition and greater financial,
marketing, technological and personnel resources than we do, which could put us at a competitive disadvantage. Additionally, some
of our competitors and many potential competitors are better capitalized than we are and able to obtain capital more easily, which
could put us at a competitive disadvantage.
Many of our competitors
have larger customer bases, more established name recognition, a greater market share and greater financial, marketing, technological
and personnel resources than we do. Increased competition could result in price reductions, reduced margins or loss of market
share, any of which could materially adversely affect our business, results of operations and financial condition. Accordingly,
we cannot guarantee that we will be able to compete effectively with our current or future competitors or that this competition
will not significantly harm our business.
Our services face
intense competition from other providers of business, personal finance, investing and ratings content, including:
|
·
|
with respect to our B2B business, particularly The Deal, providers
of business intelligence on mergers and acquisitions, restructurings and financings primarily to investment banks, law firms, hedge
funds, private equity firms and corporate institutions, such as Bloomberg, S&P Capital IQ, Dealogic, ThomsonOne and Mergermarket
Group;
|
|
·
|
with respect to our B2B business, particularly BoardEx, providers
of relationship capital management services and director, officer and dealmaker data, including Bloomberg, S&P Capital IQ,
Dow Jones, The New York Stock Exchange, LexisNexis, Relationship Science, and Thomson Reuters;
|
|
·
|
with respect to our B2B business, particularly RateWatch, established
ratings services, such as Standard & Poor’s, Morningstar and Lipper as well as rate database providers such as Informa
and SNL Financial;
|
|
·
|
with respect to our B2C business, online content providers focused
on business, personal finance or investing content, such as The Wall Street Journal Digital Network, CNN Money, Forbes.com, Reuters.com,
Bloomberg.com, Seeking Alpha, Business Insider and CNBC.com, as well as portals such as Yahoo! Finance, AOL Daily Finance and MSN
Money; and
|
|
·
|
with respect to our B2B and B2C businesses, publishers and distributors
of traditional media with a focus on business, finance or investing, such as The Wall Street Journal and the Financial Times, personal
finance talk radio programs and business television networks such as Bloomberg, CNBC and the Fox Business Channel as well as investment
newsletter publishers, such as The Motley Fool, Stansberry & Associates Investment Research and InvestorPlace Media.
|
Additionally, advances
in technology have reduced the cost of production and online distribution of print, audio and video content, which has resulted
in the proliferation of providers of free content. We compete with these other publications and services for customers, including
subscribers, readers and viewers of our video content, for advertising revenue, and for employees and contributors to our services.
Our ability to compete successfully depends on many factors, including the quality, originality, timeliness, insightfulness and
trustworthiness of our content and that of our competitors, the popularity and performance of our contributors, the success of
our recommendations and research, our ability to introduce products and services that keep pace with new investing trends, our
ability to adopt and deploy new technologies for running our business, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts. In addition, media technologies and platforms are rapidly
evolving and the rate of consumption of media on various platforms may shift rapidly. If we fail to offer our content through
the platforms in which our audience desires to consume it, or if we do not have offerings on such platforms that are as compelling
as those of our competitors, our business, results of operations and financial condition may be materially adversely affected.
In addition, the economics of distributing content through new platforms may be materially different from the economics of distributing
content through our current platforms and any such difference may have a material adverse effect on our business, results of operations
and financial condition.
Our business depends on attracting
and retaining capable management and operating personnel.
Throughout 2016, we made several changes
to our senior management, including the appointment of a new Chief Executive Officer, David Callaway and a new Chief Financial
Officer, Eric Lundberg. Our ability to execute our business plan and improve our chances for success in 2017 and beyond depend
in large part upon the continued service of Mr. Callaway and Mr. Lundberg as well as other key employees
.
In addition,
our ability to compete in the marketplace depends upon our ability to recruit and retain other key employees,
including executives to operate our business, technology personnel to run our publishing, commerce, communications, video and other
systems, direct marketers to sell subscriptions to our premium services and salespersons to sell our advertising inventory and
subscriptions.
Several, but not
all, of our key employees are bound by agreements containing non-competition provisions. There can be no assurances that these
arrangements with key employees will provide adequate protections to us or will not result in further management changes that
would have material adverse impact on us. In addition, we may incur increased costs to continue to compensate our key executives,
as well as other employees, through competitive salaries, stock ownership and bonus plans. Nevertheless, we can make no assurances
that these programs will allow us to retain our management or key employees or hire new employees. The loss of one or more of
our key employees, or our inability to attract experienced and qualified replacements, could materially adversely affect our business,
results of operations and financial condition.
The terms of our Series B Preferred
Stock include a substantial liquidation preference, as well as significant control rights.
TCV VI, L.P. and TCV Member Fund, L.P.,
together referred to as TCV, hold all of the issued and outstanding shares of our Series B Preferred Stock (“Series B Preferred
Stock”), which were originally issued in a November 2007 private placement. These shares are convertible into an aggregate
of 3,856,942 shares of our Common Stock, at a conversion price of $14.26 per share, or approximately 10% of our outstanding Common
Stock. However, the holders of our Series B Preferred Stock are entitled to a $55 million liquidation preference upon liquidation
or dissolution of the Company or upon any change of control event. Accordingly, unless otherwise agreed to by TCV, the liquidation
preference entitles the holders of our Series B Preferred Stock to a substantial premium in the event of a sale of the Company,
which not only makes it more difficult for a third party to acquire the Company, but also may result in the holders of our Common
Stock receiving significantly less than their pro rata share of the proceeds in the event we are acquired.
The holders of the
Series B Preferred Stock have the right to vote on any matter submitted to a vote of the stockholders of the Company and are entitled
to vote that number of votes equal to the aggregate number of shares of Common Stock issuable upon the conversion of such holders’
shares of Series B Preferred Stock. In addition, TCV has the right to appoint one person to our board of directors, although they
are not currently exercising this right.
The affirmative
vote of the holders of a majority of Series B Preferred Stock is necessary for the Company to take any of the following actions:
(i) authorize, create or issue any class or classes of our capital stock ranking senior to, or on a parity with (as to dividends
or upon a liquidation event) the Series B Preferred Stock or any securities exercisable or exchangeable for, or convertible into,
any now or hereafter authorized capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event)
the Series B Preferred Stock; (ii) approve any increase or decrease in the authorized number of shares of Series B Preferred Stock;
(iii) approve any amendment, waiver, alteration or repeal of our certificate of incorporation or bylaws in a way that adversely
affects the rights, preferences or privileges of the Series B Preferred Stock; (iv) authorize the payment of any dividends (other
than dividends paid in capital stock of us or any of our subsidiaries) in excess of $0.10 per share per annum of our Common Stock
unless after the payment of such dividends we have unrestricted cash (net of all indebtedness for borrowed money, purchase money
obligations, promissory notes or bonds) in an amount equal to at least two times the product obtained by multiplying the number
of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; and (v) authorize
the purchase or redemption of: (A) any Common Stock (except for the purchase or redemption from employees, directors and consultants
pursuant to agreements providing us with repurchase rights upon termination of their service with us) unless after such purchase
or redemption we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes
or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding
at the time such dividend is paid by the liquidation preference; or (B) any class or series of now or hereafter authorized capital
stock of ours that ranks junior to (upon a liquidation event) the Series B Preferred Stock.
As a result of the
foregoing, TCV may be able to block the proposed approval of any of the above actions, which blockage may prevent us from achieving
strategic or other goals dependent on such actions, including without limitation additional capital raising, certain dividend
increases and the repurchase of outstanding Common Stock. All of the foregoing rights may limit our ability to take certain actions
deemed in the interests of all of our stockholders but as to which the holders of the Series B Preferred Stock have control rights.
Acquisitions pose inherent financial
and other risks and challenges.
As a part of our
strategic plan, we have acquired businesses and may look to acquire businesses in the future. These acquisitions can involve a
number of risks and challenges, any of which could cause significant operating inefficiencies and adversely affect our growth
and profitability. Such risks and challenges include underperformance relative to our expectations and the price paid for the
acquisition; unanticipated demands on our management and operational resources; difficulty in integrating personnel, operations,
and systems; retention of customers of the combined businesses; assumption of contingent liabilities; and acquisition-related
earnings charges. The benefits of an acquisition or an investment may take considerable time to develop and certain acquisitions
may not advance our business strategy and may fall short of expected return on investment targets. If our acquisitions are not
successful, we may record impairment charges. Our ability to continue to make acquisitions will depend upon our success at identifying
suitable targets, which requires substantial judgment in assessing their values, strengths, weaknesses, liabilities, and potential
profitability, as well as the availability of capital.
In October 2014
we acquired BoardEx, a relationship capital management company headquartered in the U.K. with locations in New York, New York
and Chennai, India. This acquisition has helped us expand internationally and is helping to accelerate our transition into B2B,
becoming an indispensable data, news and information source for institutional clients. However, we can provide no assurances that
our long term strategic objectives will be attained or that such acquisition will meet or exceed our expected return.
Our foreign
operations subject us to a number of operating, economic, political and regulatory risks that may have a material adverse impact
on our financial condition and results of operations.
Our acquisition
of BoardEx in October 2014 significantly increased the importance of foreign markets to our future operations and growth and also
exposes us to a number of additional risks. Operations outside of the United States may be affected by changes in trade protection
laws, policies and measures and other regulatory requirements affecting trade and investment; unexpected regulatory, social, political,
or economic changes in a specific country or region; changes in intellectual property, privacy and data protection; import/export
regulations in both the United States and foreign countries and difficulties in staffing and managing foreign operations. Political
changes, labor strikes, acts of war or terrorism and natural disasters, some of which may be disruptive, can interfere with our
data collection, our customers and all of our activities in a particular location. We may also be affected by potentially adverse
tax consequences and difficulties associated with repatriating cash generated or held abroad. Since approximately half of BoardEx’s
revenues are generated outside of the United States, we are exposed to these risks.
We are subject to the European Union, or
EU, regulations relating to privacy, including the EU Directive on Data Protection, which imposes significant restrictions on the
collection and use of personal data that are more stringent and impose greater burdens on businesses than current privacy standards
in the United States. One such burden is a prohibition on the transfer of personal information from the EU to other countries whose
laws do not protect personal data to an adequate level of privacy or security. The United States is one such country and
this prohibition and the fact we are subject to the EU regulations may impact on our ability to carry out certain aspects of our
business in the United States. The EU has recently passed the General Data Protection Regulation, which will result in greater
compliance burdens for companies with users and operations in Europe over the next two years. The costs of compliance with,
and other burdens imposed by, these laws, regulations and policies that are applicable to us may limit the use and adoption of
our products and solutions and could have a material adverse impact on our results of operations.
Foreign operations
are also subject to risks of violations of laws prohibiting improper payments and bribery, including the U.S. Foreign Corrupt
Practices Act, the U.K. Bribery Act and similar regulations in foreign jurisdictions. The U.K. Bribery Act, for example, prohibits
both domestic and international bribery, as well as bribery across both private and public sectors. An organization that fails
to prevent bribery committed by anyone associated with the organization can be charged under the U.K. Bribery Act unless the organization
can establish the defense of having implemented adequate procedures to prevent bribery. Failure to comply with these laws could
subject us to civil and criminal penalties that could have a material adverse impact on our financial condition and results of
operations.
Fluctuations in foreign exchange
rates could adversely affect our consolidated operating results
We operate in foreign
jurisdictions, in particular the United Kingdom, where we are exposed to market risks from changes in interest rates and foreign
currency exchange rates that may adversely affect our results of operations and financial condition. For example, the announcement
of the exit of the United Kingdom from the European Union (referred to as Brexit) caused significant volatility in global stock
markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies.
The majority of our business transactions are denominated in U.S. dollars, however, for operations outside the United States,
we translate sales and other results denominated in foreign currency into U.S. dollars for our financial statements. In 2016,
the strengthening of the U.S. dollar relative to other currencies adversely affected our results of operations because foreign
currencies translated into fewer U.S. dollars. In addition, we will be exposed to the risk of changes in social, political and
economic conditions in the countries where we engage in business. Political and economic instability in these countries could
adversely affect our business activities and operations. Unexpected changes in local regulatory requirements, tariffs and other
trade barriers and price or exchange controls could limit operations and make the repatriation of profits difficult. In addition,
the uncertainty of differing legal environments could limit our ability to effectively enforce our rights in some markets. We
do not engage in currency hedging or have any positions in derivative instruments to hedge our currency risk.
