Notes to Condensed Consolidated Financial
Statements
(unaudited)
|
1.
|
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
|
TheStreet, Inc. 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.
Unaudited Interim Financial Statements
The interim
consolidated balance sheet as of March 31, 2017, the consolidated statements of operations, comprehensive income and statements
of cash flows for the three months ended March 31, 2017 and 2016 are unaudited. The unaudited interim financial statements have
been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect
all adjustments, which include only normal recurring adjustments necessary to state fairly the Company’s financial position
as of March 31, 2017 and its results of consolidated operations, comprehensive income and cash flows for the three months ended
March 31, 2017 and 2016. The financial data and the other financial information disclosed in the notes to the financial statements
related to these periods are also unaudited. The results of operations for the three months ended March 31, 2017 are not necessarily
indicative of the results to be expected for the fiscal year ending December 31, 2017 or for any other future annual or interim
period.
There have been
no material changes in the significant accounting policies from those that were disclosed in the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2016
filed with the SEC on March 20, 2017.
These financial statements should also be read in conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 2016. Certain information and note disclosures normally included in the financial statements prepared
in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted
pursuant to such rules and regulations. The consolidated balance sheet as of December 31, 2016 included herein was derived from
the audited financial statements as of that date, but does not include all disclosures required by GAAP.
The Company
has evaluated subsequent events for recognition or disclosure.
Recently Issued Accounting Pronouncements
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. We adopted ASU 2016-09 in the first
quarter of 2017. The adoption of this standard did not 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 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. We adopted ASU 2016-09 in the first quarter of 2017. The adoption of this standard did not 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 November 2016, the FASB issued Accounting
Standards Update No. 2016-18,
Restricted Cash
(ASU 2016-18). ASU 2016-18 reduces the diversity in practice as to how changes
in restricted cash are presented and classified in the statement of cash flows. The guidance requires that a statement of cash
flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The guidance does not provide a definition of restricted cash or restricted cash equivalents. For
public business entities, the guidance is effective prospectively for fiscal years beginning after December 15, 2017 and interim
periods within those fiscal years. The Company currently presents changes in its restricted cash separately on its condensed consolidated
statements of cash flows. The Company is currently evaluating the impact of this guidance on the Company’s condensed consolidated
financial statements. Since the guidance only affects the presentation of restricted cash on the statement of cash flows, the Company
does not expect this guidance to have any impact on its consolidated financial statements.
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 from the goodwill impairment
test. In computing the implied fair value of goodwill under 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 would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead,
under ASU 2017-04, an entity would perform its goodwill impairment test by comparing the fair value of a reporting unit with its
carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting
unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. 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. We will adopt ASU
2017-04 upon preparation of our annual goodwill impairment test in the fourth quarter of 2017. The adoption of this standard is
not expected to have a material impact on our consolidated financial statements.
|
2.
|
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 March 31, 2017 and December 31, 2016,
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 $1.4 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 March 31, 2017 and December 31, 2016, the Company has a total of approximately $500 thousand 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.
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
Cash and cash equivalents
|
|
$
|
22,661,634
|
|
|
$
|
21,371,122
|
|
Marketable securities
|
|
|
1,443,000
|
|
|
|
1,550,000
|
|
Current and noncurrent restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and current and noncurrent restricted cash
|
|
$
|
24,604,634
|
|
|
$
|
23,421,122
|
|
|
3.
|
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 March 31, 2017
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
22,661,634
|
|
|
$
|
22,661,634
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,443,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,443,000
|
|
Contingent earn-out (3)
|
|
|
918,709
|
|
|
|
—
|
|
|
|
—
|
|
|
|
918,709
|
|
Total at fair value
|
|
$
|
25,523,343
|
|
|
$
|
23,161,634
|
|
|
$
|
—
|
|
|
$
|
2,361,709
|
|
|
|
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
|
|
|
(1)
|
Cash and cash equivalents and restricted cash, totaling approximately $23.2 million and $21.9 million as of March 31, 2017
and December 31, 2016, 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
$1.4 million and $1.6 million as of March 31, 2017 and December 31, 2016, 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 March 31, 2017, the Company determined there was a decline in the fair value of its ARS investments of $407 thousand from its
cost basis, which was deemed temporary and was included within accumulated other comprehensive loss.
|
|
(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 tables provide 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, 2016
|
|
$
|
1,550,000
|
|
Change in fair value of investment
|
|
|
(107,000
|
)
|
Balance March 31, 2017
|
|
$
|
1,443,000
|
|
|
|
Contingent
Earn-Out
|
|
Balance December 31, 2016
|
|
$
|
907,657
|
|
Accretion to net present value
|
|
|
11,052
|
|
Balance March 31, 2017
|
|
$
|
918,709
|
|
|
4.
|
STOCK-BASED COMPENSATION
|
Stock-based compensation expense recognized
in the Company’s consolidated statements of operations for the three months ended March 31, 2017 and 2016 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 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 three months ended March 31, 2017 and 2016 was $0.23 and $0.39, respectively, using the Black-Scholes
model with the following weighted-average assumptions:
|
|
For the Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Expected option lives
|
|
|
3.0 years
|
|
|
|
4.4 years
|
|
Expected volatility
|
|
|
36.68
|
%
|
|
|
32.52
|
%
|
Risk-free interest rate
|
|
|
1.46
|
%
|
|
|
1.34
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
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 three months ended March 31, 2017 and 2016 was $0.85 and
$1.45, respectively.
