Item
1. Interim Condensed Consolidated Financial Statements.
THESTREET,
INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
assets
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
23,384,260
|
|
|
$
|
21,371,122
|
|
Accounts
receivable, net of allowance for doubtful accounts of $317,781 as of June 30, 2017 and $316,204 as of December 31, 2016
|
|
|
4,431,153
|
|
|
|
5,119,959
|
|
Other
receivables, net
|
|
|
388,383
|
|
|
|
358,266
|
|
Prepaid
expenses and other current assets
|
|
|
2,094,437
|
|
|
|
1,416,956
|
|
Total
current assets
|
|
|
30,298,233
|
|
|
|
28,266,303
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
Assets:
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation and amortization of $5,168,588 as of June 30, 2017 and $5,682,286 as of December
31, 2016
|
|
|
3,079,372
|
|
|
|
3,550,007
|
|
Marketable
securities
|
|
|
1,544,750
|
|
|
|
1,550,000
|
|
Other
assets
|
|
|
301,406
|
|
|
|
285,843
|
|
Goodwill
|
|
|
29,736,463
|
|
|
|
29,183,141
|
|
Other
intangible assets, net of accumulated amortization of $22,093,107 as of June 30, 2017 and $20,134,178 as of December 31, 2016
|
|
|
14,778,676
|
|
|
|
15,127,818
|
|
Restricted
cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total
Assets
|
|
$
|
80,238,900
|
|
|
$
|
78,463,112
|
|
|
|
|
|
|
|
|
|
|
liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,016,502
|
|
|
$
|
2,526,034
|
|
Accrued
expenses
|
|
|
3,529,819
|
|
|
|
5,115,558
|
|
Deferred
revenue
|
|
|
25,172,033
|
|
|
|
22,476,962
|
|
Other
current liabilities
|
|
|
1,906,864
|
|
|
|
983,799
|
|
Total
current liabilities
|
|
|
32,625,218
|
|
|
|
31,102,353
|
|
Noncurrent
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
2,333,031
|
|
|
|
2,036,487
|
|
Other
noncurrent liabilities
|
|
|
2,223,436
|
|
|
|
3,274,816
|
|
Total
liabilities
|
|
|
37,181,685
|
|
|
|
36,413,656
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of June 30, 2017 and December 31, 2016;
the aggregate liquidation preference totals $55,000,000 as of June 30, 2017 and December 31, 2016
|
|
|
55
|
|
|
|
55
|
|
Common
stock; $0.01 par value; 100,000,000 shares authorized; 43,394,376 shares issued and 35,865,207 shares outstanding as of June
30, 2017, and 42,936,906 shares issued and 35,421,217 shares outstanding as of December 31, 2016
|
|
|
433,944
|
|
|
|
429,369
|
|
Additional
paid-in capital
|
|
|
271,944,485
|
|
|
|
271,143,445
|
|
Accumulated
other comprehensive loss
|
|
|
(4,903,214
|
)
|
|
|
(5,898,305
|
)
|
Treasury
stock at cost; 7,529,169 shares as of June 30, 2017 and 7,515,689 shares as of December 31, 2016
|
|
|
(13,221,392
|
)
|
|
|
(13,211,141
|
)
|
Accumulated
deficit
|
|
|
(211,196,663
|
)
|
|
|
(210,413,967
|
)
|
Total
stockholders’ equity
|
|
|
43,057,215
|
|
|
|
42,049,456
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
80,238,900
|
|
|
$
|
78,463,112
|
|
The accompanying Notes to Condensed
Consolidated Financial Statements are an integral part of these financial statements
THESTREET,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business to business
|
|
$
|
7,854,947
|
|
|
$
|
7,531,159
|
|
|
$
|
15,242,186
|
|
|
$
|
14,663,959
|
|
Business to consumer
|
|
|
8,104,658
|
|
|
|
8,761,368
|
|
|
|
15,997,856
|
|
|
|
17,698,000
|
|
Total revenue
|
|
|
15,959,605
|
|
|
|
16,292,527
|
|
|
|
31,240,042
|
|
|
|
32,361,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (exclusive of depreciation and amortization shown separately below)
|
|
|
6,704,622
|
|
|
|
8,144,877
|
|
|
|
13,986,051
|
|
|
|
16,031,433
|
|
Sales and marketing
|
|
|
3,577,821
|
|
|
|
4,013,161
|
|
|
|
7,121,173
|
|
|
|
7,897,587
|
|
General and administrative
|
|
|
3,852,452
|
|
|
|
3,879,391
|
|
|
|
7,878,504
|
|
|
|
8,993,297
|
|
Depreciation and amortization
|
|
|
1,302,493
|
|
|
|
972,314
|
|
|
|
2,482,025
|
|
|
|
1,915,470
|
|
Restructuring and other charges
|
|
|
—
|
|
|
|
162,958
|
|
|
|
198,979
|
|
|
|
1,543,010
|
|
Total operating expense
|
|
|
15,437,388
|
|
|
|
17,172,701
|
|
|
|
31,666,732
|
|
|
|
36,380,797
|
|
Operating income (loss)
|
|
|
522,217
|
|
|
|
(880,174
|
)
|
|
|
(426,690
|
)
|
|
|
(4,018,838
|
)
|
Net interest income (expense)
|
|
|
10,285
|
|
|
|
(11,599
|
)
|
|
|
18,056
|
|
|
|
(12,094
|
)
|
Net income (loss) before income taxes
|
|
|
532,502
|
|
|
|
(891,773
|
)
|
|
|
(408,634
|
)
|
|
|
(4,030,932
|
)
|
Provision for income taxes
|
|
|
187,758
|
|
|
|
318,748
|
|
|
|
374,062
|
|
|
|
623,876
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
344,744
|
|
|
$
|
(1,210,521
|
)
|
|
$
|
(782,696
|
)
|
|
$
|
(4,654,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
Diluted net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
35,698,603
|
|
|
|
35,234,429
|
|
|
|
35,628,874
|
|
|
|
35,216,192
|
|
Weighted average diluted shares outstanding
|
|
|
35,803,117
|
|
|
|
35,234,429
|
|
|
|
35,628,874
|
|
|
|
35,216,192
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements
THESTREET,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income (loss)
|
|
$
|
344,744
|
|
|
$
|
(1,210,521
|
)
|
|
$
|
(782,696
|
)
|
|
$
|
(4,654,808
|
)
|
Foreign currency translation gain (loss)
|
|
|
715,789
|
|
|
|
(1,549,565
|
)
|
|
|
1,000,341
|
|
|
|
(2,205,106
|
)
|
Unrealized gain (loss) on marketable securities
|
|
|
101,750
|
|
|
|
(20,000
|
)
|
|
|
(5,250
|
)
|
|
|
(120,000
|
)
|
Comprehensive income (loss)
|
|
$
|
1,162,283
|
|
|
$
|
(2,780,086
|
)
|
|
$
|
212,395
|
|
|
$
|
(6,979,914
|
)
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements
THESTREET, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(782,696
|
)
|
|
$
|
(4,654,808
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
805,030
|
|
|
|
744,612
|
|
Provision for (recovery of) doubtful accounts
|
|
|
37,923
|
|
|
|
(33,487
|
)
|
Depreciation and amortization
|
|
|
2,482,025
|
|
|
|
1,915,470
|
|
Deferred taxes
|
|
|
296,544
|
|
|
|
561,451
|
|
Restructuring and other charges
|
|
|
—
|
|
|
|
105,113
|
|
Deferred rent
|
|
|
(263,067
|
)
|
|
|
59,960
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
690,768
|
|
|
|
565,073
|
|
Other receivables