If our goodwill and other intangibles
continue to become impaired, we may be required to record further reductions which would negatively impact our financial results.
For 2016, we have recorded a significant
impairment of goodwill as a result of a number of factors including the recent decline in our stock price and the performance
of past acquisitions.
As of December 31, 2016, we had goodwill of $29.2 million and net intangible
assets of $15.1 million compared to $43.3 million and $18.7 million in 2015, respectively. Goodwill and intangible asset
impairment analysis and measurement is a process that requires significant judgment. Under the provisions of ASC 350,
goodwill and indefinite lived intangible assets are required to be tested for impairment on an annual basis and between
annual tests whenever circumstances arise that indicate a possible impairment might exist. We perform our annual impairment
tests of goodwill and indefinite lived intangible assets as of October 1 each year. Impairment exists when the carrying
amount of goodwill and indefinite lived intangible assets exceed their implied fair value, resulting in an impairment charge
for this excess. Although we currently do not anticipate any
further impairment, we may have to record additional impairments in the future which may materially adversely affect our
results of operations and financial condition.
System failure or interruption
may result in reduced traffic, reduced revenue and harm to our reputation.
Our ability to provide
timely, updated information depends on the efficient and uninterrupted operation of our computer and communications hardware and
software systems. Similarly, our ability to track, measure and report the delivery of advertisements on our Websites depends on
the efficient and uninterrupted operation of third-party systems. Our operations depend in part on the protection of our data
systems and those of our third-party providers against damage from human error, natural disasters, fire, power loss, water damage,
telecommunications failure, computer viruses, terrorist acts, vandalism, sabotage, and other adverse events. Although we utilize
the services of third-party cloud computing providers, specifically Amazon Web Services with procedural security systems and have
put in place certain other disaster recovery measures, including offsite storage of backup data, these disaster recovery measures
currently may not be comprehensive enough and there is no guarantee that our Internet access and other data operations will be
uninterrupted, error-free or secure. Any system failure, including network, software or hardware failure, that causes an interruption
in our service or a decrease in responsiveness of our Websites could result in reduced traffic, reduced revenue and harm to our
reputation, brand and relations with our advertisers and strategic partners. Our insurance policies may not adequately compensate
us for such losses. In such event, our business, results of operations and financial condition could be materially adversely affected.
Our Ratings models,
purchased from a third party, were written in legacy technologies that do not have robust backup or recovery provisions. The ongoing
production of valid ratings data is based upon the successful continued migration of these legacy systems to more robust and current
systems. The hardware platforms upon which these applications run have been migrated to more modern equipment within our multi-redundant
hosting facilities; however, many of the core application code remains in production. Migration of such complex applications is
time consuming, resource intensive and can pose considerable risk.
Disruptions to our third-party
technology providers and management systems could harm our business and lead to loss of customers and advertisers.
We depend on third-party
technology providers and management systems to distribute our content and process transactions. For example, we use Fastly and
Amazon Web Services to help us efficiently distribute our content to customers. We also use a third party vendor to process credit
cards for our subscriptions. We exercise no control over our third-party vendors, which makes us vulnerable to any errors, interruptions,
or delays in their operations. Any disruption in the services provided by these vendors could have significant adverse impacts
on our business reputation, advertiser and customer relations and operating results. Upon expiration or termination of any of
our agreements with third-party vendors, we may not be able to replace the services provided to us in a timely manner or on terms
and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor
could subject us to operational delays and inefficiencies until the transition is complete.
We may face liability for, or
incur costs to defend, information published in our services.
From time to time
we are subject to claims for defamation, libel, copyright or trademark infringement, fraud or negligence, or other theories of
liability, in each case relating to the articles, commentary, investment recommendations, ratings, or other information we provide
through our services. We maintain insurance to provide coverage with respect to such claims, but our insurance may not adequately
protect us against these claims. For example, from time to time, actions filed against us include claims for punitive damages,
which are excluded from coverage under our insurance policies.
Failure to establish and maintain
successful strategic relationships with other companies could decrease our subscriber and user base.
We rely in part
on establishing and maintaining successful strategic relationships with other companies to attract and retain a portion of our
current subscriber and reader base and to enhance public awareness of our brands. In particular, our relationships with Yahoo!
Finance, MSN Money and CNN Money, which index our headlines and/or host our content including our video offerings, have been important
components of our effort to enhance public awareness of our brands, which awareness we believe also is enhanced by the public
appearances of James J. Cramer, in particular on his “Mad Money” television program and on “Squawk on the Street”,
both of which are telecast by CNBC. If we do not successfully establish and maintain our strategic relationships on commercially
reasonable terms or if these relationships do not attract significant revenue, our business, results of operations and financial
condition could be materially adversely affected.
Failure to maintain our reputation
for trustworthiness may harm our business.
Our brand is based
upon the integrity of our editorial content. We are proud of the trust and reputation for quality we have developed over the course
of 20 years and we seek to renew and deepen that trust continually. We require all of our content contributors, whether employees
or outside contributors, to adhere to strict standards of integrity, including standards that are designed to prevent any actual
or potential conflict of interest, and to comply with all applicable laws, including securities laws. The occurrence of events
such as our misreporting a news story, the non-disclosure of a stock ownership position by one or more of our content contributors,
the manipulation of a security by one or more of our content contributors, or any other breach of our compliance policies, could
harm our reputation for trustworthiness and reduce readership. In addition, in the event the reputation of any of our directors,
officers, key contributors, writers or editorial staff were harmed for any other reason, we could suffer as result of our association
with the individual, and also could suffer if the quantity or value of future services we received from the individual was diminished.
These events could materially adversely affect our business, results of operations and financial condition.
We may not adequately protect
our own intellectual property and may incur costs to defend against, or face liability for, intellectual property infringement
claims of others.
To protect our intellectual
property (“IP”), we rely on a combination of trademarks, copyrights, patent protection, confidentiality agreements
and various other contractual arrangements with our employees, affiliates, customers, strategic partners and others. We own several
trademark registrations and copyrights, and have pending trademark and patent applications, in the United States. In addition,
our Code of Conduct and Business Ethics, employee handbook, and other internal policies seek to protect our IP against misappropriation,
infringement, and unfair competition. We also utilize various tools to police the Internet to monitor piracy and unauthorized
use of our content. Finally, whether we are contracting out our IP or licensing third-party content and/or technology, we incorporate
contractual provisions to protect our IP and seek indemnification for any third-party infringement claims.
However, we cannot
provide any guarantee that the foregoing provisions will be adequate to protect us from third-party claims or that these provisions
will prevent the theft of our IP, as we may be unable to detect the unauthorized use of, or take appropriate steps to enforce,
our IP rights. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content,
and affect our ability to compete effectively. Further, any infringement claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources on our part, which could materially adversely affect our business,
results of operations and financial condition.
We face government regulation
and legal uncertainties.
We are subject to
government regulation in connection with securities laws and regulations applicable to all publicly-owned companies, as well as
laws and regulations applicable to businesses generally, including privacy regulations and taxes levied adopted at the local,
state, national and international levels. In recent years, consumer protection regulations, particularly in connection with the
Internet, have become more aggressive, and we expect that new laws and regulations will continue to be enacted at the local, state,
national and international levels. Such new legislation, alone or combined with increasingly aggressive enforcement of existing
laws, could have a material adverse effect on our future operating performance and business due to increased compliance costs.
Any failure of our internal security
measures or breach of our privacy protections could cause us to lose users and subject us to liability.
Users who subscribe
to our paid subscription services are required to furnish certain personal information (including name, mailing address, phone
number, email address and credit card information), which we use to administer our services. We also require users of some of
our free services and features to provide us with some personal information during the membership registration process. Additionally,
we rely on security and authentication technology licensed from third parties to perform real-time credit card authorization and
verification, and at times rely on third parties, including technology consulting firms, to help protect our infrastructure from
security threats. We may have to continue to expend capital and other resources on the hardware and software infrastructure that
provides security for our processing, storage and transmission of personal information.
In this regard,
our users depend on us to keep their personal information safe and private and not to disclose it to third parties or permit our
security to be breached. However, advances in computer capabilities, new discoveries in the field of cryptography or other events
or developments, including improper acts by third parties, may result in a compromise or breach of the security measures we use
to protect the personal information of our users. If a party were to compromise or breach our information security measures or
those of our agents, such party could misappropriate the personal information of our users, cause interruptions in our operations,
expose us to significant liabilities and reporting obligations, damage our reputation and discourage potential users from registering
to use our Websites or other services, any of which could have a material adverse effect on our business, results of operations
and financial condition.
We utilize various
third parties to assist with various aspects of our business. Some of these partnerships require the exchange of user information.
This is required because some features of our Websites may be hosted by these third parties. While we take significant measures
to guarantee the security of our customer data and require such third parties to comply with our privacy and security policies
as well as generally be contractually bound to defend, indemnify and hold us harmless with respect to any claims related to any
breach of relevant privacy laws related to the service provider, we are still at risk if any of these third-party systems are
breached or compromised and may in such event suffer a material adverse effect to business, results of operations and financial
condition.
Our charter documents and Delaware
law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our common stock.
Our certificate
of incorporation and our bylaws contain provisions that could delay or prevent a change in control of our company. These provisions
could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
|
•
|
providing for a classified board
of directors with staggered, three-year terms; we intend to
put a proposal to declassify
our board of directors at our 2017 Annual Meeting of Stockholders;
|
|
•
|
not providing for cumulative voting
in the election of directors;
|
|
•
|
permitting an amendment of our
certificate of incorporation only through a super-majority vote of the stockholders;
|
|
•
|
prohibiting stockholder action
by written consent;
|
|
•
|
require that, to the fullest
extent permitted by law and unless we consent to an alternate forum, certain proceedings
against or involving us or our
directors, officers, or employees be brought exclusively in the Court of Chancery in
the State of Delaware;
|
|
•
|
limiting the persons who may call
special meetings of stockholders; and
|
|
•
|
requiring advance notification
for stockholder director nominations and other proposals.
|
These and other
provisions in our certificate of incorporation, our bylaws, and under Delaware law could discourage potential takeover attempts,
reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market
price being lower than it would be without these provisions.
If our ability to use our tax
operating loss carryforwards and other tax attributes is limited, we may not receive the benefit of those assets.
We have net operating
loss carryforwards of approximately $160 million as of December 31, 2016, available to offset future taxable income through 2035.
These net operating losses date back to December 1999 and will begin expiring in 2019. Our ability to fully utilize these net
operating loss carryforwards is dependent upon the generation of future taxable income before the expiration of the carryforward
period attributable to these net operating losses. Furthermore, as a result of prior ownership changes under section 382 of the
Internal Revenue Code of 1986, as amended, a portion of these net operating losses will be subject to certain limitations.
If we fail to maintain proper
and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’
views of us could be harmed.
As a Public Company,
we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.
We have evaluated and tested our internal controls in order to allow management to report on our internal controls, as required
by Section 404 of the Sarbanes-Oxley Act of 2002. If we are not able to meet the requirements of Section 404 in a timely manner
or with adequate compliance, we would be required to disclose material weaknesses if they develop or are uncovered and we may
be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action
could negatively impact the perception of us in the financial market and our business.
In addition, our internal controls may not
prevent or detect all errors and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions
and can provide only reasonable assurance that the objectives of the control system will be met. As a smaller reporting company,
we were not required to have our independent auditors report on our internal controls for the year ended December 31, 2016.
If securities or industry analysts
do not publish research or reports about our business, or if they publish negative reports about our business, our stock price
and trading volume could decline.
The trading market
for our common stock may be influenced by the research and reports that securities or industry analysts publish about us or our
business. We do not have control over these analysts. If one or more of the analysts who cover us downgrade our stock or change
their opinion of our shares or publish inaccurate or unfavorable research about our business, our stock price would likely decline.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility
in the financial markets, which could cause our stock price or trading volume to decline.