As of March 31, 2017, there remained 1.6 million
shares available for future awards under the Company’s 2007 Performance Incentive Plan (the “2007 Plan”). In
connection with awards under both the 2007 Plan and awards issued outside of the Plan as inducement grants to new hires, the Company
recorded approximately $396 thousand and $468 thousand (inclusive of approximately $105 thousand included in restructuring and
other charges) of noncash stock-based compensation expense for the three months ended March 31, 2017 and 2016, respectively.
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 at December 31, 2016
|
|
|
5,900,731
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
45,000
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(23,032
|
)
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(574,477
|
)
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
Awards outstanding at March 31, 2017
|
|
|
5,348,222
|
|
|
$
|
1.48
|
|
|
$
|
0
|
|
|
|
4.01
|
|
Awards vested and expected to vest at March 31, 2017
|
|
|
5,287,684
|
|
|
$
|
1.48
|
|
|
$
|
0
|
|
|
|
3.99
|
|
Awards exercisable at March 31, 2017
|
|
|
2,479,491
|
|
|
$
|
1.78
|
|
|
$
|
0
|
|
|
|
1.69
|
|
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 at December 31, 2016
|
|
|
717,995
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
200,004
|
|
|
|
|
|
|
|
|
|
Restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(207,187
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
(40,000
|
)
|
|
|
|
|
|
|
|
|
Awards outstanding at March 31, 2017
|
|
|
670,812
|
|
|
$
|
510
|
|
|
|
0.88
|
|
Awards expected to vest at March 31, 2017
|
|
|
664,312
|
|
|
$
|
505
|
|
|
|
0.81
|
|
A summary of the status of the Company’s
unvested share-based payment awards as of March 31, 2017 and changes in the three months then ended, is as follows:
Unvested Awards
|
|
Number of Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Shares underlying awards unvested at December 31, 2016
|
|
|
3,936,427
|
|
|
$
|
0.62
|
|
Shares underlying options granted
|
|
|
45,000
|
|
|
$
|
0.23
|
|
Shares underlying restricted stock units granted
|
|
|
200,004
|
|
|
$
|
0.85
|
|
Shares underlying options vested
|
|
|
(371,669
|
)
|
|
$
|
0.39
|
|
Shares underlying restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(207,187
|
)
|
|
$
|
1.43
|
|
Shares underlying options forfeited
|
|
|
(23,032
|
)
|
|
$
|
0.36
|
|
Shares underlying restricted stock units cancelled
|
|
|
(40,000
|
)
|
|
$
|
1.20
|
|
Shares underlying awards unvested at March 31, 2017
|
|
|
3,539,543
|
|
|
$
|
0.60
|
|
For the three months ended March 31, 2017 and
2016, the total fair value of share-based awards vested was approximately $323 thousand and $296 thousand, respectively. For the
three months ended March 31, 2017 and 2016, the total intrinsic value of options exercised was $0 and $0, respectively (there were
no options exercised during the three months ended March 31, 2017 and 2016). For the three months ended March 31, 2017 and 2016,
approximately 45 thousand and 840 thousand stock options, respectively, were granted, and no stock options were exercised in either
period yielding $0 of cash proceeds to the Company. Additionally, for the three months ended March 31, 2017 and 2016, approximately
200 thousand and 232 thousand restricted stock units, respectively, were granted, and approximately 207 thousand and 114 thousand
shares, respectively, were issued under restricted stock unit grants. For the three months ended March 31, 2017 and 2016, the total
intrinsic value of restricted stock units that vested was approximately $176 thousand and $169 thousand, respectively. As of March
31, 2017, there was approximately $1.6 million of unrecognized stock-based compensation expense remaining to be recognized over
a weighted-average period of 1.5 years.
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 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 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. During
the three months ended March 31, 2017 and 2016, 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 March 31, 2017, the Company had withheld an aggregate of 1,850,752 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
During the three months ended March 31, 2017
and 2016, we did not declare any cash dividends on our Common Stock or Series B Preferred Stock.
We do not expect to declare and pay dividends
in the foreseeable future. The declaration, amount and payment of any future dividends will be at the sole discretion of our Board
of Directors. When determining whether to declare a dividend in the future, our Board of Directors may take into account general
and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs,
capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to
our stockholders, and such other factors as our Board of Directors may deem relevant. The Certificate of Designations for the Series
B Preferred Stock currently prohibits the Company from paying cash dividends in excess of $0.10 per share per annum without the
prior approval of the holder of the Series B Preferred Stock.