|
|
|
(29,548
|
)
|
|
|
320,457
|
|
Prepaid expenses and other current assets
|
|
|
(669,144
|
)
|
|
|
(493,501
|
)
|
Other assets
|
|
|
(3,433
|
)
|
|
|
2,868
|
|
Accounts payable
|
|
|
(512,932
|
)
|
|
|
76,692
|
|
Accrued expenses
|
|
|
(1,553,138
|
)
|
|
|
485,575
|
|
Deferred revenue
|
|
|
2,602,825
|
|
|
|
1,241,539
|
|
Other current liabilities
|
|
|
(3,912
|
)
|
|
|
(254,993
|
)
|
Other liabilities
|
|
|
22,105
|
|
|
|
66,317
|
|
Net cash provided by operating activities
|
|
|
3,119,350
|
|
|
|
708,338
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,293,417
|
)
|
|
|
(1,612,899
|
)
|
Net cash used in investing activities
|
|
|
(1,293,417
|
)
|
|
|
(1,612,899
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Cash dividends paid on common stock
|
|
|
(68,245
|
)
|
|
|
(11,929
|
)
|
Shares withheld on RSU vesting to pay for withholding taxes
|
|
|
(10,251
|
)
|
|
|
(4,784
|
)
|
Net cash used in financing activities
|
|
|
(78,496
|
)
|
|
|
(16,713
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
|
|
265,701
|
|
|
|
(358,920
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,013,138
|
|
|
|
(1,280,194
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
21,371,122
|
|
|
|
28,445,416
|
|
Cash and cash equivalents, end of period
|
|
$
|
23,384,260
|
|
|
$
|
27,165,222
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements
TheStreet, Inc.
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 over 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
condensed consolidated balance sheet as of June 30, 2017, the condensed consolidated statements of operations and comprehensive
income (loss) for the three and six months ended June 30, 2017 and 2016, and the condensed statements of cash flows for the six
months ended June 30, 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 June 30, 2017, its results
of consolidated operations and comprehensive income (loss) for the three and six months ended June 30, 2017 and 2016, and cash
flows for the six months ended June 30, 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 and six
months ended June 30, 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). Currently, we are reviewing our various revenue streams within our three reportable segments to identify
the sales by type of revenue stream for the purpose of comparing how we currently recognize revenue to quantify the impact, if
any, that this ASU will have on our consolidated financial statements.
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 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 statement of operations.
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 the 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.
In May 2017, the FASB issued Accounting
Standards Update No. 2017-09,
Compensation – Stock Compensation
(“ASU 2017-09”). ASU 2017-09 provides
an accounting framework applicable to modifications of share-based payments, and defines a modification as “a change in any
of the terms or conditions of a share-based payment award.” The guidance in ASU 2017-09 is required for annual or interim
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 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 June 30, 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 $1.5 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 June 30, 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.
|
|
June
30,
2017
|
|
|
December
31,
2016
|
|
Cash and cash equivalents
|
|
$
|
23,384,260
|
|
|
$
|
21,371,122
|
|
Marketable securities
|
|
|
1,544,750
|
|
|
|
1,550,000
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and restricted cash
|
|
$
|
25,429,010
|
|
|
$
|
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 June 30, 2017
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
23,384,260
|
|
|
$
|
23,384,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,544,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,544,750
|
|
Contingent earn-out (3)
|
|
|
929,762
|
|
|
|
—
|
|
|
|
—
|
|
|
|
929,762
|
|
Total at fair value
|
|
$
|
26,358,772
|
|
|
$
|
23,884,260
|
|
|
$
|
—
|
|
|
$
|
2,474,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $23.9 million and $21.9 million as of June 30, 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
$1.5 million and $1.6 million as of June 30, 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 June 30, 2017, the Company determined there was a decline in the fair value of its ARS investments of approximately $305 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
|
|
|
(5,250
|
)
|
Balance June 30, 2017
|
|
$
|
1,544,750
|
|
|
|
Contingent
Earn-Out
|
|
Balance December 31, 2016
|
|
$
|
907,657
|
|
Accretion to net present value
|
|
|
22,105
|
|
Balance June 30, 2017
|
|
$
|
929,762
|
|
|
4.
|
STOCK-BASED COMPENSATION
|
Stock-based compensation expense recognized
in the Company’s consolidated statements of operations for the six months ended June 30, 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 six months ended June 30, 2017 and 2016 was $0.27 and $0.38, respectively, using the Black-Scholes
model with the following weighted-average assumptions:
|
|
For the Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
Expected option lives
|
|
3.7 years
|
|
4.5 years
|
Expected volatility
|
|
37.64%
|
|
34.49%
|
Risk-free interest rate
|
|
1.55%
|
|
1.23%
|
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 six months ended June 30, 2017 and 2016 was $0.90
and $1.31, respectively.
As of June 30, 2017, there remained approximately
1.1 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 2007 Plan as inducement grants to new hires,
the Company recorded approximately $409 thousand and $805 thousand of noncash stock-based compensation for the three and six month
periods ended June 30, 2017, respectively, as compared to $382 thousand and $850 thousand (inclusive of approximately $105 thousand
included in restructuring and other charges) of noncash stock-based compensation expense for the three and six month periods ended
June 30, 2016, respectively.