We do not expect to declare any
dividends in the foreseeable future.
We do not anticipate
declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely
on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on
their investment. Investors seeking cash dividends should not purchase our common stock.
Item 1B. Unresolved
Staff Comments.
None.
Item
2. Properties.
Our company headquarters is located at 14
Wall Street, 15th Floor, New York, NY 10005, with other U.S. offices in Fort Atkinson, Wisconsin, for our RateWatch business,
and Petaluma, California and Washington D.C., where The Deal has offices. Outside the U.S., we have offices in London, England
and Chennai, India where our BoardEx business operates. We lease each of these facilities and do not own any real property. We
believe these facilities are adequate for their intended use.
Item 3. Legal
Proceedings.
The Company is party
to legal proceedings arising in the ordinary course of business or otherwise, none of which is deemed material.
Item 4. Mine
Safety Disclosures.
Not applicable.
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
The accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
(1) Organization, Nature
of Business and Summary of Operations and Significant Accounting Policies
Organization and Nature of Business
TheStreet, Inc. together with its wholly
owned subsidiaries (“TheStreet”, “we”, “us” or the “Company”), is
a
leading financial news and information provider. Our business-to-business (“B2B”) and business-to-consumer (“B2C”)
content and products provide individual and institutional investors, advisors and dealmakers with actionable information from
the worlds of finance and business.
Our
B2B business products have helped diversify our business from primarily serving retail investors to also providing an indispensable
source of business intelligence for both high net worth individuals and executives in the top firms in the world.
The
Deal delivers sophisticated news and analysis on changes in corporate control including mergers and acquisitions, private equity,
corporate activism and restructuring. BoardEx is an institutional relationship capital management database and platform which
holds in-depth profiles of almost 1 million of the world's most important business leaders. Our third B2B business product, RateWatch,
publishes bank rate market information including competitive deposit, loan and fee rate data. Our B2B business derives revenue
primarily from subscription products, events/conferences and information services.
Our B2C business
is led by our namesake website,
TheStreet.com
, and includes free content and houses our premium subscription products,
such as RealMoney, RealMoney Pro and Actions Alerts PLUS, that target varying segments of the retail investing public. Our B2C
business primarily generates revenue from subscription products and advertising revenue.
Use of Estimates
The preparation of financial statements
in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected
in the consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying
consolidated financial statements include, but are not limited to, the following:
|
·
|
useful
lives of intangible assets,
|
|
·
|
useful
lives of property and equipment,
|
|
·
|
the
carrying value of goodwill, intangible assets and marketable securities,
|
|
·
|
allowances
for doubtful accounts and deferred tax assets,
|
|
·
|
accrued
expense estimates,
|
|
·
|
reserves
for estimated tax liabilities,
|
|
·
|
certain
estimates and assumptions used in the calculation of the fair value of equity compensation
issued to employees,
|
|
·
|
restructuring
charges, and
|
|
·
|
the
calculation of a contingent earn-out payment from the acquisition of Management Diagnostics
Limited.
|
Consolidation
The consolidated financial statements have
been prepared in accordance with GAAP and include the accounts of TheStreet, Inc. and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition
We report revenue in two categories: business
to business and business to consumer. Business to business revenue is primarily comprised of subscriptions that provide access
to director and officer profiles, relationship capital management services, bank rate data and transactional information pertaining
to the mergers and acquisitions environment as well as events/conferences, information services and other miscellaneous revenue.
Business to consumer revenue is primarily comprised of subscriptions that provide access to securities investment information
and stock market commentary, advertising and sponsorships and other miscellaneous revenue.
Subscriptions are charged to customers’
credit cards or are directly billed to corporate subscribers, and are generally billed in advance on a monthly, quarterly or annual
basis. The Company calculates net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled
subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the
subscription periods. Deferred revenue relates to payments for subscription fees for which revenue has not been recognized because
services have not yet been provided.
Subscription revenue is subject to estimation
and variability due to the fact that, in the normal course of business, subscribers may for various reasons contact us or their
credit card companies to request a refund or other adjustment for a previously purchased subscription. With respect to many of
our business to consumer products, we offer the ability to receive a refund during the first 30 days but none thereafter. Accordingly,
we maintain a provision for estimated future revenue reductions resulting from expected refunds and chargebacks related to subscriptions
for which revenue was recognized in a prior period. The calculation of this provision is based upon historical trends and is reevaluated
each quarter. The provision was not material for the years ended December 31, 2016 and 2015.
Advertising revenue is comprised of fees
charged for the placement of advertising and sponsorships, primarily within
TheStreet.com
, for which revenue is recognized
as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured.
Cash, Cash Equivalents and Restricted Cash
The Company considers all short-term investment-grade
securities with original maturities of three months or less from the date of purchase to be cash equivalents. As of December 31,
2016, the Company has a total of approximately $500 thousand of cash that serves as collateral for an outstanding letter of credit,
which cash is classified as restricted. The letter of credit serves as a security deposit for the Company’s office space
in New York City.
Property and Equipment
Property and equipment are stated at cost,
net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated
useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three
years and of furniture and fixtures is five years. Leasehold improvements are amortized on a straight-line basis over the shorter
of the respective lease term or the estimated useful life of the asset. If the useful lives of the assets differ materially from
the estimates contained herein, additional costs could be incurred, which could have an adverse impact on our expenses.
Capitalized Software and Website Development Costs
The Company expenses all costs incurred
in the preliminary project stage for software developed for internal use and capitalizes all external direct costs of materials
and services consumed in developing or obtaining internal-use computer software in accordance with Accounting Standards Codification
(“ASC”) 350,
Intangibles – Goodwill and Other
(“ASC 350”)
.
In addition, for employees
who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent
directly on the project, the Company capitalizes payroll and payroll-related costs of such employees incurred once the development
has reached the applications development stage. For the years ended December 31, 2016 and 2015, the Company capitalized software
development costs totaling approximately $613 thousand and $486 thousand, respectively. All costs incurred for upgrades, maintenance
and enhancements that do not result in additional functionality are expensed.
The Company also accounts for its Website
development costs under ASC 350
,
which provides guidance on the accounting for the costs of development of company Websites,
dividing the Website development costs into five stages: (1) the planning stage, during which the business and/or project plan
is formulated and functionalities, necessary hardware and technology are determined, (2) the Website application and infrastructure
development stage, which involves acquiring or developing hardware and software to operate the Website, (3) the graphics development
stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during
which the information to be presented on the Website, which may be either textual or graphical in nature, is developed, and (5)
the operating stage, during which training, administration, maintenance and other costs to operate the existing Website are incurred.
The costs incurred in the Website application and infrastructure stage, the graphics development stage and the content development
stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the
project is completed and placed into service. For the years ended December 31, 2016 and 2015, the Company capitalized Website
development costs totaling approximately $1.2 million and $1.8 million, respectively.
Capitalized software and Website development
costs are amortized using the straight-line method over the estimated useful life of the software or Website, which varies based
upon the project. Total amortization expense was approximately $1.8 million and $1.0 million, for the years ended December 31,
2016 and 2015, respectively.
Goodwill and Indefinite Lived Intangible Assets
Goodwill represents the excess of purchase
price over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Under
the provisions of ASC 350, goodwill and indefinite lived intangible assets are required to be tested for impairment on an annual
basis and between annual tests whenever circumstances arise that indicate a possible impairment might exist. We perform
our annual impairment tests as of October 1 each year. Impairment exists when the carrying amount of goodwill or indefinite lived
intangible assets of a reporting unit exceed their implied fair value, resulting in an impairment charge for this excess.
During the year ended December 31, 2015,
the business was managed as a single segment where subscription and advertising products were sold throughout the Company, financial
results were reviewed on a consolidated basis and separate and discrete financial information was not available. During 2016, the Company reassessed the identification of operating segments
due to changes in key personnel, including the Chief Operating Decision Maker, and during the fourth quarter of 2016 began to
provide separate and discrete segment financial information. We currently regard our Company to operate in three distinct operating
segments: The Deal / BoardEx, RateWatch and Business to Consumer. These operating segments also represent the Company’s
reporting units. Prior periods have been adjusted to reflect the change in operating segments.
The Company tests goodwill
for impairment using a quantitative analysis consisting of a two-step approach. The first step of our
quantitative analysis consists of a comparison of the carrying value of each of our reporting units, including goodwill, to
the estimated fair value of each of our reporting units using a market approach for the valuation of our Common Stock, based
upon actual prices of the Company’s Common Stock, and the income approach for the estimated fair value of the
Company’s outstanding Preferred Shares. The Company also performed an income approach to confirm the reasonableness of
these result by using the discounted cash flow methodology. If step one resulted in the carrying value of
the reporting unit exceeding the fair value of such reporting unit, we would then proceed to step two which would require us
to calculate the amount of impairment loss, if any, that we would record for such reporting unit. The calculation
of the impairment loss in step two would be equivalent to the reporting unit’s carrying value of goodwill less the
implied fair value of such goodwill.
Our use of a discounted cash flow methodology
includes estimates of future revenue based upon budget projections and growth rates which take into account estimated inflation
rates. We also develop estimates for future levels of gross and operating profits and projected capital expenditures. Our
methodology also includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors.
The estimates that we use in our discounted cash flow methodology involve many assumptions by management that are based upon future
growth projections.
ASU 2011-08,
Testing for Goodwill Impairment
(“ASU 2011-08”) permits an entity to make a qualitative assessment
of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying
the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting
unit is less than its carrying amount, it need not perform the two-step impairment test. During 2016, the Company elected not
to apply the qualitative assessment under this guidance and continued to apply the quantitative assessment in its evaluating of
goodwill for impairment.
Based upon the annual impairment test performed
as of October 1, 2016, we concluded that The Deal / BoardEx reporting unit goodwill was impaired while the RateWatch and Business
to Consumer reporting units’ were not impaired by approximately 16% and 33%, respectively. During the fourth quarter of 2016,
the Company’s stock price declined from an average price of $1.115 on the valuation date to $0.855 as of December 31, 2016.
This triggering event resulted in the Company performing a second impairment review as of December 31, 2016. Based on this analysis,
we also concluded that The Deal / BoardEx reporting unit goodwill was impaired as of December 31, 2016, while the RateWatch and
Business to Consumer reporting units’ were not impaired by approximately 26% and 21%, respectively.
As a result of our impairment testing, we
recorded an impairment charge of approximately $11.6 million to The Deal / BoardEx reporting unit.
The fair value of the Company’s outstanding
Preferred Shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs
as well as an appropriate cash flow discount rate. Further, in assigning a fair value to the Company’s Preferred Stock, the
Company also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation
or dissolution of the Company or upon any change of control event. Additionally, the holders of the Preferred Shares are entitled
to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and,
provided certain preferred share ownership levels are maintained, are entitled to representation on the Company’s board of
directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes
of capital stock, including Common Stock (with certain exceptions) and any increases in the per-share amount of dividends payable
to the holders of the Common Stock. A decrease in the price of the Company’s Common Stock, or changes in the estimated value
of the Company’s Preferred Shares, could materially affect the determination of the fair value and could result in an impairment
charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results
of operations.
In conducting our 2016 annual indefinite
lived intangible asset impairment test with the assistance of our independent appraisal firm, we determined its fair value using
the relief-from-royalty method. The application of the relief-from-royalty method requires the estimation of future income and
the conversion of that income into an estimate of value. Future income related to a trade name is measured in terms of the savings
that a company realizes by owning the indefinite lived trade name, thereby avoiding royalty payments to use the trade name in the
absence of ownership. To calculate the royalty savings, we estimate (i) future revenue attributable to the RateWatch trade name;
(ii) a royalty rate that a hypothetical licensee would be willing to pay for its use; and (iii) a discount rate to reduce future
after-tax royalty savings to present value. We selected an appropriate royalty rate by searching various transaction databases
for publicly disclosed transactions to license similar assets between service businesses, with a focus on companies that operate
in industries similar to RateWatch. Based upon the analysis, we concluded that the book value of the indefinite lived trade name
was not impaired as of the October 1, 2016 valuation date as the fair value exceeded its book value by approximately 29%.