The Company is party to legal proceedings arising
in the ordinary course of business or otherwise, none of which is deemed material.
|
7.
|
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 three months ended
March 31, 2017 and 2016, approximately 666 thousand and 908 thousand 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 Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,127,440
|
)
|
|
$
|
(3,444,287
|
)
|
Numerator for basic and diluted earnings per share
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,127,440
|
)
|
|
$
|
(3,444,287
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
35,558,371
|
|
|
|
35,197,955
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(0.03
|
)
|
|
$
|
(0.10
|
)
|
Income tax expense for the three months ended
March 31, 2017 and 2016 was approximately $186 thousand and $305 thousand, respectively, and reflects an effective tax rate of
-20% and -10%, respectively. Income tax expense for the three months ended March 31, 2017 and 2016 primarily relates to the recognition
of $148 thousand and $281 thousand, respectively, of a deferred tax liability associated with goodwill that is tax deductible but
constitutes an indefinite lived intangible asset for financial reporting purposes, as well as the recognition of $38 thousand and
$24 thousand, respectively, of income tax expense in certain jurisdictions where there are no net operating losses available to
offset taxable income.
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. 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 of
federal and state net operating loss carryforwards (“NOL”) as of December 31, 2016, which results in deferred tax assets
of approximately $75 million. 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 carryforward as of December 31, 2016 includes
approximately $16 million 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.
|
9.
|
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. We are currently in the process of centralizing our banking relationships with fewer institutions.
As of March 31, 2017, the Company’s cash, cash equivalents and restricted cash primarily consisted of money market funds
and checking accounts.
For the three months ended March 31, 2017 and
2016, no individual client accounted for 10% or more of consolidated revenue. As of March 31, 2017 and December 31, 2016, no individual
client 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.
|
10.
|
RESTRUCTURING AND OTHER CHARGES
|
During the three months ended March 31, 2017,
the Company implemented a targeted reduction in force which resulted in restructuring and other charges of approximately $199 thousand.
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 $1.4 million.
During the year ended December 31, 2012, the
Company implemented a targeted reduction in force. Additionally, in assessing 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. Collectively, these activities are referred to as the “2012 Restructuring”. As of December 31, 2016,
there was no remaining balance in the 2012 Restructuring reserve account.
The following table displays the activity of
the 2012 Restructuring reserve account during the three months ended March 31, 2016.
|
|
Lease
Termination
|
|
Balance December 31, 2015
|
|
$
|
99,309
|
|
Payments net of sublease receipts
|
|
|
(3,759
|
)
|
Balance March 31, 2016
|
|
$
|
95,550
|
|
Other liabilities consist of the following:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Deferred rent
|
|
$
|
1,766,311
|
|
|
$
|
1,904,319
|
|
Acquisition contingent earn-out
|
|
|
918,709
|
|
|
|
907,657
|
|
Deferred revenue
|
|
|
507,827
|
|
|
|
460,748
|
|
Other
|
|
|
2,520
|
|
|
|
2,092
|
|
Total other liabilities
|
|
$
|
3,195,367
|
|
|
$
|
3,274,816
|
|
|
12.
|
STATE AND MUNICIPAL SALES TAX
|
In accordance with generally accepted accounting
principles, we make a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts
of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
For a period of time, we did not collect or remit state or municipal sales tax on the charges to our customers for our services
in certain states, except that we historically complied with New York sales tax. As such, we had a reserve of $1.2 million as of
March 31, 2016 as our best estimate of the potential tax exposure for any retroactive assessment. The Company concluded its review
of sales tax exposure during the fourth quarter of 2016 which resulted in a reduced liability of $653 thousand. As of March 31,
2017, no provision remains.
|
13.
|
SEGMENT AND GEOGRAPHIC DATA
|
Segments
Effective October 1, 2016 as a result of organizational
changes related to our new management team, 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 financial results for the three months ended
March 31, 2016 to conform to the segment presentation.
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
5,513,657
|
|
|
$
|
5,266,649
|
|
- RateWatch
|
|
|
1,873,582
|
|
|
|
1,866,151
|
|
Total business to business
|
|
|
7,387,239
|
|
|
|
7,132,800
|
|
- Business to consumer
|
|
|
7,893,198
|
|
|
|
8,936,632
|
|
Total
|
|
$
|
15,280,437
|
|
|
$
|
16,069,432
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(643,949
|
)
|
|
$
|
(2,001,498
|
)
|
- RateWatch
|
|
|
182,006
|
|
|
|
(376,075
|
)
|
Total business to business
|
|
|
(461,943
|
)
|
|
|
(2,377,573
|
)
|
- Business to consumer
|
|
|
(486,964
|
)
|
|
|
(761,091
|
)
|
Total
|
|
$
|
(948,907
|
)
|
|
$
|
(3,138,664
|
)
|
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
During the three months ended March 31, 2017
and 2016, substantially all of the Company’s revenue was from customers in the United States and substantially all of our
long-lived 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.