A summary of the activity of the 2007 Plan,
and awards issued outside of the 2007 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
|
|
|
135,000
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
—
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(25,700
|
)
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(588,882
|
)
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
Awards outstanding at June 30, 2017
|
|
|
5,421,149
|
|
|
$
|
1.47
|
|
|
$
|
0
|
|
|
|
3.82
|
|
Awards vested and expected to vest at June 30, 2017
|
|
|
5,375,891
|
|
|
$
|
1.47
|
|
|
$
|
0
|
|
|
|
3.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards exercisable at June 30, 2017
|
|
|
2,919,271
|
|
|
$
|
1.69
|
|
|
$
|
0
|
|
|
|
2.07
|
|
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
|
|
|
565,599
|
|
|
|
|
|
|
|
|
|
Restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(457,470
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
(46,389
|
)
|
|
|
|
|
|
|
|
|
Awards outstanding at June 30, 2017
|
|
|
779,735
|
|
|
$
|
647
|
|
|
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards expected to vest at June 30, 2017
|
|
|
773,735
|
|
|
$
|
642
|
|
|
|
0.81
|
|
A summary of the status of the Company’s
unvested stock-based payment awards as of June 30, 2017 and changes in the six 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
|
|
|
135,000
|
|
|
$
|
0.27
|
|
Shares underlying restricted stock units granted
|
|
|
565,599
|
|
|
$
|
0.90
|
|
Shares underlying options vested
|
|
|
(825,854
|
)
|
|
$
|
0.38
|
|
Shares underlying restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(457,470
|
)
|
|
$
|
1.15
|
|
Shares underlying options forfeited
|
|
|
(25,700
|
)
|
|
$
|
0.37
|
|
Shares underlying restricted stock units cancelled
|
|
|
(46,389
|
)
|
|
$
|
1.20
|
|
Shares underlying awards unvested at June 30, 2017
|
|
|
3,281,613
|
|
|
$
|
0.64
|
|
For the six months ended June 30, 2017 and
2016, the total fair value of stock-based awards vested was approximately $317 thousand and $356 thousand, respectively. For the
six months ended June 30, 2017 and 2016, the total intrinsic value of options exercised was $0 and $0, respectively (there were
no options exercised during either period). For the six months ended June 30, 2017 and 2016, approximately 135 thousand and 1.8
million 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 six months ended June 30, 2017 and 2016, approximately 566 thousand and 542 thousand restricted
stock units, respectively, were granted, and approximately 457 thousand and 133 thousand shares, respectively, were issued under
restricted stock unit grants. For the six months ended June 30, 2017 and 2016, the total intrinsic value of restricted stock units
that vested was approximately $400 thousand and $190 thousand, respectively. As of June 30, 2017 and 2016, the total intrinsic
value of awards outstanding was approximately $647 thousand and $1.3 million, respectively. As of June 30, 2017, there was approximately
$1.5 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 1.32
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 six months ended June 30, 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 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 June 30, 2017, the Company had withheld an aggregate of 1,864,145 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 six months ended June 30, 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 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
June 30, 2016, approximately 1.2 million unvested restricted stock units, and vested and unvested stock
options, were excluded from the calculation, as their effect would result in a lower net loss per share. For the
six months ended June 30, 2017 and 2016, approximately 477 thousand and 1.0 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 Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
344,744
|
|
|
$
|
(1,210,521
|
)
|
|
$
|
(782,696
|
)
|
|
$
|
(4,654,808
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
35,698,603
|
|
|
|
35,234,429
|
|
|
|
35,628,874
|
|
|
|
35,216,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
35,803,117
|
|
|
|
35,234,429
|
|
|
|
35,628,874
|
|
|
|
35,216,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
Diluted net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.13
|
)
|
Income tax expense for the three and six
months ended June 30, 2017 was approximately $188 thousand and $374 thousand, respectively, and reflects an effective tax rate
of 35% and -92%, respectively, as compared to approximately $319 thousand and $624 thousand, respectively, for the three and six
months ended June 30, 2016, reflecting an effective tax rate of -36% and -15%, respectively. Income tax expense for the three and
six months ended June 30, 2017 primarily relates to the recognition of $148 thousand and $297 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 $40 thousand and $77 thousand, respectively, of income tax expense in certain
jurisdictions where there are no net operating losses available to offset taxable income. Income tax expense for the three and
six months ended June 30, 2016 primarily relates to the recognition of $281 thousand and $562 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 $62 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.
|
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 federally insured financial institutions, and performs periodic evaluations of
the relative credit standing of these institutions. As of June 30, 2017 and December 31, 2016, the Company’s cash, cash equivalents
and restricted cash primarily consisted of money market funds and checking accounts.
For the three and six months ended June
30, 2017 and 2016, no individual client accounted for 10% or more of consolidated revenue. As of June 30, 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 six months ended June 30, 2016.
|
|
Lease
Termination
|
|
Balance December 31, 2015
|
|
$
|
99,309
|
|
Payments net of sublease receipts
|
|
|
(7,517
|
)
|
Balance June 30, 2016
|
|
$
|
91,792
|
|
Other liabilities consist of the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Deferred rent
|
|
$
|
1,638,535
|
|
|
$
|
1,904,319
|
|
Acquisition contingent earn-out
|
|
|
—
|
|
|
|
907,657
|
|
Deferred revenue
|
|
|
570,925
|
|
|
|
460,748
|
|
Other
|
|
|
13,976
|
|
|
|
2,092
|
|
Total other liabilities
|
|
$
|
2,223,436
|
|
|
$
|
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 $1.4 million as of
June 30, 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 June 30,
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 and six months ended June 30, 2016 to conform to the current segment presentation.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
5,953,014
|
|
|
$
|
5,766,903
|
|
|
$
|
11,466,671
|
|
|
$
|
11,033,552
|
|
- RateWatch
|
|
|
1,901,933
|
|
|
|
1,764,256
|
|
|
|
3,775,515
|
|
|
|
3,630,407
|
|
Total business to business
|
|
|
7,854,947
|
|
|
|
7,531,159
|
|
|
|
15,242,186
|
|
|
|
14,663,959
|
|
- Business to consumer
|
|
|
8,104,658
|
|
|
|
8,761,368
|
|
|
|
15,997,856
|
|
|
|
17,698,000
|
|
Total
|
|
$
|
15,959,605
|
|
|
$
|
16,292,527
|
|
|
$
|
31,240,042
|
|
|
$
|
32,361,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(344,001
|
)
|
|
$
|
(1,165,389
|
)
|
|
$
|
(987,950
|
)
|
|
$
|
(3,166,887
|
)
|
- RateWatch
|
|
|
145,835
|
|
|
|
8,944
|
|
|
|
327,841
|
|
|
|
(367,131
|
)
|
Total business to business
|
|
|
(198,166
|
)
|
|
|
(1,156,445
|
)
|
|
|
(660,109
|
)
|
|
|
(3,534,018
|
)
|
- Business to consumer
|
|
|
720,383
|
|
|
|
276,271
|
|
|
|
233,419
|
|
|
|
(484,820
|
)
|
Total
|
|
$
|
522,217
|
|
|
$
|
(880,174
|
)
|
|
$
|
(426,690
|
)
|
|
$
|
(4,018,838
|
)
|
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 six months ended June 30, 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.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial
condition and results of operations should be read together with our interim consolidated financial statements contained elsewhere
in this Quarterly Report on Form 10-Q and with information contained in our other filings, including the audited consolidated financial
statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk
Factors” of this Quarterly Report on Form 10-Q and in other parts of this report.
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.
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 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 six months ended June 30, 2017 and 2016, our B2B
businesses generated 49% and 45%, respectively, of our total revenue.
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 six months ended June 30, 2017 and 2016,
our B2C business generated 51% and 55%, respectively, of our total revenue.
Critical Accounting Estimates
Our discussion and analysis of our financial
condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during
the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and
the effects of revisions are reflected in the condensed consolidated financial statements in the period they are deemed to be necessary.