Based upon the annual impairment test performed
in 2015, the Company concluded that the book value of its indefinite lived trade name was not impaired as the fair value exceeded
its book value by approximately 129%.
In
testing
for impairment of the Company’s
indefinite lived intangible asset, the Company determined the fair value using the
relief-from-royalty method. This analysis calculated the fair value as the present value of the future expenses avoided by owning
the indefinite lived trade name rather than having to license its use. The Company selected an appropriate royalty rate by reviewing
licensing transactions for similar trade names and by considering the profitability associated with its operations. Based upon
annual impairment tests performed in 2015 and 2014, the Company concluded that the book value of its indefinite lived trade name
was not impaired as the fair value exceeded its book value by approximately 129% and 165%, respectively.
Additionally, the Company evaluates the
remaining useful lives of intangible assets each year to determine whether events or circumstances continue to support their useful
life. There have been no changes in useful lives of intangible assets for each period presented.
Long-Lived Assets
The Company evaluates long-lived assets,
including amortizable identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets is measured by comparing
the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If
the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
Management does not believe that there
was any impairment of long-lived assets as of December 31, 2016 and 2015.
Income Taxes
The Company accounts for its income taxes
in accordance with ASC 740-10,
Income Taxes
(“ASC 740-10”). Under ASC 740-10, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some or all of the deferred tax assets will not be realized based on all available
positive and negative evidence. As of December 31, 2016 and 2015, we maintain a full valuation allowance against our deferred
tax assets due to our history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in
the future and our assessment that the realization of the deferred tax assets did not meet the “more likely than not”
criterion under ASC 740-10. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level
of profitability that demonstrates our ability to utilize these assets.
ASC 740-10 also prescribes a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected
to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained
upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return
and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.”
A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation
to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. As of
December 31, 2016 and 2015, no liability for unrecognized tax benefits was required to be recorded. Interest costs related to
unrecognized tax benefits would be classified within “Net interest expense” in the consolidated statements of operations.
Penalties would be recognized as a component of “General and administrative” expense. There is no interest expense
or penalty related to tax uncertainties reported in the consolidated statements of operations for the years ended December 31,
2016 or 2015.
Deferred tax assets pertaining to windfall
tax benefits on the exercise of share awards and the corresponding credit to additional paid-in capital are recorded if the related
tax deduction reduces tax payable. The Company has elected the “with-and-without approach” regarding ordering
of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under
this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit
is realized after considering all other tax benefits presently available to the Company.
The Company files income tax returns in
the United States (federal), and in various state and local jurisdictions, as well as in the United Kingdom and India. In
most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years
prior to 2013, and is not currently under examination by any federal, state or local jurisdiction. It is not anticipated
that unrecognized tax benefits will significantly change in the next twelve months.
Fair Value of Financial Instruments
The carrying amounts of accounts and other
receivables, accounts payable, accrued expenses and deferred revenue approximate fair value due to the short-term maturities of
these instruments.
Business Concentrations and Credit Risk
Financial instruments that subject the
Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains
all of its cash, cash equivalents and restricted cash in seven financial institutions, and performs periodic evaluations of the
relative credit standing of these institutions. As of December 31, 2016, the Company’s cash, cash equivalents and restricted
cash primarily consisted of checking accounts and money market funds.
For the years ended December 31, 2016 and
2015, no single customer accounted for 10% or more of consolidated revenue. As of December 31, 2016 and 2015, no single customer
accounted for more than 10% of our gross accounts receivable balance.
The Company’s customers are primarily
concentrated in the United States and Europe, and we carry accounts receivable balances. The Company performs ongoing credit evaluations,
generally does not require collateral, and establishes an allowance for doubtful accounts based upon factors surrounding the credit
risk of customers, historical trends and other information. To date, actual losses have been within management’s expectations.
Other Comprehensive Loss
Comprehensive loss is a measure which includes
both net loss and other comprehensive loss. Other comprehensive loss results from items deferred from recognition into
the statement of operations. Accumulated other comprehensive loss is separately presented on the consolidated statement
of comprehensive loss and on both the Company's consolidated balance sheet and as part of the consolidated statement of stockholders’
equity. Other comprehensive loss consists of unrealized gains and losses on marketable securities classified as available for
sale as well as foreign currency translation adjustments from subsidiaries where the local currency is the functional currency.
Foreign Currency
The functional currency of the Company’s
international subsidiaries is the local currency. The financial statements of these subsidiaries are translated into U.S. dollars
using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and monthly average rates
of exchange for the period for revenue and expense. Translation gains (losses) are recorded in accumulated other comprehensive
loss as a component of stockholders’ equity. Gains and losses resulting from currency transactions are included in earnings.
Net Loss Per Share of Common Stock
Basic net loss per share is computed using
the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted
average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential
common shares does not result in a lower net loss per share. Potential common shares consist of restricted stock units (using
the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock
method), and the conversion of the Company’s convertible preferred stock (using the if-converted method). For the years
ended December 31, 2016 and 2015, approximately 708 thousand and 3.1 million, respectively, of unvested restricted stock units,
vested and unvested options to purchase Common Stock, were excluded from the calculation, as their effect would result in a lower
net loss per share.
Advertising Costs
Advertising costs are expensed as incurred.
For the years ended December 31, 2016 and 2015, advertising expense totaled approximately $2.5 million and $2.6 million, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation
in accordance with ASC 718-10,
Share Based Payment Transactions
(“ASC 718-10”). This requires that the cost
resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values.
Stock-based compensation expense recognized
for the years ended December 31, 2016 and 2015 was approximately $1.6 million (inclusive if $105 thousand of noncash compensation
expense charged to restructuring and other charges) and $1.6 million, respectively. As of December 31, 2016, there was approximately
$1.9 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 1.8
years.
Stock-based compensation expense recognized
in the Company’s consolidated statements of operations for the years ended December 31, 2016 and 2015 includes compensation
expense for all share-based payment awards based upon the estimated grant date fair value. The Company recognizes compensation
expense for share-based payment awards on a straight-line basis over the requisite service period of the award. As stock-based
compensation expense recognized in the years ended December 31, 2016 and 2015 is based upon awards ultimately expected to vest,
it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant which are revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.
The Company estimates the value of stock
option awards on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s
stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividends. Because option-pricing
models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options.
The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value stock
option awards at their grant date. In determining the volatility assumption, the Company used a historical analysis of the volatility
of the Company’s share price for the preceding period equal to the expected option lives. The expected option lives, which
represent the period of time that options granted are expected to be outstanding, were estimated based upon the “simplified”
method for “plain-vanilla” options. The risk-free interest rate assumption was based upon observed interest rates
appropriate for the term of the Company’s stock option awards. The dividend yield assumption was based on the history and
expectation of future dividend payouts. The value of the portion of the award that is ultimately expected to vest is recognized
as expense over the requisite service periods. The Company’s estimate of pre-vesting forfeitures is primarily based on historical
experience and is adjusted to reflect actual forfeitures as the options vest. The weighted-average grant date fair value per share
of stock option awards granted during the years ended December 31, 2016 and 2015 was $0.37 and $0.39, respectively, using the
Black-Scholes model with the following weighted-average assumptions:
|
|
For the Years Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Expected option lives
|
|
|
4.5
years
|
|
|
|
3.0
years
|
|
Expected volatility
|
|
|
34.87
|
%
|
|
|
35.45
|
%
|
Risk-free interest rate
|
|
|
1.12
|
%
|
|
|
0.97
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
4.59
|
%
|
The value of each restricted stock unit
awarded is equal to the closing price per share of the Company’s Common Stock on the date of grant. The value of the portion
of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. The weighted-average
grant date fair value per share of restricted stock units granted during the years ended December 31, 2016 and 2015 was $1.30
and $2.19, respectively.
The Company utilizes the alternative transition
method for calculating the tax effects of stock-based compensation. Under the alternative transition method the Company established
the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee
stock-based compensation and then determined the subsequent impact on the APIC pool and cash flows of the tax effects of employee
stock-based compensation awards that are outstanding.
2007 Performance Incentive Plan
In 2007, the Company adopted the 2007 Plan,
whereby executive officers, directors, employees and consultants may be eligible to receive cash or equity-based performance awards
based on set performance criteria.
In 2016 and 2015, the Compensation Committee
granted short-term cash performance awards, payable to certain officers, upon the Company’s achievement of specified performance
goals for such year as defined by the Compensation Committee. The target short-term cash bonus opportunities for officers reflected
a percentage of the officer’s base salary. Potential payout was zero if a threshold percentage of the target was not achieved
and a sliding scale thereafter, subject to a cap, starting at a figure less than 100% if the threshold was achieved but the target
was not met and ending at a figure above 100% if the target was exceeded. Short-term incentives of approximately $486 thousand
and $670 thousand were deemed earned with respect to the years ended December 31, 2016 and 2015, respectively.
Preferred Stock
The Company applies the guidance in ASC
480,
Distinguishing Liabilities from Equity
(“ASC 480”) when determining the classification and measurement
of its convertible preferred shares. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments
and are measured at fair value. The Company classifies conditionally redeemable preferred shares (if any), which includes preferred
shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence
of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies
its preferred shares as a component of stockholders’ equity.
The Company’s Series B Convertible
Preferred Stock does not feature any redemption rights within the holders’ control or conditional redemption features not
solely within the Company’s control as of December 31, 2016. Accordingly, the Series B Convertible Preferred Stock is presented
as a component of stockholders’ equity.
Subsequent Events
The Company has evaluated subsequent events
for recognition or disclosure.
New Accounting Pronouncements
Accounting Pronouncements Adopted
In January 2015, the FASB issued ASU No.
2015-01,
Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items
(“ASU 2015-01”). ASU 2015-01 eliminates the concept of extraordinary
items from GAAP but retains the presentation and disclosure guidance for items that are unusual in nature or occur infrequently
and expands the guidance to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 was effective
for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of ASU 2015-01 did not
have a material effect on our consolidated financial statements.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with
Customers” (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The
core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount
that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing GAAP. On July 9, 2015, the FASB voted to defer the effective date by one year to December
15, 2017 for interim and annual reporting periods beginning after that date. Early adoption of ASU 2014-09 is permitted
but not before the original effective date (annual periods beginning after December 15, 2016). When effective, ASU 2014-09 prescribes
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each
prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative
effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Based
upon our revenue streams of subscription and advertising, we do not believe that adoption of ASU 2014-09 will have a significant
impact on our consolidated financial statements.
In November 2015, the FASB issued ASU No.
2015-17 (Topic 740), “Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). ASU 2015-17 requires
deferred tax liabilities and assets to be classified as noncurrent in the Consolidated Balance Sheet. The standard will be effective
for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual
periods. Early adoption is permitted for financial statements that have not been previously issued. The ASU may be applied either
prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The impact of our pending
adoption of this standard is not expected to have a material impact on our consolidated balance sheet.
In February 2016, the FASB issued ASU No.
2016-02,
Leases
(“ASU 2016-02”). ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee
to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will
be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.
The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. As the Company does not lease any office equipment and our office space leases are the only leases with a term longer
than 12 months, we do not believe that adoption of ASU 2016-02 will have a significant impact on our operating results.
In March 2016, the FASB issued ASU No.
2016-09,
Improvements to Employee Share-Based Payment Accounting
("ASU No. 2016-09"). ASU 2016-09 simplifies
various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements.
The amendments include income tax consequences, the accounting for forfeitures, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016,
and interim periods within those annual periods. The impact of our pending adoption of the new standard is not expected to have
a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
"Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
" (“ASU
2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized
cost. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption
permitted for interim and annual reporting periods beginning after December 15, 2018. ASU 2016-13 is required to be adopted
using the modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance is effective. Based upon the level and makeup of our financial receivables, past
loss activity and current known activity regarding our outstanding receivables, we do not expect that the adoption of ASU 2016-13
will have a material impact on our consolidated financial statements.
