Item
1. Interim Condensed Consolidated Financial Statements.
THESTREET,
INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September
30, 2017
|
|
|
December
31, 2016
|
|
assets
|
|
(unaudited)
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
23,990,179
|
|
|
$
|
21,371,122
|
|
Accounts
receivable, net of allowance for doubtful accounts of $331,793 as of September 30, 2017 and $316,204 as of December 31, 2016
|
|
|
4,809,393
|
|
|
|
5,119,959
|
|
Other
receivables, net
|
|
|
309,832
|
|
|
|
358,266
|
|
Prepaid
expenses and other current assets
|
|
|
2,014,597
|
|
|
|
1,416,956
|
|
Total
current assets
|
|
|
31,124,001
|
|
|
|
28,266,303
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
Assets:
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation and amortization of $5,420,056 as of September 30, 2017 and $5,682,286 as of
December 31, 2016
|
|
|
2,834,366
|
|
|
|
3,550,007
|
|
Marketable
securities
|
|
|
1,600,250
|
|
|
|
1,550,000
|
|
Other
assets
|
|
|
302,091
|
|
|
|
285,843
|
|
Goodwill
|
|
|
29,408,292
|
|
|
|
29,183,141
|
|
Other
intangible assets, net of accumulated amortization of $22,545,755 as of September 30, 2017 and $20,134,178 as of December
31, 2016
|
|
|
14,399,003
|
|
|
|
15,127,818
|
|
Restricted
cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total
Assets
|
|
$
|
80,168,003
|
|
|
$
|
78,463,112
|
|
|
|
|
|
|
|
|
|
|
liabilities
and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,189,424
|
|
|
$
|
2,526,034
|
|
Accrued
expenses
|
|
|
3,563,019
|
|
|
|
5,115,558
|
|
Deferred
revenue
|
|
|
24,338,054
|
|
|
|
22,476,962
|
|
Other
current liabilities
|
|
|
1,906,511
|
|
|
|
983,799
|
|
Total
current liabilities
|
|
|
31,997,008
|
|
|
|
31,102,353
|
|
Noncurrent
Liabilities:
|
|
|
|
|
|
|
|
|
Deferred
tax liability
|
|
|
2,481,303
|
|
|
|
2,036,487
|
|
Other
noncurrent liabilities
|
|
|
2,146,454
|
|
|
|
3,274,816
|
|
Total
liabilities
|
|
|
36,624,765
|
|
|
|
36,413,656
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of September 30, 2017 and December 31,
2016; the aggregate liquidation preference totals $55,000,000 as of September 30, 2017 and December 31, 2016
|
|
|
55
|
|
|
|
55
|
|
Common
stock; $0.01 par value; 100,000,000 shares authorized; 43,404,372 shares issued and 35,872,589 shares outstanding as of September
30, 2017, and 42,936,906 shares issued and 35,421,217 shares outstanding as of December 31, 2016
|
|
|
434,044
|
|
|
|
429,369
|
|
Additional
paid-in capital
|
|
|
272,345,333
|
|
|
|
271,143,445
|
|
Accumulated
other comprehensive loss
|
|
|
(5,005,790
|
)
|
|
|
(5,898,305
|
)
|
Treasury
stock at cost; 7,531,783 shares as of September 30, 2017 and 7,515,689 shares as of December 31, 2016
|
|
|
(13,223,610
|
)
|
|
|
(13,211,141
|
)
|
Accumulated
deficit
|
|
|
(211,006,794
|
)
|
|
|
(210,413,967
|
)
|
Total
stockholders’ equity
|
|
|
43,543,238
|
|
|
|
42,049,456
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
80,168,003
|
|
|
$
|
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
September 30,
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
to business
|
|
$
|
7,870,124
|
|
|
$
|
7,215,910
|
|
|
$
|
23,112,310
|
|
|
$
|
21,879,869
|
|
Business
to consumer
|
|
|
7,382,672
|
|
|