Significant estimates made in the accompanying condensed consolidated financial statements include, but are not limited to, the
following:
|
●
|
useful lives of intangible assets,
|
|
●
|
useful lives of fixed assets,
|
|
●
|
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.
|
We perform annual impairment tests of goodwill
and indefinite-lived intangible assets as of October 1 each year and between annual tests whenever circumstances arise that indicate
a possible impairment might exist.
In conducting our 2016 annual goodwill impairment
test, we first used the market approach for the valuation of our Common Stock and the income approach for our Preferred Shares.
We then confirmed the reasonableness of the outcome of these two tests by performing an income approach using the discounted cash
flow method. The fair value of our 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 our Preferred Stock, we 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 (as defined in the Certificate of
Designation of Series B Preferred Stock). 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 our 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. Based on
our analysis, we concluded that The Deal / BoardEx reporting unit goodwill was impaired as of the valuation date by approximately
$11.6 million, while the RateWatch and Business to Consumer reporting units’ goodwill were not impaired by approximately
16% and 33%, respectively.
In conducting our 2016 annual indefinite
lived intangible asset impairment test, 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 by
approximately 29%.
A decrease in the price of our Common Stock,
or changes in the estimated value of our 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 our financial position and
results of operations.
A summary of our critical accounting policies
and estimates can be found in our 2016 Form 10-K.
Contingencies
Accounting for contingencies, including
those matters described in the Commitments and Contingencies section of Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations of the Company’s 2016 Form 10-K, is highly subjective and requires the use of judgments
and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by
third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well
as the related disclosures, represent management’s best estimate of the then current status of such matters and their potential
outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company would
record a material loss contingency in its consolidated financial statements if the loss is both probable of occurring and reasonably
estimated. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its
associated liabilities.
Results of Operations
Comparison of Three Months Ended June 30, 2017 and June
30, 2016
Revenue
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent
of Total
Revenue
|
|
|
2016
|
|
|
Percent
of Total
Revenue
|
|
|
Percent
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
5,953,014
|
|
|
|
37
|
%
|
|
$
|
5,766,903
|
|
|
|
35
|
%
|
|
|
3
|
%
|
RateWatch
|
|
|
1,901,933
|
|
|
|
12
|
%
|
|
|
1,764,256
|
|
|
|
11
|
%
|
|
|
8
|
%
|
Total Business to business
|
|
|
7,854,947
|
|
|
|
49
|
%
|
|
|
7,531,159
|
|
|
|
46
|
%
|
|
|
4
|
%
|
Business to consumer
|
|
|
8,104,658
|
|
|
|
51
|
%
|
|
|
8,761,368
|
|
|
|
54
|
%
|
|
|
-7
|
%
|
Total revenue
|
|
$
|
15,959,605
|
|
|
|
100
|
%
|
|
$
|
16,292,527
|
|
|
|
100
|
%
|
|
|
-2
|
%
|
Business to business
. Our B2B business
derives revenue primarily from subscription products, events/conferences and information services.
B2B revenue attributable to The Deal / BoardEx
segment increased by approximately $186 thousand, or 3%, in the second quarter of 2017 as compared to the second quarter of 2016.
This increase was primarily due to an approximate $292 thousand, or 12%, increase in BoardEx subscription revenue, which had a
6% increase in the weighted-average number of subscriptions and a 6% increase in the average revenue recognized per subscription.
The increase in revenue attributable to The Deal / BoardEx segment was offset by an approximate $102 thousand, or 4%, decrease
in subscription revenue from The Deal products, which had a 6% decline in the weighted-average number of subscriptions partially
offset by a 2% increase in the average revenue recognized per subscription. Additionally, the year-over-year increase in subscription
revenue attributable to BoardEx was negatively impacted by an approximate 11% reduction in the foreign exchange rate in the second
quarter of 2017 compared to the second quarter of 2016 as a result of the strengthening of the U.S. Dollar.
B2B revenue attributable to RateWatch increased
by approximately $138 thousand, or 8%, in the second quarter of 2017 as compared to the second quarter of 2016. RateWatch subscription
revenue increased by approximately $68 thousand, or 4%, due to a 9% increase in the average revenue recognized per subscription,
partially offset by a 5% decline in the weighted-average number of subscriptions. Additionally, information services revenue from
one-time reports sold by RateWatch increased by approximate $70 thousand, or 40%.
Business
to consumer
.
Our B2C business generates revenue primarily from
premium subscription products and advertising.
B2C revenue decreased by approximately $657
thousand, or 7%, in the second quarter of 2017 as compared to the second quarter of 2016. This decrease was due to an approximate
$747 thousand, or 13%, decline in revenue generated from premium subscription products, which had a 15% decrease in the weighted-average
number of subscriptions, partially offset by a 2% increase in the average revenue recognized per subscription. Additionally, licensing
and syndication revenue declined by approximately $108 thousand, or 23%. Partially offsetting these declines was approximately
$120 thousand of event related revenue (there was no business to consumer event revenue during 2016), and an increase in advertising
revenue of approximately $78 thousand, or 3%, when compared to the prior year.
Operating Expense
Cost of Services
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Cost of services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
2,266,166
|
|
|
|
38
|
%
|
|
$
|
3,055,673
|
|
|
|
53
|
%
|
|
|
-26
|
%
|
RateWatch
|
|
|
489,251
|
|
|
|
26
|
%
|
|
|
513,654
|
|
|
|
29
|
%
|
|
|
-5
|
%
|
Total Business to business
|
|
|
2,755,417
|
|
|
|
35
|
%
|
|
|
3,569,327
|
|
|
|
47
|
%
|
|
|
-23
|
%
|
Business to consumer
|
|
|
3,949,205
|
|
|
|
49
|
%
|
|
|
4,575,550
|
|
|
|
52
|
%
|
|
|
-14
|
%
|
Total cost of services
|
|
$
|
6,704,622
|
|
|
|
42
|
%
|
|
$
|
8,144,877
|
|
|
|
50
|
%
|
|
|
-18
|
%
|
Cost of services.
Cost of services
expense consists primarily of compensation, benefits, outside contributor costs related to the creation of our content, licensed
data and the technology required to publish our content.
Cost of services expense attributable
to The Deal / BoardEx decreased by approximately $790 thousand, or 26%, in the second quarter of 2017 as compared to the
second quarter of 2016. This decrease was primarily the result of reduced employee compensation and related payroll taxes
combined with lower employee benefit costs due to increased employee contributions towards health benefit plans, a reduction
in the Company’s matching portion of employee contributions to 401-K plans, and lower outside reporter, contributor
revenue share and event related costs, the aggregate of which decreased by approximately $766 thousand. Also contributing to
the decline was a reduction in corporate expense allocations totaling approximately $122 thousand. These cost decreases were
partially offset by an increase in hosting, internet access and consulting fees, the aggregate of which increased by
approximately $127 thousand.