In August 2016, the FASB issued Accounting
Standards Update No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(ASU 2016-15). ASU
2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of
cash flows and to eliminate the diversity in practice related to such classifications. The guidance in ASU 2016-15 is required
for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The impact of our pending adoption
of the new standard is not expected to have a material impact on our consolidated statement of cash flows.
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04,
Intangibles — Goodwill and Other Simplifying the Test for goodwill Impairment
(“ASU
2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2, an entity had to perform
procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets
and liabilities) following the procedure that Instead, under ASU 2017-04, an entity should perform its goodwill impairment test
by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for
the amount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or
interim goodwill impairment tests in fiscal years beginning after December 31, 2019, with early adoption permitted for interim
or annual goodwill impairment tests performed after January 1, 2017. The Company plans to adopt this pronouncement in the first
quarter of 2017 and we do not expect that the adoption to have a material impact on our consolidated financial statements.
(2) Net Loss Per Share
Basic net loss per share is computed using
the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted
average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential
common shares does not result in a lower net loss per share. Potential common shares consist of restricted stock units (using
the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock
method), and the conversion of the Company’s convertible preferred stock (using the if-converted method). For the years
ended December 31, 2016 and 2015, approximately $708 thousand and 3.1 million unvested restricted stock units, and vested and
unvested stock options, respectively, were excluded from the calculation, as their effect would result in a lower net loss per
share.
The following table reconciles the numerator and denominator
for the calculation.
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
17,514,715
|
|
|
$
|
1,543,003
|
|
Preferred stock cash dividends
|
|
|
-
|
|
|
|
385,696
|
|
Numerator for basic and diluted
earnings per share – Net loss attributable to common stockholders
|
|
$
|
17,514,715
|
|
|
$
|
1,928,699
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted shares outstanding
|
|
|
35,236,113
|
|
|
|
34,839,233
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(0.50
|
)
|
|
$
|
(0.06
|
)
|
(3) Cash and Cash Equivalents, Marketable Securities and
Restricted Cash
The Company’s cash and cash equivalents
and restricted cash primarily consist of checking accounts and money market funds. As of December 31, 2016 and 2015, marketable
securities consist of two municipal auction rate securities (“ARS”) issued by the District of Columbia with a cost
basis of approximately $1.9 million and a fair value of approximately $1.6 million and $1.6 million, respectively. With the exception
of the ARS, Company policy limits the maximum maturity for any investment to three years. The ARS mature in the year 2038. The
Company accounts for its marketable securities in accordance with the provisions of ASC 320-10. The Company classifies these securities
as available for sale and the securities are reported at fair value. Unrealized gains and losses are recorded as a component of
accumulated other comprehensive loss and excluded from net loss as they are deemed temporary. Additionally, as of December 31,
2016 and 2015, the Company has a total of approximately $500 thousand and $661 thousand, respectively, of cash that serves as
collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security
deposits for the Company’s office space in New York City.
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash and cash equivalents
|
|
$
|
21,371,122
|
|
|
$
|
28,445,416
|
|
Noncurrent marketable securities
|
|
|
1,550,000
|
|
|
|
1,590,000
|
|
Current and noncurrent restricted cash
|
|
|
500,000
|
|
|
|
661,250
|
|
Total cash and cash equivalents, noncurrent marketable securities and
current and noncurrent restricted cash
|
|
$
|
23,421,122
|
|
|
$
|
30,696,666
|
|
(4) Fair Value Measurements
The Company measures the fair value of
its financial instruments in accordance with ASC 820-10, which refines the definition of fair value, provides a framework for
measuring fair value and expands disclosures about fair value measurements. ASC 820-10 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants
at the reporting date. The statement establishes consistency and comparability by providing a fair value hierarchy that prioritizes
the inputs to valuation techniques into three broad levels, which are described below:
|
•
|
Level 1: Inputs are quoted market prices in active markets
for identical assets or liabilities (these are observable market inputs).
|
|
•
|
Level 2: Inputs other than quoted market prices included
within Level 1 that are observable for the asset or liability (includes quoted market
prices for similar assets or identical or similar assets in markets in which there are
few transactions, prices that are not current or vary substantially).
|
|
•
|
Level 3: Inputs are unobservable inputs that reflect
the entity’s own assumptions in pricing the asset or liability (used when little
or no market data is available).
|
Financial assets and liabilities included in our financial
statements and measured at fair value are classified based on the valuation technique level in the table below:
|
|
As of December 31, 2016
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
21,371,122
|
|
|
$
|
21,371,122
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,550,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,550,000
|
|
Contingent earn-out (3)
|
|
|
907,657
|
|
|
|
—
|
|
|
|
—
|
|
|
|
907,657
|
|
Total at fair value
|
|
$
|
24,328,779
|
|
|
$
|
21,871,122
|
|
|
$
|
—
|
|
|
$
|
2,457,657
|
|
|
|
As of December 31, 2015
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
28,445,416
|
|
|
$
|
28,445,416
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
661,250
|
|
|
|
661,250
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,590,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,590,000
|
|
Contingent earn-out (3)
|
|
|
2,590,339
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,590,339
|
|
Total at fair value
|
|
$
|
33,287,005
|
|
|
$
|
29,106,666
|
|
|
$
|
—
|
|
|
$
|
4,180,339
|
|
(1) Cash
and cash equivalents and restricted cash, totaling approximately $21.9 million and $29.1 million as of December 31, 2016 and 2015,
respectively, consist primarily of checking accounts and money market funds for which we determine fair value through quoted market
prices.
(2) Marketable
securities include two municipal ARS issued by the District of Columbia having a fair value totaling approximately $1.6 million
and $1.6 million as of December 31, 2016 and 2015, respectively. Historically, the fair value of ARS investments approximated
par value due to the frequent resets through the auction process. Due to events in credit markets, the auction events, which historically
have provided liquidity for these securities, have been unsuccessful. The result of a failed auction is that these ARS holdings
will continue to pay interest in accordance with their terms at each respective auction date; however, liquidity of the securities
will be limited until there is a successful auction, the issuer redeems the securities, the securities mature or until such time
as other markets for these ARS holdings develop. For each of our ARS, we evaluate the risks related to the structure, collateral
and liquidity of the investment, and forecast the probability of issuer default, auction failure and a successful auction at par,
or a redemption at par, for each future auction period. Temporary impairment charges are recorded in accumulated other comprehensive
loss, whereas other-than-temporary impairment charges are recorded in our consolidated statement of operations. As of December
31, 2016, the Company determined there was a decline in the fair value of its ARS investments of $300 thousand from its cost basis,
which was deemed temporary and was included within accumulated other comprehensive loss. The Company used a discounted cash flow
and market approach model to determine the estimated fair value of its investment in ARS. The assumptions used in preparing the
discounted cash flow model include estimates for interest rate, timing and amount of cash flows and expected holding period of
ARS.
(3) Contingent
earn-out represents additional purchase consideration payable to the former shareholders of Management Diagnostics Limited based
upon the achievement of specific 2017 audited revenue benchmarks. The probability of achieving each benchmark is based on Management’s
assessment of the projected 2017 revenue. The present value of each probability weighted payment was calculated by discounting
the probability weighted payment by the corresponding present value factor.
The following table provides a reconciliation
of the beginning and ending balance for the Company’s assets and liabilities measured at fair value using significant unobservable
inputs (Level 3):
|
|
Marketable
Securities
|
|
Balance December 31, 2014
|
|
$
|
1,560,000
|
|
Change in fair value of investment
|
|
|
30,000
|
|
Balance December 31, 2015
|
|
|
1,590,000
|
|
Change in fair value of investment
|
|
|
(40,000
|
)
|
Balance December 31, 2016
|
|
$
|
1,550,000
|
|
|
|
Contingent
Earn-Out
|
|
Balance December 31, 2014
|
|
$
|
2,602,105
|
|
Purchase accounting adjustment
|
|
|
(144,398
|
)
|
Accretion of net present value
|
|
|
132,632
|
|
Balance December 31, 2015
|
|
|
2,590,339
|
|
Reduction to estimated earn-out
|
|
|
(1,807,945
|
)
|
Accretion of net present value
|
|
|
125,263
|
|
Balance December 31, 2016
|
|
$
|
907,657
|
|
(5) Property and Equipment
Property and equipment are stated at cost,
net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated
useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three
years and of furniture and fixtures is five years. Leasehold improvements are amortized on a straight-line basis over the shorter
of the respective lease term or the estimated useful life of the asset. If the useful lives of the assets differ materially from
the estimates contained herein, additional costs could be incurred, which could have an adverse impact on our expenses.
Property and equipment as of December 31, 2016 and 2015 consists
of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computer equipment and software
|
|
$
|
2,516,189
|
|
|
$
|
1,823,428
|
|
Furniture and fixtures and telephone equipment
|
|
|
2,080,658
|
|
|
|
2,041,229
|
|
Leasehold improvements
|
|
|
4,635,446
|
|
|
|
3,713,491
|
|
|
|
|
9,232,293
|
|
|
|
7,578,148
|
|
Less accumulated depreciation and amortization
|
|
|
5,682,286
|
|
|
|
4,804,411
|
|
Property and equipment, net
|
|
$
|
3,550,007
|
|
|
$
|
2,773,737
|
|
Depreciation and amortization expense for
the above noted property and equipment was approximately $964 thousand and $1.3 million for the years ended December 31, 2016
and 2015, respectively. The Company does not include depreciation and amortization expense in cost of services, sales and marketing
or general and administrative expense.
(6) Goodwill and Intangible Assets
The changes in the carrying amount of goodwill
for the years ended December 31, 2016 and 2015 were as follows:
Balance as of December 31, 2014
|
|
$
|
44,810,467
|
|
Purchase accounting adjustments
|
|
|
(237,772
|
)
|
Exchange rate impact
|
|
|
(1,254,025
|
)
|
Balance as of December 31, 2015
|
|
|
43,318,670
|
|
Impairment charge
|
|
|
(11,583,000
|
)
|
Exchange rate impact
|
|
|
(2,552,529
|
)
|
Balance as of December 31, 2016
|
|
$
|
29,183,141
|
|
During the year ended December 31, 2015, the business was managed
as a single segment where subscription and advertising products were sold throughout the Company, financial results were reviewed
on a consolidated basis and separate and discrete financial information was not available. During 2016, the Company reassessed the identification of operating segments due to changes in key personnel,
including the Chief Operating Decision Maker, and during the fourth quarter of 2016 began to provide separate and discrete segment
financial information. We currently regard our Company to operate in three distinct operating segments: The Deal / BoardEx, RateWatch
and Business to Consumer. These operating segments also represent the Company’s reporting units.
|
|
The Deal/
BoardEx
|
|
|
RateWatch
|
|
|
Business to
Consumer
|
|
|
Total
|
|
Balance as of December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,810,467
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237,772
|
)
|
Exchange rate impact
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,254,025
|
)
|
Balance December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,318,670
|
|
Exchange rate impact
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,897,318
|
)
|
Balance October 1, 2016
|
|
$
|
14,104,120
|
|
|
$
|
5,851,050
|
|
|
$
|
21,466,182
|
|
|
|
41,421,352
|
|
Exchange rate impact
|
|
|
(655,211
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(655,211
|
)
|
Impairment charge
|
|
|
(11,583,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,583,000
|
)
|
Balance December 31, 2016
|
|
$
|
1,865,909
|
|
|
$
|
5,851,050
|
|
|
$
|
21,466,182
|
|
|
$
|
29,183,141
|
|
The Company’s goodwill and intangible assets and related
accumulated amortization as of December 31, 2016 and 2015 consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Total goodwill
|
|
$
|
29,183,141
|
|
|
$
|
43,318,670
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Trade name
|
|
$
|
720,000
|
|
|
$
|
720,000
|
|
Total intangible assets not
subject to amortization
|
|
|
720,000
|
|
|
|
720,000
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
13,622,590
|
|
|
|
14,188,406
|
|
Software models
|
|
|
1,988,194
|
|
|
|
1,988,194
|
|
Noncompete agreement
|
|
|
130,000
|
|
|
|
130,000
|
|
Product databases
|
|
|
8,608,166
|
|
|
|
8,863,608
|
|
Trade names
|
|
|
719,085
|
|
|
|
786,878
|
|
Capitalized website and software development
|
|
|
9,313,536
|
|
|
|
7,511,193
|
|
Domain names
|
|
|
160,425
|
|
|
|
160,425
|
|
Total intangible assets subject to amortization
|
|
|
34,541,996
|
|
|
|
33,628,704
|
|
Less accumulated amortization
|
|
|
(20,134,178
|
)
|
|
|
(15,674,328
|
)
|
Net intangible assets subject to amortization
|
|
|
14,407,818
|
|
|
|
17,954,376
|
|
Total intangible assets
|
|
$
|
15,127,818
|
|
|
$
|
18,674,376
|
|
Intangible assets were established through
business acquisitions and internally developed capitalized website and software development costs. Definite-lived intangible assets
are amortized on a straight-line basis over a weighted-average period of approximately 9.8 years for customer relationships, 4.7
years for software models, 3.0 years for noncompete agreements, 9.9 years for product databases and 8.7 years for trade names.