Cost of services expense attributable to
RateWatch decreased by $24 thousand, or 5%, in the second quarter of 2017 as compared to the second quarter of 2016. The decrease
was primarily the result of reduced employee compensation and related payroll taxes combined with lower employee benefit costs
due to increased employee contributions towards health benefit plans and a reduction in the Company’s matching portion of
employee contributions to 401-K plans, the aggregate of which decreased by $71 thousand. These cost decreases were partially offset
by an approximate $29 thousand increase in corporate expense allocations.
Cost of services expense attributable
to our business to consumer business decreased by approximately $626 thousand, or 14%, in the second quarter of 2017 as
compared to the second quarter of 2016. The decrease was primarily the result of reduced outside reporter, contributor
revenue share costs, decreased employee compensation and related payroll taxes, lower employee benefit costs due to increased
employee contributions towards health benefit plans and a reduction in the Company’s matching portion of employee
contributions to 401-K plans, the aggregate of which decreased by approximately $556 thousand. Also contributing to the
decline was a reduction in corporate expense allocations totaling approximately $170 thousand. These cost decreases
were partially offset by an increase in hosting and internet access costs, the aggregate of which increased by approximately
$113 thousand.
Sales and Marketing
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Sales and marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
1,409,951
|
|
|
|
24
|
%
|
|
$
|
1,450,218
|
|
|
|
25
|
%
|
|
|
-3
|
%
|
RateWatch
|
|
|
378,939
|
|
|
|
20
|
%
|
|
|
324,306
|
|
|
|
18
|
%
|
|
|
17
|
%
|
Total Business to business
|
|
|
1,788,890
|
|
|
|
23
|
%
|
|
|
1,774,524
|
|
|
|
24
|
%
|
|
|
1
|
%
|
Business to consumer
|
|
|
1,788,931
|
|
|
|
22
|
%
|
|
|
2,238,637
|
|
|
|
26
|
%
|
|
|
-20
|
%
|
Total sales and marketing
|
|
$
|
3,577,821
|
|
|
|
22
|
%
|
|
$
|
4,013,161
|
|
|
|
25
|
%
|
|
|
-11
|
%
|
Sales and marketing.
Sales
and marketing expense consists primarily of compensation expense for the direct sales force, marketing services, and customer
service departments, advertising and promotion expenses and credit card processing fees.
Sales and marketing expense attributable
to The Deal / BoardEx decreased by approximately $40 thousand, or 3%, in the second quarter of 2017 as compared to the second quarter
of 2016. The decrease was primarily the result of reduced employee compensation and related payroll taxes, lower employee benefit
costs due to increased employee contributions towards health benefit plans, a reduction in the Company’s matching portion
of employee contributions to 401-K plans, and decreased travel and entertainment costs, the aggregate of which decreased by approximately
$123 thousand. These cost savings were partially offset by higher corporate expense allocations totaling approximately $78 thousand.
Sales and marketing expense attributable
to our RateWatch business increased by approximately $55 thousand, or 17%, in the second quarter of 2017 as compared to the second
quarter of 2016. The increase was primarily the result of an approximate $44 thousand increase in corporate expense allocations.
Sales and marketing expense attributable
to our business to consumer business unit decreased by approximately $450 thousand, or 20%, in the second quarter of 2017 as compared
to the second quarter of 2016. The decrease was primarily the result of reduced employee compensation and related payroll taxes,
lower employee benefit costs due to increased employee contributions towards health benefit plans, a reduction in the Company’s
matching portion of employee contributions to 401-K plans, reduced advertising and promotion expense and lower consulting fees,
the aggregate of which decreased by approximately $507 thousand. The decrease was partially offset by a $33 thousand cost increase
related to an expanded business analytics group designed to provide management with information needed to improve business results.
General and Administrative
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
General and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
1,896,127
|
|
|
|
32
|
%
|
|
$
|
1,764,520
|
|
|
|
31
|
%
|
|
|
7
|
%
|
RateWatch
|
|
|
512,568
|
|
|
|
27
|
%
|
|
|
632,858
|
|
|
|
36
|
%
|
|
|
-19
|
%
|
Total Business to business
|
|
|
2,408,695
|
|
|
|
31
|
%
|
|
|
2,397,378
|
|
|
|
32
|
%
|
|
|
0
|
%
|
Business to consumer
|
|
|
1,443,757
|
|
|
|
18
|
%
|
|
|
1,482,013
|
|
|
|
17
|
%
|
|
|
-3
|
%
|
Total general and administrative
|
|
$
|
3,852,452
|
|
|
|
24
|
%
|
|
$
|
3,879,391
|
|
|
|
24
|
%
|
|
|
-1
|
%
|
General and administrative
. General
and administrative expense consists primarily of compensation for general management, finance, technology, legal and administrative
personnel, occupancy costs, professional fees, insurance and other office expenses.
General and administrative expense
attributable to The Deal / BoardEx business increased by approximately $132 thousand, or 7%, in the second quarter of 2017 as
compared to the second quarter of 2016. The increase was primarily the result of transaction losses caused
by the fluctuation in foreign currency exchange rates, partially offset by reduced employee compensation and related payroll
taxes, which decreased by approximately $120 thousand.
General and administrative expense attributable
to our RateWatch business decreased by approximately $120 thousand, or 19%, in the second quarter of 2017 as compared to the second
quarter of 2016. The decrease was primarily the result of reduced recruiting costs and decreased employee compensation and related
payroll taxes, the aggregate of which decreased by approximately $59 thousand. Also contributing to the decrease was an approximate
$56 thousand reduction in corporate expense allocations.
General and administrative expense attributable
to our business to consumer business decreased by approximately $38 thousand, or 3%, in the second quarter of 2017 as compared
to the second quarter of 2016. The decrease was primarily the result of an approximate $99 thousand reduction in corporate expense
allocations combined with approximately $30 thousand of reduced occupancy costs. These cost decreases were partially offset by
increased expense related to an expanded business analytics group designed to provide management with information needed to improve
business results, and higher bad debt expense, the aggregate of which increased by approximately $88 thousand.
Depreciation and Amortization
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
724,771
|
|
|
|
12
|
%
|
|
$
|
608,491
|
|
|
|
11
|
%
|
|
|
19
|
%
|
RateWatch
|
|
|
375,340
|
|
|
|
20
|
%
|
|
|
266,723
|
|
|
|
15
|
%
|
|
|
41
|
%
|
Total Business to business
|
|
|
1,100,111
|
|
|
|
14
|
%
|
|
|
875,214
|
|
|
|
12
|
%
|
|
|
26
|
%
|
Business to consumer
|
|
|
202,382
|
|
|
|
2
|
%
|
|
|
97,100
|
|
|
|
1
|
%
|
|
|
108
|
%
|
Total depreciation and amortization
|
|
$
|
1,302,493
|
|
|
|
8
|
%
|
|
$
|
972,314
|
|
|
|
6
|
%
|
|
|
34
|
%
|
Depreciation and amortization.
Depreciation
and amortization expense increased by approximately $330 thousand, or 34%, in the second quarter of 2017 as compared to the second
quarter of 2016. The increase was primarily the result of increased amortization expense related to capitalized software and website
development projects.
Restructuring and Other Charges
|
|
For the Three Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Restructuring and other charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
—
|
|
|
|
N/A
|
|
|
$
|
53,390
|
|
|
|
1
|
%
|
|
|
-100
|
%
|
RateWatch
|
|
|
—
|
|
|
|
N/A
|
|
|
|
17,771
|
|
|
|
1
|
%
|
|
|
-100
|
%
|
Total Business to business
|
|
|
—
|
|
|
|
N/A
|
|
|
|
71,161
|
|
|
|
1
|
%
|
|
|
-100
|
%
|
Business to consumer
|
|
|
—
|
|
|
|
N/A
|
|
|
|
91,797
|
|
|
|
1
|
%
|
|
|
-100
|
%
|
Total restructuring and other charges
|
|
$
|
—
|
|
|
|
N/A
|
|
|
$
|
162,958
|
|
|
|
1
|
%
|
|
|
-100
|
%
|
Restructuring and other charges.
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 incurred
recruiting fees, resulting in restructuring and other charges of approximately $163 thousand during the three months ended June
30, 2016.
Net Interest Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net interest income (expense)
|
|
$
|
10,285
|
|
|
$
|
(11,599
|
)
|
|
|
189
|
%
|
Net interest income totaled approximately
$10 thousand in the second quarter of 2017 as compared to net interest expense approximating $12 thousand in the second quarter
of 2016. The change was primarily the result of reduced interest expense related to the accretion of certain accrued expenses that
were recorded in connection with prior acquisitions.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Provision for income taxes
|
|
$
|
187,758
|
|
|
$
|
318,748
|
|
|
|
-41
|
%
|
Income tax expense for the three months
ended June 30, 2017 was approximately $188 thousand, as compared to approximately $319 thousand for the three months ended June
30, 2016, and reflects an effective tax rate of 35% and -36%, respectively. Income tax expense for the three months ended June
30, 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 $40 thousand and $38 thousand, respectively, of income tax expense in certain jurisdictions where
there are no net operating losses available to offset taxable income.
Net Income (Loss) Attributable to Common
Stockholders
Net income attributable to common stockholders
for the three months ended June 30, 2017 totaled approximately $345 thousand, or $0.01 per basic and diluted share, compared to
net loss attributable to common stockholders totaling approximately $1.2 million, or $0.03 per basic and diluted share, for the
three months ended June 30, 2016.
Comparison of Six Months Ended June 30, 2017 and June
30, 2016
Revenue
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent
of Total
Revenue
|
|
|
2016
|
|
|
Percent
of Total
Revenue
|
|
|
Percent
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
11,466,671
|
|
|
|
37
|
%
|
|
$
|
11,033,552
|
|
|
|
34
|
%
|
|
|
4
|
%
|
RateWatch
|
|
|
3,775,515
|
|
|
|
12
|
%
|
|
|
3,630,407
|
|
|
|
11
|
%
|
|
|
4
|
%
|
Total Business to business
|
|
|
15,242,186
|
|
|
|
49
|
%
|
|
|
14,663,959
|
|
|
|
45
|
%
|
|
|
4
|
%
|
Business to consumer
|
|
|
15,997,856
|
|
|
|
51
|
%
|
|
|
17,698,000
|
|
|
|
55
|
%
|
|
|
-10
|
%
|
Total revenue
|
|
$
|
31,240,042
|
|
|
|
100
|
%
|
|
$
|
32,361,959
|
|
|
|
100
|
%
|
|
|
-3
|
%
|
Business to business
B2B revenue attributable to The Deal / BoardEx
segment increased by approximately $433 thousand, or 4%, in the six months ended June 30, 2017 as compared to the six months ended
June 30, 2016. This increase was primarily due to an approximate $472 thousand, or 10%, increase in BoardEx subscription revenue,
which had a 7% increase in the weighted-average number of subscriptions and a 3% increase in the average revenue recognized per
subscription. Additionally, BoardEx revenue from one-time projects totaled approximately $104 thousand (there were no one-time
projects during 2016), and revenue from The Deal events/conferences increased by approximately $57 thousand, or 11%. The increase
in revenue attributable to The Deal / BoardEx segment was offset by an approximate $208 thousand, or 4%, decrease in subscription
revenue from The Deal products, which had a 6% decline in the weighted-average number of subscriptions partially offset by a 2%
increase in the average revenue recognized per subscription. Additionally, the year-over-year increase in subscription revenue
attributable to BoardEx was negatively impacted by an approximate 12% reduction in the foreign exchange rate during the six months
ended June 2017 as compared to the six months ended June 2016 resulting from the strengthening of the U.S. Dollar.
B2B revenue attributable to RateWatch increased
by approximately $145 thousand, or 4%, in the six months ended June 30, 2017 as compared to the six months ended June 30, 2016.
RateWatch subscription revenue increased by approximately $81 thousand, or 3%, due to a 7% increase in the average revenue recognized
per subscription, partially offset by a 4% decline in the weighted-average number of subscriptions. Additionally, information services
revenue from one-time reports sold by RateWatch increased by approximate $64 thousand, or 14%.
Business to consumer
B2C revenue decreased by approximately $1.7
million, or 10%, in the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. This decrease was primarily
due to an approximate $1.8 million, or 15%, decline in revenue generated from premium subscription products, which had a 16% decrease
in the weighted-average number of subscriptions, partially offset by a 1% increase in the average revenue recognized per subscription.
Additionally, licensing and syndication revenue declined by approximately $195 thousand, or 22%. Partially offsetting these declines
was an increase in advertising revenue of approximately $154 thousand, or 3%, when compared to the prior year and approximately
$120 thousand of event related revenue (there was no business to consumer event revenue during 2016).
Operating Expense
Cost of Services
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Cost of services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
4,492,272
|
|
|
|
39
|
%
|
|
$
|
5,687,871
|
|
|
|
52
|
%
|
|
|
-21
|
%
|
RateWatch
|
|
|
956,068
|
|
|
|
25
|
%
|
|
|
1,017,746
|
|
|
|
28
|
%
|
|
|
-6
|
%
|
Total Business to business
|
|
|
5,448,340
|
|
|
|
36
|
%
|
|
|
6,705,617
|
|
|
|
46
|
%
|
|
|
-19
|
%
|
Business to consumer
|
|
|
8,537,711
|
|
|
|
53
|
%
|
|
|
9,325,816
|
|
|
|
53
|
%
|
|
|
-8
|
%
|
Total cost of services
|
|
$
|
13,986,051
|
|
|
|
45
|
%
|
|
$
|
16,031,433
|
|
|
|
50
|
%
|
|
|
-13
|
%
|
Cost of services
Cost of services expense
attributable to The Deal / BoardEx decreased by approximately $1.2 million, or 21%, in the six months ended June 30, 2017 as
compared to the six months ended June 30, 2016. This decrease was primarily the result of reduced employee compensation and
related payroll taxes, lower employee benefit costs due to increased employee contributions towards health benefit plans, a
reduction in the Company’s matching portion of employee contributions to 401-K plans, lower outside reporter,
contributor revenue share and event related costs, the aggregate of which decreased by approximately $1.2 million. Also
contributing to the decline was a reduction in corporate expense allocations totaling approximately $243 thousand. These cost
decreases were partially offset by an increase in hosting, internet access and consulting fees, the aggregate of which
increased by approximately $286 thousand.