Amortization expense totaled approximately
$4.7 million and $3.1 million for the years ended December 31, 2016 and 2015, respectively. The estimated amortization expense
for the next five years and thereafter is as follows:
For the Years
Ended
|
|
|
|
December 31,
|
|
Amount
|
|
2017
|
|
$
|
3,811,478
|
|
2018
|
|
|
2,710,592
|
|
2019
|
|
|
1,888,557
|
|
2020
|
|
|
1,677,020
|
|
2021
|
|
|
1,526,446
|
|
Thereafter
|
|
|
2,793,725
|
|
Total
|
|
$
|
14,407,818
|
|
(7) Accrued Expenses
Accrued expenses as of December 31, 2016
and 2015 consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Payroll and related costs
|
|
$
|
2,261,401
|
|
|
$
|
1,941,665
|
|
Professional fees
|
|
|
531,876
|
|
|
|
728,336
|
|
Tax related
|
|
|
531,609
|
|
|
|
591,827
|
|
Business development
|
|
|
440,668
|
|
|
|
391,854
|
|
Data related costs
|
|
|
338,064
|
|
|
|
331,918
|
|
Other liabilities
|
|
|
1,011,940
|
|
|
|
1,176,381
|
|
Total accrued expenses
|
|
$
|
5,115,558
|
|
|
$
|
5,161,981
|
|
(8) Income Taxes
The Company accounts for its income taxes
in accordance with ASC 740-10. Under ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax
bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that
some or all of the deferred tax assets will not be realized based on all available positive and negative evidence. The Company has determined that it files U.S. Federal, State and Foreign tax returns and has determined
that its major tax jurisdictions are the United States, India and the United Kingdom. Tax years through 2016 remain open due to
net operating loss carryforwards and are subject to examination by appropriate taxing authorities.
The Company had approximately $160
million and $154 million of federal and state net operating loss carryforwards (“NOL”) as of December 31, 2016
and 2015, respectively. The Company has a full valuation allowance against its deferred tax assets as management concluded
that it was more likely than not that the Company would not realize the benefit of its deferred tax assets by generating
sufficient taxable income in future years. The Company expects to continue to provide a full valuation allowance until, or
unless, it can sustain a level of profitability that demonstrates its ability to utilize these assets. The ability of the
Company to utilize its NOL in full to reduce future taxable income may become subject to various limitations under Section
382 of the Internal Revenue Code of 1986 (“IRC”). The utilization of such carryforwards may be limited upon the
occurrence of certain ownership changes, including the purchase and sale of stock by 5% shareholders and the offering of
stock by the Company during any three-year period resulting in an aggregate change of more than 50% of the beneficial
ownership of the Company. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of
these carryforwards that can reduce future taxable income.
Subject to potential Section 382
limitations, the federal losses are available to offset future taxable income through 2036 and expire from 2019 through 2036.
Since the Company does business in various states and each state has its own rules with respect to the number of years
losses may be carried forward, the state net operating loss carryforwards expire through 2036. The net operating loss
carryforwards as of December 31, 2016 and 2015 include approximately $16 million and $16 million, respectively, related to
windfall tax benefits for which a benefit would be recorded to additional paid in capital when realized. Upon adoption of ASU
2016-09, all tax effects related to share based payments will be recognized through earnings subject to valuation allowance
considerations so we expect that any potential tax benefits from the adoption of ASU 2016-09 would increase our deferred tax
asset which would be offset by a valuation allowance.
The Company is subject to federal, state
and local corporate income taxes. The components of the provision for income taxes reflected on the consolidated statements of
operations are set forth below:
(in thousands)
|
|
2016
|
|
|
2015
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State and local
|
|
|
-
|
|
|
|
0
|
|
Foreign
|
|
|
139
|
|
|
|
4
|
|
Total current tax benefit
|
|
$
|
139
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
38
|
|
|
$
|
809
|
|
State and local
|
|
|
92
|
|
|
|
368
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Total deferred tax expense
|
|
$
|
130
|
|
|
$
|
1,177
|
|
|
|
|
|
|
|
|
|
|
Total tax expense
|
|
$
|
269
|
|
|
$
|
1,181
|
|
A reconciliation of the statutory U.S.
federal income tax rate to the Company's effective income tax rate is set forth below:
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
U.S. statutory federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
10.2
|
%
|
|
|
-67.2
|
%
|
Effect of permanent differences
|
|
|
-0.4
|
%
|
|
|
-35.7
|
%
|
R&D Credit
|
|
|
0.1
|
%
|
|
|
26.7
|
%
|
Foreign Tax Rate Differential
|
|
|
-6.3
|
%
|
|
|
-2.9
|
%
|
Change to valuation allowance
|
|
|
-39.0
|
%
|
|
|
-281.6
|
%
|
Other
|
|
|
-0.2
|
%
|
|
|
-
|
|
Effective income tax rate
|
|
|
-1.6
|
%
|
|
|
-326.6
|
%
|
The Company has not provided for U.S.
federal income and foreign withholding taxes on approximately $1.7 million of undistributed earnings from a non-U.S. subsidiary
as of December 31, 2016 because such earnings are intended to be reinvested indefinitely outside of the United States. If
these earnings were distributed, foreign tax credits may become available under current law to reduce the resulting U.S. income
tax liability. However, it is not practicable to determine the amount of the tax and credits. The foreign earnings that the Company
may repatriate to the United States in any year is limited to the amount of current year foreign earnings and are not made out
of historic undistributed accumulated earnings. The amount of current year foreign earnings that are available for repatriation
is determined after consideration of all foreign cash requirements including working capital needs, potential requirements for
litigation and regulatory matters, and merger and acquisition activities, among others.
Deferred income taxes reflect the net tax
effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of
the Company's net deferred tax assets and liabilities are set forth below:
|
|
As of December 31,
|
|
(in thousands)
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Operating loss carryforward
|
|
$
|
71,334
|
|
|
$
|
70,426
|
|
Windfall tax benefit carryforward
|
|
|
(5,332
|
)
|
|
|
(5,332
|
)
|
Capital loss carryforward
|
|
|
152
|
|
|
|
229
|
|
Goodwill
|
|
|
3,089
|
|
|
|
-
|
|
Intangible assets
|
|
|
2,339
|
|
|
|
(329
|
)
|
Accrued expenses
|
|
|
1,112
|
|
|
|
1,158
|
|
Depreciation
|
|
|
551
|
|
|
|
884
|
|
Other
|
|
|
1,935
|
|
|
|
1,820
|
|
Total deferred tax assets
|
|
|
75,180
|
|
|
|
68,856
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
(1,735
|
)
|
|
|
(1,612
|
)
|
Trademarks
|
|
|
(301
|
)
|
|
|
(294
|
)
|
Total deferred tax liabilities
|
|
|
(2,036
|
)
|
|
|
(1,906
|
)
|
Less: valuation allowance
|
|
|
(75,180
|
)
|
|
|
(68,856
|
)
|
Net deferred tax liability
|
|
$
|
(2,036
|
)
|
|
$
|
(1,906
|
)
|
The Company has no uncertain tax positions
pursuant to ASC 740-10 for the years ended December 31, 2016 and 2015.
(9)
Stockholders’ Equity
Convertible Preferred Stock
Securities Purchase Agreement
On November 15, 2007, the Company entered
into a Securities Purchase Agreement (the “Purchase Agreement”) with TCV VI, L.P., a Delaware limited partnership,
and TCV Member Fund, L.P., a Delaware limited partnership (collectively, the “Purchasers”).
Pursuant to the Purchase Agreement, the
Company sold the Purchasers an aggregate of 5,500 shares of its newly-created Series B convertible preferred stock, par value
$0.01 per share (“Series B Preferred Stock”), that are immediately convertible into an aggregate of 3,856,942 shares
of its Common Stock at a conversion price of $14.26 per share, and warrants (the “Warrants”) to purchase an aggregate
of 1,157,083 shares of Common Stock for $15.69 per share. The consideration paid for the Series B Preferred Stock and the Warrants
was $55 million. As of December 31, 2016, no Series B Preferred Stock has been converted and the Warrants have expired without
any shares having been purchased. The Series B Preferred Stock has not been registered and the Company has not registered the
shares of Common Stock issuable upon the conversion of the Series B Preferred Stock.
Investor Rights Agreement
On November 15, 2007, the Company also
entered into an Investor Rights Agreement with the Purchasers (the “Investor Rights Agreement”) pursuant to which,
among other things, the Company agreed to grant the Purchasers certain registration rights including the right to require the
Company to file a registration statement within 30 days to register the Common Stock issuable upon conversion of the Series B
Preferred Stock and upon exercise of the Warrants and to use its reasonable best efforts to cause the registration to be declared
effective within 90 days after the date the registration is filed. To date, no such request has been made.
Certificate of Designation
Pursuant to a Certificate of Designation
for the Series B Preferred Stock (the “Certificate of Designation”) filed by the Company with the Secretary of State
of the State of Delaware on November 15, 2007: (i) the Series B Preferred Stock has a purchase price per share equal to $10,000
(the “Original Issue Price”); (ii) in the event of any Liquidation Event (as defined in the Certificate of Designation),
the holders of shares of Series B Preferred Stock are entitled to receive, prior to any distribution to the holders of the Common
Stock, an amount per share equal to the Original Issue Price, plus any declared and unpaid dividends; (iii) the holders of the
Series B Preferred Stock have the right to vote on any matter submitted to a vote of the stockholders of the Company and are entitled
to vote that number of votes equal to the aggregate number of shares of Common Stock issuable upon the conversion of such holders’
shares of Series B Preferred Stock; (iv) for so long as 40% of the shares of Series B Preferred Stock remain outstanding, the
holders of a majority of such shares will have the right to elect one person to the Company’s board of directors; (v) the
Series B Preferred Stock automatically converts into an aggregate of 3,856,942 shares of Common Stock in the event that the Common
Stock trades on a trading market at or above a closing price equal to $28.52 per share for 90 consecutive trading days and any
demand registration previously requested by the holders of the Series B Preferred Stock has become effective; and (vi) so long
as 30% of the shares of the currently-outstanding Series B Preferred Stock remain outstanding, the affirmative vote of the holders
of a majority of such shares will be necessary to take any of the following actions: (a) authorize, create or issue any class
or classes of our capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series
B Preferred Stock or any securities exercisable or exchangeable for, or convertible into, any now or hereafter authorized capital
stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock (including,
without limitation, the issuance of any shares of Series B Preferred Stock (other than shares of Series B Preferred Stock issued
as a stock dividend or in a stock split)); (b) any increase or decrease in the authorized number of shares of Series B Preferred
Stock; (c) any amendment, waiver, alteration or repeal of our certificate of incorporation or bylaws in a way that adversely affects
the rights, preferences or privileges of the Series B Preferred Stock; (d) the payment of any dividends (other than dividends
paid in the capital stock of the Company or any of its subsidiaries) in excess of $0.10 per share per annum on the Common Stock
unless after the payment of such dividends we have unrestricted cash (net of all indebtedness for borrowed money, purchase money
obligations, promissory notes or bonds) in an amount equal to at least two times the product obtained by multiplying the number
of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; and (e) the
purchase or redemption of: (1) any Common Stock (except for the purchase or redemption from employees, directors and consultants
pursuant to agreements providing us with repurchase rights upon termination of their service with us) unless after such purchase
or redemption we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes
or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding
at the time such dividend is paid by the liquidation preference; or (2) any class or series of now or hereafter of our authorized
stock that ranks junior to (upon a liquidation event) the Series B Preferred Stock.