Cost of services expense attributable to
RateWatch decreased by $62 thousand, or 6%, in the six months ended June 30, 2017 as compared to the six months ended June 30,
2016. The decrease was primarily the result of reduced employee compensation and related payroll taxes, lower employee benefit
costs due to increased employee contributions towards health benefit plans and a reduction in the Company’s matching portion
of employee contributions to 401-K plans, the aggregate of which decreased by $138 thousand. These cost decreases were partially
offset by an approximate $45 thousand increase in corporate expense allocations and higher hosting and internet access costs totaling
approximately $22 thousand.
Cost of services expense attributable
to our business to consumer business decreased by approximately $788 thousand, or 8%, in the six months ended June 30, 2017
as compared to the six months ended June 30, 2016. The decrease was primarily the result of reduced outside reporter,
contributor revenue share costs, lower employee compensation and related payroll taxes, lower employee benefit costs due to
increased employee contributions towards health benefit plans and a reduction in the Company’s matching portion
of employee contributions to 401-K plans, the aggregate of which decreased by approximately $787 thousand. Also contributing
to the decline was a reduction in corporate expense allocations totaling approximately $376 thousand. These cost
decreases were partially offset by an increase in hosting, internet access and consulting fees, the aggregate of which
increased by approximately $303 thousand.
Sales
and Marketing
|
|
For
the Six Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent
of
Segment
Revenue
|
|
|
2016
|
|
|
Percent
of
Segment
Revenue
|
|
|
Percent
Change
|
|
Sales and
marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Deal / BoardEx
|
|
$
|
2,677,835
|
|
|
|
23
|
%
|
|
$
|
2,707,857
|
|
|
|
25
|
%
|
|
|
-1
|
%
|
RateWatch
|
|
|
732,324
|
|
|
|
19
|
%
|
|
|
657,757
|
|
|
|
18
|
%
|
|
|
11
|
%
|
Total
Business to business
|
|
|
3,410,159
|
|
|
|
22
|
%
|
|
|
3,365,614
|
|
|
|
23
|
%
|
|
|
1
|
%
|
Business
to consumer
|
|
|
3,711,014
|
|
|
|
23
|
%
|
|
|
4,531,973
|
|
|
|
26
|
%
|
|
|
-18
|
%
|
Total
sales and marketing
|
|
$
|
7,121,173
|
|
|
|
23
|
%
|
|
$
|
7,897,587
|
|
|
|
24
|
%
|
|
|
-10
|
%
|
Sales
and marketing
Sales
and marketing expense attributable to The Deal / BoardEx decreased by approximately $30 thousand, or 1%, in the six months ended
June 30, 2017 as compared to the six months ended June 30, 2016. The decrease was primarily the result of reduced employee compensation
and related payroll taxes, lower employee benefit costs due to increased employee contributions towards health benefit plans,
a reduction in the Company’s matching portion of employee contributions to 401-K plans and decreased employee travel and
entertainment expense, the aggregate of which decreased by approximately $168 thousand. These cost decreases were partially offset
by an approximate $151 thousand increase in corporate expense allocations.
Sales
and marketing expense attributable to our RateWatch business increased by approximately $75 thousand, or 11%, in the six months
ended June 30, 2017 as compared to the six months ended June 30, 2016. The increase was primarily the result of an approximate
$73 thousand increase in corporate expense allocations.
Sales
and marketing expense attributable to our business to consumer business unit decreased by approximately $821 thousand, or 18%,
in the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. The decrease was primarily the result
of reduced employee compensation and related payroll taxes, lower employee benefit costs due to increased employee contributions
towards health benefit plans, a reduction in the Company’s matching portion of employee contributions to 401-K plans, and
lower advertising and promotion, consulting and advertising serving costs, the aggregate of which decreased by approximately $885
thousand. These cost decreases were partially offset by an approximate $79 thousand increase in corporate expense allocations.
General
and Administrative
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
General and administrative:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
3,830,137
|
|
|
|
33
|
%
|
|
$
|
4,101,839
|
|
|
|
37
|
%
|
|
|
-7
|
%
|
RateWatch
|
|
|
1,051,566
|
|
|
|
28
|
%
|
|
|
1,616,843
|
|
|
|
45
|
%
|
|
|
-35
|
%
|
Total Business to business
|
|
|
4,881,703
|
|
|
|
32
|
%
|
|
|
5,718,682
|
|
|
|
39
|
%
|
|
|
-15
|
%
|
Business to consumer
|
|
|
2,996,801
|
|
|
|
19
|
%
|
|
|
3,274,615
|
|
|
|
19
|
%
|
|
|
-8
|
%
|
Total general and administrative
|
|
$
|
7,878,504
|
|
|
|
25
|
%
|
|
$
|
8,993,297
|
|
|
|
28
|
%
|
|
|
-12
|
%
|
General
and administrative
General
and administrative expense attributable to The Deal / BoardEx business decreased by approximately $272 thousand, or 7%,
in the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. The decrease was primarily the
result of reduced employee compensation and related payroll taxes, lower employee benefit costs due to increased
employee contributions towards health benefit plans and a reduction in the Company’s matching portion of employee
contributions to 401-K plans, the aggregate of which decreased by approximately $191 thousand. Also contributing to the cost
decrease was reduced corporate expense allocations totaling approximately $501 thousand. These cost decreases were partially
offset by increased expenses resulting from transaction losses caused by the fluctuation in foreign currency exchange
rates.
General
and administrative expense attributable to our RateWatch business decreased by approximately $565 thousand, or 35%, in the six
months ended June 30, 2017 as compared to the six months ended June 30, 2016. The decrease was primarily the result of reduced
employee compensation and related payroll taxes, lower employee benefit costs due to increased employee contributions towards
health benefit plans, a reduction in the Company’s matching portion of employee contributions to 401-K plans, the absence
in 2017 of moving costs incurred in the first quarter of 2016 as RateWatch relocated to a new facility, and decreased recruiting
fees, the aggregate of which decreased by approximately $156 thousand. Also contributing to the decrease was an approximate $369
thousand reduction in corporate expense allocations.
General
and administrative expense attributable to our business to consumer business decreased by approximately $278 thousand, or 8%,
in the six months ended June 30, 2017 as compared to the six months ended June 30, 2016. The decrease was primarily the result
of an approximate $403 thousand reduction in corporate expense allocations combined with approximately $61 thousand of reduced
occupancy costs. These cost decreases were partially offset by increased expense related to an expanded business analytics group
designed to provide management with information needed to improve business results combined with an increase in bad debt expense
resulting from a cash collection during the first quarter of 2016 related to an account that had been fully reserved in a prior
period, the aggregate of which increased by approximately $191 thousand.