Treasury Stock
In December 2000, the Company’s Board
of Directors authorized the repurchase of up to $10 million of the Company’s Common Stock, from time to time, in private
purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock
repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available
for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series
B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its Common Stock (except as
described above). During the years ended December 31, 2016 and 2015, the Company did not purchase any shares of Common Stock under
the Program. Since inception of the Program, the Company has purchased a total of 5,453,416 shares of Common Stock at an aggregate
cost of approximately $7.3 million.
In addition, pursuant to the terms of the
Company’s 2007 Plan, and certain procedures adopted by the Compensation Committee of the Board of Directors, in connection
with the exercise of stock options by certain of the Company’s employees, and the issuance of shares of Common Stock in
settlement of vested restricted stock units, the Company may withhold shares in lieu of payment of the exercise price and/or the
minimum amount of applicable withholding taxes then due. Through December 31, 2016, the Company had withheld an aggregate of 1,850,665
shares which have been recorded as treasury stock. In addition, the Company received an aggregate of 211,608 shares in treasury
stock resulting from prior acquisitions. These shares have also been recorded as treasury stock.
Dividends
Beginning with the first quarter of 2016, the Company’s
Board of Directors suspended the payment of a quarterly dividend and will continue to evaluate the uses of its cash in connection
with planned investments in the business. During the year ended December 31, 2015 the Company paid a quarterly cash dividend of
$0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. These dividend payments
totaled approximately $3.9 million.
Stock Options
Under the terms of the 1998 Stock Incentive
Plan (the “1998 Plan”), 8,900,000 shares of Common Stock of the Company were reserved for awards of incentive stock
options, nonqualified stock options, restricted stock, deferred stock, restricted stock units, or any combination thereof. Under
the terms of the 2007 Plan, 7,750,000 shares of Common Stock of the Company were reserved for awards of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards. The
2007 Plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for
award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan.
Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of
Directors shall select in its discretion or delegate to management to select. Only employees of the Company are eligible to receive
grants of incentive stock options. Awards generally vest over a three- to five-year period and stock options generally have terms
of five to seven years. As of December 31, 2016, there remained approximately 1.3 million shares available for future awards under
the 2007 Plan. In connection with awards under both the 2007 Plan and awards issued outside of the Plan as inducement grants to
new hires, the Company recorded approximately $1.6 million (inclusive of approximately $105 thousand included in restructuring
and other charges) and $1.6 million, of noncash stock-based compensation for the years ended December 31, 2016 and 2015, respectively.
A stock option represents the right, once
the option has vested and become exercisable, to purchase a share of the Company’s Common Stock at a particular exercise
price set at the time of the grant. A restricted stock unit (“RSU”) represents the right to receive one share of the
Company’s Common Stock (or, if provided in the award, the fair market value of a share in cash) on the applicable vesting
date for such RSU. Until the stock certificate for a share of Common Stock represented by an RSU is delivered, the holder of an
RSU does not have any of the rights of a stockholder with respect to the Common Stock. However, the grant of an RSU includes the
grant of dividend equivalents with respect to such RSU. The Company records cash dividends for RSUs to be paid in the future at
an amount equal to the rate paid on a share of Common Stock for each then-outstanding RSU granted. The accumulated dividend equivalents
related to outstanding grants vest on the applicable vesting date for the RSU with respect to which such dividend equivalents
were credited, and are paid in cash at the time a stock certificate evidencing the shares represented by such vested RSU is delivered.
A summary of the activity of the 2007 Plan,
and awards issued outside of the Plan pertaining to stock option grants is as follows:
|
|
Shares
Underlying
Awards
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Weighted
Average
Remaining
Contractual
Life
(In Years)
|
|
Awards outstanding, December 31, 2015
|
|
|
3,391,607
|
|
|
$
|
1.87
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
3,144,358
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(182,189
|
)
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(453,045
|
)
|
|
$
|
1.92
|
|
|
|
|
|
|
|
|
|
Awards outstanding, December 31, 2016
|
|
|
5,900,731
|
|
|
$
|
1.52
|
|
|
$
|
0
|
|
|
|
3.85
|
|
Awards vested and expected to vest at December 31, 2016
|
|
|
5,822,851
|
|
|
$
|
1.52
|
|
|
$
|
0
|
|
|
|
3.82
|
|
Awards exercisable at December 31, 2016
|
|
|
2,682,299
|
|
|
$
|
1.84
|
|
|
$
|
0
|
|
|
|
1.03
|
|
A summary of the
activity of the 2007 Plan pertaining to grants of restricted stock units is as follows:
|
|
Shares
Underlying
Awards
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
|
Weighted
Average
Remaining
Contractual
Life (In
Years)
|
|
Awards outstanding, December 31, 2015
|
|
|
806,324
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
557,586
|
|
|
|
|
|
|
|
|
|
Restricted stock units settled by delivery of Common
Stock upon vesting
|
|
|
(478,127
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
(167,788
|
)
|
|
|
|
|
|
|
|
|
Awards outstanding, December 31, 2016
|
|
|
717,995
|
|
|
$
|
610
|
|
|
|
1.21
|
|
Awards vested and expected to vest at December 31, 2016
|
|
|
709,495
|
|
|
$
|
603
|
|
|
|
0.99
|
|
A summary of the status of the Company’s
unvested share-based payment awards as of December 31, 2016 and changes in the year then ended is as follows:
Unvested Awards
|
|
Awards
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares underlying awards unvested at December 31, 2015
|
|
|
1,473,765
|
|
|
$
|
1.44
|
|
Shares underlying options granted
|
|
|
3,144,358
|
|
|
$
|
0.37
|
|
Shares underlying restricted stock units granted
|
|
|
557,586
|
|
|
$
|
1.30
|
|
Shares underlying options vested
|
|
|
(411,178
|
)
|
|
$
|
0.51
|
|
Shares underlying restricted stock units settled
by delivery of Common Stock upon vesting
|
|
|
(478,127
|
)
|
|
$
|
2.16
|
|
Shares underlying unvested options forfeited
|
|
|
(182,189
|
)
|
|
$
|
0.50
|
|
Shares underlying unvested restricted
stock units forfeited
|
|
|
(167,788
|
)
|
|
$
|
1.25
|
|
Shares underlying awards unvested at December
31, 2016
|
|
|
3,936,427
|
|
|
$
|
0.62
|
|
For the years ended December 31, 2016 and
2015, approximately 3.1 million and 41 thousand stock options, respectively, were granted to employees of the Company, and zero
and 603 options were exercised during the years ended December 31, 2016 and 2015, respectively, yielding $0 and $838, respectively,
of cash proceeds to the Company. For the years ended December 31, 2016 and 2015, approximately 558 thousand and 104 thousand restricted
stock units, respectively, were granted to employees of the Company, and 478 thousand and 491 thousand, respectively, were issued
under restricted stock unit grants. For the years ended December 31, 2016 and 2015, the total fair value of share-based awards
vested was approximately $696 thousand and $1.3 million, respectively. For the years ended December 31, 2016 and 2015, the total
intrinsic value of options exercised was approximately $0 and $373, respectively. For the years ended December 31, 2016 and 2015,
the total intrinsic value of restricted stock units that vested was approximately $484 thousand and $840 thousand, respectively.
As of December 31, 2016, there was approximately $1.9 million of unrecognized stock-based compensation expense remaining to be
recognized over a weighted-average period of 1.8 years.
(10) Commitments and Contingencies
Operating Leases and Employment Agreements
The Company is committed under operating
leases, principally for office space, which expire at various dates through January 2026. Certain leases contain escalation clauses
relating to increases in property taxes and maintenance costs. Rent expense was approximately $2.1 million and $2.1 million for
the years ended December 31, 2016 and 2015, respectively. Additionally, the Company has agreements with certain of its employees
and outside contributors, whose future minimum payments are dependent on the future fulfillment of their services thereunder.
As of December 31, 2016, total future minimum cash payments are as follows:
|
|
Payments Due by Year
|
|
Contractual
obligations:
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
After 2021
|
|
Operating leases
|
|
$
|
9,901,098
|
|
|
$
|
2,548,668
|
|
|
$
|
2,382,038
|
|
|
$
|
1,996,904
|
|
|
$
|
1,987,382
|
|
|
$
|
186,294
|
|
|
$
|
799,812
|
|
Employment agreement
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outside contributors
|
|
|
137,500
|
|
|
|
137,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total contractual cash obligations
|
|
$
|
12,538,598
|
|
|
$
|
5,186,168
|
|
|
$
|
2,382,038
|
|
|
$
|
1,996,904
|
|
|
$
|
1,987,382
|
|
|
$
|
186,294
|
|
|
$
|
799,812
|
|
Legal Proceedings
The Company is party to legal proceedings
arising in the ordinary course of business or otherwise, none of which is deemed material.
(11) Long Term Investment
During 2008, the Company made an investment in Debtfolio, Inc.
(“Debtfolio”), doing business as Geezeo, an online financial management solutions provider for banks and credit unions.
The investment totaled approximately $1.9 million for an 18.5% ownership stake. Additionally, the Company incurred approximately
$0.2 million of legal fees in connection with this investment. During the first quarter of 2009, the carrying value of the Company’s
investment was written down to fair value based upon an estimate of the market value of the Company’s equity in light of
Debtfolio’s efforts to raise capital at the time from third parties. The impairment charge approximated $1.5 million. During
the three months ended June 30, 2010, the Company determined it was necessary to record a second impairment charge totaling approximately
$555 thousand, writing the value of the investment to zero. This was deemed necessary by management based upon their consideration
of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity.
In October 2011, Debtfolio, Inc. repurchased the Company’s ownership stake in exchange for a subordinated promissory note
in the aggregate principal amount of $555 thousand payable on October 31, 2014. On October 28, 2014, a revised subordinated promissory
note with revised repayment terms was agreed to which required cash payments totaling $255 thousand during 2014, and eight quarterly
installments of approximately $48 thousand plus 5% simple interest during 2015 and 2016. As of December 31, 2016, all required
payments have been received.
(12) Restructuring and Other Charges
During the year ended December 31, 2012,
the Company implemented a targeted reduction in force. Additionally, in accessing the ongoing needs of the organization, the Company
elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously
capitalized software development projects. The actions were taken after a review of the Company’s cost structure with the
goal of better aligning the cost structure with the Company’s revenue base. These restructuring efforts resulted in restructuring
and other charges of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company’s
acquisition of The Deal LLC (“The Deal”) in September 2012, the Company discontinued the use of The Deal’s office
space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges of approximately
$3.5 million during the year ended December 31, 2012. In August 2015, the Company received a one year notice of termination under
which the landlord elected to terminate The Deal’s office space lease. As a result, the Company was no longer obligated
to fulfill the original full lease term and the Company recorded an adjustment to its restructuring reserve totaling approximately
$1.2 million, which resulted in a restructuring and other charges credit on the Company’s Consolidated Statements of Operations.
Additionally, the Company received a lease termination credit of approximately $583 thousand from the landlord when the office
space was vacated in August 2016. Collectively, these activities are referred to as the “2012 Restructuring”.
The following table displays the activity of the 2012 Restructuring reserve account from the initial charges
during the first quarter of 2012 through its conclusion during the year ended December 31, 2016.
|
|
Workforce
Reduction
|
|
|
Asset
Write-
Off
|
|
|
Termination
of Vendor
Services
|
|
|
Lease
Termination
|
|
|
Total
|
|
Restructuring charge
|
|
$
|
3,307,330
|
|
|
$
|
954,302
|
|
|
$
|
531,828
|
|
|
$
|
2,085,000
|
|
|
$
|
6,878,460
|
|
Noncash charges
|
|
|
(222,215
|
)
|
|
|
(954,302
|
)
|
|
|
(220,178
|
)
|
|
|
-
|
|
|
|
(1,396,695
|
)
|
Payments
|
|
|
(2,462,425
|
)
|
|
|
-
|
|
|
|
(148,816
|
)
|
|
|
(190,518
|
)
|
|
|
(2,801,759
|
)
|
Balance December 31, 2012
|
|
|
622,690
|
|
|
|
-
|
|
|
|
162,834
|
|
|
|
1,894,482
|
|
|
|
2,680,006
|
|
Adjustments to prior estimates
|
|
|
(7,586
|
)
|
|
|
-
|
|
|
|
5,446
|
|
|
|
27,130
|
|
|
|
24,990
|
|
(Payments)/sublease income, net
|
|
|
(615,104
|
)
|
|
|
-
|
|
|
|
(168,280
|
)
|
|
|
(640,200
|
)
|
|
|
(1,423,584
|
)
|
Balance December 31, 2013
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,281,412
|
|
|
|
1,281,412
|
|
Adjustment to prior estimates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,678
|
|
|
|
44,678
|
|
(Payments)/sublease income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,646
|
|
|
|
58,646
|
|
Balance December 31, 2014
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,384,736
|
|
|
|
1,384,736
|
|
Adjustment to prior estimates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,196,834
|
)
|
|
|
(1,196,834
|
)
|
(Payments)/sublease income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(88,593
|
)
|
|
|
(88,593
|
)
|
Balance December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,309
|
|
|
|
99,309
|
|
Adjustment to prior estimates
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(78,828
|
)
|
|
|
(78,828
|
)
|
(Payments)/sublease income, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,481
|
)
|
|
|
(20,481
|
)
|
Balance December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The following table shows, by reportable segment, the amounts
expensed and paid for our 2012 Restructuring and the remaining accrued balance of restructuring costs as of December 31, 2016:
|
|
The Deal /
BoardEx
|
|
|
RateWatch
|
|
|
Business to
Consumer
|
|
|
Total
|
|
Restructuring charge
|
|
$
|
3,459,836
|
|
|
$
|
218,129
|
|
|
$
|
3,200,495
|
|
|
$
|
6,878,460
|
|
Noncash charges
|
|
|
-
|
|
|
|
(38,707
|
)
|
|
|
(1,357,988
|
)
|
|
|
(1,396,695
|
)
|
Payments
|
|
|
(1,295,452
|
)
|
|
|
(105,867
|
)
|
|
|
(1,400,440
|
)
|
|
|
(2,801,759
|
)
|
Balance December 31, 2012
|
|
|
2,164,384
|
|
|
|
73,554
|
|
|
|
442,068
|
|
|
|
2,680,006
|
|
Adjustments to prior estimates
|
|
|
27,130
|
|
|
|
(1,436
|
)
|
|
|
(704
|
)
|
|
|
24,990
|
|
Payments
|
|
|
(910,102
|
)
|
|
|
(72,119
|
)
|
|
|
(441,363
|
)
|
|
|
(1,423,584
|
)
|
Balance December 31, 2013
|
|
|
1,281,412
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,281,412
|
|
Adjustments to prior estimates
|
|
|
44,678
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,678
|
|
(Payments)/sublease income, net
|
|
|
58,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,646
|
|
Balance December 31, 2014
|
|
|
1,384,736
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,384,736
|
|
Adjustments to prior estimates
|
|
|
(1,196,834
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,196,834
|
)
|
(Payments)/sublease income, net
|
|
|
(88,593
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(88,593
|
)
|
Balance December 31, 2015
|
|
|
99,309
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,309
|
|
Adjustments to prior estimates
|
|
|
(78,828
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(78,828
|
)
|
(Payments)/sublease income, net
|
|
|
(20,481
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,481
|
)
|
Balance December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
During the three months ended March 31,
2016, the Company announced the resignation of the Company’s President and Chief Executive Officer, who was also a member
of the Company’s Board of Directors. In connection with this resignation, the Company paid severance, will provide continuing
medical coverage for 18 months, and incurred recruiting fees, resulting in restructuring and other charges of approximately $1.5
million. Additionally, in August 2016 the Company received the lease termination fee from the landlord when The Deal’s office
space was vacated resulting in a reduction to restructuring and other charges of approximately $583 thousand.
(13) Change in Fair Value of Contingent Consideration
During the three months ended December
31, 2016, the Company reduced its estimate of the acquisition contingent earn-out payable to the former owners of Management Diagnostics
LLC based upon revised 2017 revenue estimates, a resulting in restructuring and other charges credit of approximately $1.8 million.
(14) Other Liabilities
Other liabilities consist of the following:
|
|
As of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred rent
|
|
$
|
1,904,319
|
|
|
$
|
1,870,583
|
|
Acquisition contingent earn-out
|
|
|
907,657
|
|
|
|
2,590,339
|
|
Deferred revenue
|
|
|
460,748
|
|
|
|
897,453
|
|
Other liabilities
|
|
|
2,092
|
|
|
|
2,092
|
|
|
|
$
|
3,274,816
|
|
|
$
|
5,360,467
|
|
(15) Employee Benefit Plan
The Company maintains a noncontributory
savings plan in accordance with Section 401(k) of the Internal Revenue Code. The 401(k) plan covers all eligible employees. For
the years ended December 31, 2016 and 2015, the plan provided an employer matching contribution of 100% of employee contributions,
up to a maximum of 8% of each employee’s total compensation within statutory limits. The Company’s matching
contribution totaled approximately $1.7 million and $1.7 million for the years ended December 31, 2016 and 2015, respectively.
(16) Selected Quarterly Financial Data (Unaudited)
|
|
For the Year Ended December 31, 2016
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
Total net revenue
|
|
$
|
16,069
|
|
|
$
|
16,293
|
|
|
$
|
15,214
|
|
|
$
|
15,924
|
|
Total operating expense (Note 1)
|
|
|
19,208
|
|
|
|
17,173
|
|
|
|
16,097
|
|
|
|
28,233
|
|
Net loss
|
|
|
(3,444
|
)
|
|
|
(1,211
|
)
|
|
|
(1,221
|
)
|
|
|
(11,639
|
)
|
Preferred stock cash dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,444
|
)
|
|
$
|
(1,211
|
)
|
|
$
|
(1,221
|
)
|
|
$
|
(11,639
|
)
|
Basic and diluted net loss attributable to common
stockholders
|
|
$
|
(0.10
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.33
|
)
|
|
|
For the Year Ended December 31, 2015
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
Total net revenue
|
|
$
|
16,890
|
|
|
$
|
17,137
|
|
|
$
|
16,662
|
|
|
$
|
16,967
|
|
Total operating expense (Note 2)
|
|
|
17,601
|
|
|
|
17,521
|
|
|
|
16,033
|
|
|
|
16,740
|
|
Net (loss) income
|
|
|
(977
|
)
|
|
|
(671
|
)
|
|
|
354
|
|
|
|
(249
|
)
|
Preferred stock cash dividends
|
|
|
96
|
|
|
|
96
|
|
|
|
96
|
|
|
|
96
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(1,073
|
)
|
|
$
|
(768
|
)
|
|
$
|
258
|
|
|
$
|
(346
|
)
|
Basic and diluted net (loss) income attributable
to common stockholders
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
Note 1: During the three months ended March 31, 2016, the
Company announced the resignation of the Company’s President and Chief Executive Officer resulting in restructuring and
other charges of approximately $1.4 million, with an additional $163 thousand charge recorded during the three months ended
June 30, 2016. Additionally, during the three months ended March 31, 2016, the Company recorded a $1.2 million provision as
an estimate for state and municipal sales tax not collected on sales to our customers or remitted to various states or
municipalities, with an additional $120 thousand recorded during the three months ended June 30, 2016. During the three
months ended September 30, 2016, the Company received a lease termination credit of approximately $583 thousand resulting
from the termination of The Deal’s office space lease. During the three months ended December 31, 2016, the Company
reduced its estimate of the acquisition contingent earn-out payable to the former owners of Management Diagnostics LLC based
upon revised 2017 revenue estimates, a resulting in a change in fair value of contingent consideration credit of
approximately $1.8 million. Additionally, during the three months ended December 31, 2016 the Company recorded an impairment
of goodwill of approximately $11.6 million, reversed $700 thousand of the sales tax provision that had been recorded earlier
in the year, and recorded catch up amortization expense of $1.5 million related to capitalized software and
website development projects.
Note 2: In August 2015, the Company received a one year notice
of termination under which the landlord elected to terminate The Deal’s office space lease resulting in a $1.2 million restructuring
and other charges reduction to total operating expense.
(17) Segment and Geographic Data
Segments
Effective October 1, 2016 and a result
of organizational changes related to our new management team in 2016, we changed our financial reporting to better reflect how
we gather and analyze business and financial information about our businesses. We now report our results in three segments: (i)
The Deal / BoardEx and (ii) RateWatch, which comprise our business to business segment, and (iii) business to consumer, which
is primarily comprised of the Company’s premium subscription newsletter products and website advertising. We have revised
our 2015 financial results to conform to the 2016 presentation.
|
|
For the Year Ended December
31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
22,130,695
|
|
|
$
|
21,716,721
|
|
- RateWatch
|
|
|
7,192,706
|
|
|
|
7,275,399
|
|
Total business to business
|
|
|
29,323,401
|
|
|
|
28,992,120
|
|
- Business to consumer
|
|
|
34,176,130
|
|
|
|
38,663,780
|
|
Total
|
|
$
|
63,499,531
|
|
|
$
|
67,655,900
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(14,714,304
|
)
|
|
$
|
(3,344,626
|
)
|
- RateWatch
|
|
|
(484,439
|
)
|
|
|
128,168
|
|
Total business to business
|
|
|
(15,198,743
|
)
|
|
|
(3,216,458
|
)
|
- Business to consumer
|
|
|
(2,012,844
|
)
|
|
|
2,977,433
|
|
Total
|
|
$
|
(17,211,587
|
)
|
|
$
|
(239,025
|
)
|
|
|
|
|
|
|
|
|
|
Net interest (expense) income:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(90,867
|
)
|
|
$
|
(142,694
|
)
|
- RateWatch
|
|
|
9,862
|
|
|
|
3,177
|
|
Total business to business
|
|
|
(81,005
|
)
|
|
|
(139,517
|
)
|
- Business to consumer
|
|
|
46,884
|
|
|
|
16,880
|
|
Total
|
|
$
|
(34,121
|
)
|
|
$
|
(122,637
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
138,816
|
|
|
$
|
382,043
|
|
- RateWatch
|
|
|
6,978
|
|
|
|
126,612
|
|
Total business to business
|
|
|
145,794
|
|
|
|
508,655
|
|
- Business to consumer
|
|
|
123,213
|
|
|
|
672,686
|
|
Total
|
|
$
|
269,007
|
|
|
$
|
1,181,341
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(14,943,987
|
)
|
|
$
|
(3,869,363
|
)
|
- RateWatch
|
|
|
(481,555
|
)
|
|
|
4,733
|
|
Total business to business
|
|
|
(15,425,542
|
)
|
|
|
(3,864,630
|
)
|
- Business to consumer
|
|
|
(2,089,173
|
)
|
|
|
2,321,627
|
|
Total
|
|
$
|
(17,514,715
|
)
|
|
$
|
(1,543,003
|
)
|
Due to the nature of the Company’s
operations, a majority of its assets are utilized across all segments. In addition, segment assets are not reported to, or used
by, the Chief Operating Decision Maker to allocate resources or assess performance of the Company’s segments. Accordingly,
the Company has not disclosed asset information by segment.
Geographic Data
In 2016 and 2015, substantially all of
the Company’s revenue were from customers in the United States and substantially all of our long-loved assets are located
in the United States. The remainder of the Company’s revenue and its long-lived assets are a result of our BoardEx operations
outside of the United States, which is headquartered in London, England.