Depreciation
and Amortization
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
1,406,913
|
|
|
|
12
|
%
|
|
$
|
1,205,574
|
|
|
|
11
|
%
|
|
|
17
|
%
|
RateWatch
|
|
|
708,335
|
|
|
|
19
|
%
|
|
|
524,677
|
|
|
|
14
|
%
|
|
|
35
|
%
|
Total Business to business
|
|
|
2,115,248
|
|
|
|
14
|
%
|
|
|
1,730,251
|
|
|
|
12
|
%
|
|
|
22
|
%
|
Business to consumer
|
|
|
366,777
|
|
|
|
2
|
%
|
|
|
185,219
|
|
|
|
1
|
%
|
|
|
98
|
%
|
Total depreciation and amortization
|
|
$
|
2,482,025
|
|
|
|
8
|
%
|
|
$
|
1,915,470
|
|
|
|
6
|
%
|
|
|
30
|
%
|
Depreciation
and amortization.
Depreciation and amortization expense increased by approximately $567 thousand, or 30%, in the six months
ended June 30, 2017 as compared to the six months ended June 30, 2016. The increase was primarily the result of increased amortization
expense related to capitalized software and website development projects.
Restructuring
and Other Charges
|
|
For the Six Months Ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
Restructuring and other charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Deal / BoardEx
|
|
$
|
47,464
|
|
|
|
0
|
%
|
|
$
|
497,298
|
|
|
|
5
|
%
|
|
|
-90
|
%
|
RateWatch
|
|
|
(619
|
)
|
|
|
-0
|
%
|
|
|
180,515
|
|
|
|
5
|
%
|
|
|
-100
|
%
|
Total Business to business
|
|
|
46,845
|
|
|
|
0
|
%
|
|
|
677,813
|
|
|
|
5
|
%
|
|
|
-93
|
%
|
Business to consumer
|
|
|
152,134
|
|
|
|
1
|
%
|
|
|
865,197
|
|
|
|
5
|
%
|
|
|
-82
|
%
|
Total restructuring and other charges
|
|
$
|
198,979
|
|
|
|
1
|
%
|
|
$
|
1,543,010
|
|
|
|
5
|
%
|
|
|
-87
|
%
|
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 $1.5 million during the six months ended June 30,
2016.
Net
Interest Income (Expense)
|
|
For the Six Months Ended June 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net interest income (expense)
|
|
$
|
18,056
|
|
|
$
|
(12,094
|
)
|
|
|
249
|
%
|
Net
interest income totaled approximately $18 thousand in the six months ended June 30, 2017 as compared to net interest expense approximating
$12 thousand in the six months ended June 30, 2016. The change was primarily the result of reduced interest expense related to
the accretion of certain accrued expenses that were recorded in connection with prior acquisitions.
Provision
for Income Taxes
|
|
For the Six Months Ended June 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Provision
for income taxes
|
|
$
|
374,062
|
|
|
$
|
623,876
|
|
|
|
-40
|
%
|
Income
tax expense for the six months ended June 30, 2017 was approximately $374 thousand, as compared to approximately $624 thousand
for the six months ended June 30, 2016, and reflects an effective tax rate of -92% and -15%, respectively. Income tax expense
for the six months ended June 30, 2017 and 2016 primarily relates to the recognition of $297 thousand and $562 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 $77 thousand and $62 thousand, respectively, of income tax expense
in certain jurisdictions where there are no net operating losses available to offset taxable income.
Net
Income (Loss) Attributable to Common Stockholders
Net
loss attributable to common stockholders for the six months ended June 30, 2017 totaled approximately $783 thousand, or $0.02
per basic and diluted share, compared to net loss attributable to common stockholders totaling approximately $4.7 million, or
$0.13 per basic and diluted share, for the six months ended June 30, 2016.
Liquidity
and Capital Resources
Our
current assets at June 30, 2017 consisted primarily of cash and cash equivalents, accounts receivable and prepaid expenses. We
do not hold inventory. Our current liabilities at June 30, 2017 consisted primarily of deferred revenue, accrued expenses and
accounts payable. At June 30, 2017, our current assets were approximately $30.3 million, 7% less than our current liabilities.
With respect to many of our annual business to consumer newsletter subscription products, we offer the ability to receive a refund
during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.
We
generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of
high quality, with the intent that such funds are available for sale for acquisition and operating purposes. As of June 30, 2017,
our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $25.4 million, representing 32%
of total assets. Our cash, cash equivalents and restricted cash primarily consisted of checking accounts and money market funds.
Our marketable securities consisted of two municipal auction rate securities issued by the District of Columbia with a fair value
of approximately $1.5 million that mature in the year 2038. Our total cash-related position is as follows:
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
Cash and cash equivalents
|
|
$
|
23,384,260
|
|
|
$
|
21,371,122
|
|
Marketable securities
|
|
|
1,544,750
|
|
|
|
1,550,000
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and restricted cash
|
|
$
|
25,429,010
|
|
|
$
|
23,421,122
|
|
Financial
instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash.
We maintain all of our cash, cash equivalents and restricted cash in federally insured financial institutions, and we perform
periodic evaluations of the relative credit standing of these institutions.
Net
cash provided by operating activities totaled approximately $3.1 million for the six months ended June 30, 2017, as compared to
net cash provided by operating activities totaling approximately $708 thousand for the six months ended June 30, 2016. The increase
in net operating cash was primarily the result of the decrease in our net loss combined with the change in the balance of deferred
revenue, partially offset by the change in the balance of accrued expenses and accounts payable.
Net
cash used in investing activities totaled approximately $1.3 million for the six months ended June 30, 2017, as compared to net
cash used in investing activities totaling approximately $1.6 million for the six months ended June 30, 2016. The decrease in
cash used in investing activities was the result of reduced capital expenditures.
Net
cash used in financing activities totaled approximately $78 thousand for the six months ended June 30, 2017, as compared to cash
used in financing activities totaling approximately $17 thousand for the six months ended June 30, 2016. The increase in net cash
used in financing activities was primarily the result of the timing of cash dividend payments by the Company related to the vesting
and issuance of RSU shares.
We
currently have a total of $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 office space in New York City.
We
believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next
12 months. We are committed to cash expenditures in an aggregate amount of approximately $4.0 million through June 30, 2018, primarily
related to operating leases and minimum payments due under an employment agreement.
As
of December 31, 2016 we had approximately $160 million of federal and state net operating loss carryforwards. We maintain a full
valuation allowance against our deferred tax assets as management concluded that it was more likely than not that we would not
realize the benefit of our deferred tax assets by generating sufficient taxable income in future years. 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.
In
accordance with Section 382 of the Internal Revenue Code, the ability to utilize our net operating loss carryforwards could be
limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject
to limitation.
Off-Balance
Sheet Arrangements
As
of June 30, 2017, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that
have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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, or 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 six months ended June 30, 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 approved 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 June 30, 2017, the Company
had withheld an aggregate of 1,864,145 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.