|
7,997,944
|
|
|
|
23,380,528
|
|
|
|
25,695,944
|
|
Total
revenue
|
|
|
15,252,796
|
|
|
|
15,213,854
|
|
|
|
46,492,838
|
|
|
|
47,575,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services (exclusive of depreciation and amortization shown separately below)
|
|
|
6,645,804
|
|
|
|
7,924,852
|
|
|
|
20,631,855
|
|
|
|
23,956,285
|
|
Sales
and marketing
|
|
|
3,077,783
|
|
|
|
3,736,815
|
|
|
|
10,198,956
|
|
|
|
11,634,402
|
|
General
and administrative
|
|
|
3,882,898
|
|
|
|
3,937,226
|
|
|
|
11,761,402
|
|
|
|
12,930,523
|
|
Depreciation
and amortization
|
|
|
1,352,760
|
|
|
|
1,080,651
|
|
|
|
3,834,785
|
|
|
|
2,996,121
|
|
Restructuring
and other charges
|
|
|
—
|
|
|
|
(582,519
|
)
|
|
|
198,979
|
|
|
|
960,491
|
|
Total
operating expense
|
|
|
14,959,245
|
|
|
|
16,097,025
|
|
|
|
46,625,977
|
|
|
|
52,477,822
|
|
Operating
income (loss)
|
|
|
293,551
|
|
|
|
(883,171
|
)
|
|
|
(133,139
|
)
|
|
|
(4,902,009
|
)
|
Net
interest income (expense)
|
|
|
8,168
|
|
|
|
(12,179
|
)
|
|
|
26,224
|
|
|
|
(24,273
|
)
|
Net
income (loss) before income taxes
|
|
|
301,719
|
|
|
|
(895,350
|
)
|
|
|
(106,915
|
)
|
|
|
(4,926,282
|
)
|
Provision
for income taxes
|
|
|
111,850
|
|
|
|
325,781
|
|
|
|
485,912
|
|
|
|
949,657
|
|
Net
income (loss)
|
|
$
|
189,869
|
|
|
$
|
(1,221,131
|
)
|
|
$
|
(592,827
|
)
|
|
$
|
(5,875,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.17
|
)
|
Diluted
net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic shares outstanding
|
|
|
35,869,751
|
|
|
|
35,253,930
|
|
|
|
35,710,049
|
|
|
|
35,228,863
|
|
Weighted
average diluted shares outstanding
|
|
|
36,142,548
|
|
|
|
35,253,930
|
|
|
|
35,710,049
|
|
|
|
35,228,863
|
|
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
September 30,
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net
income (loss)
|
|
$
|
189,869
|
|
|
$
|
(1,221,131
|
)
|
|
$
|
(592,827
|
)
|
|
$
|
(5,875,939
|
)
|
Foreign
currency translation (loss) gain
|
|
|
(158,076
|
)
|
|
|
(630,567
|
)
|
|
|
842,265
|
|
|
|
(2,835,673
|
)
|
Unrealized
gain (loss) on marketable securities
|
|
|
55,500
|
|
|
|
20,000
|
|
|
|
50,250
|
|
|
|
(100,000
|
)
|
Comprehensive
income (loss)
|
|
$
|
87,293
|
|
|
$
|
(1,831,698
|
)
|
|
$
|
299,688
|
|
|
$
|
(8,811,612
|
)
|
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 Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(592,827
|
)
|
|
$
|
(5,875,939
|
)
|
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
1,205,978
|
|
|
|
1,152,025
|
|
Provision for (recovery of) doubtful accounts
|
|
|
69,260
|
|
|
|
(13,892
|
)
|
Depreciation and amortization
|
|
|
3,834,785
|
|
|
|
2,996,121
|
|
Deferred taxes
|
|
|
444,816
|
|
|
|
842,176
|
|
Restructuring and other charges
|
|
|
—
|
|
|
|
105,113
|
|
Deferred rent
|
|
|
(394,839
|
)
|
|
|
(547,350
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
332,707
|
|
|
|
1,465,800
|
|
Other receivables
|
|
|
49,336
|
|
|
|
266,451
|
|
Prepaid expenses and other current assets
|
|
|
(582,693
|
)
|
|
|
(393,861
|
)
|
Other assets
|
|
|
(4,417
|
)
|
|
|
3,999
|
|
Accounts payable
|
|
|
(344,356
|
)
|
|
|
40,502
|
|
Accrued expenses
|
|
|
(1,573,044
|
)
|
|
|
(38,541
|
)
|
Deferred revenue
|
|
|
1,719,817
|
|
|
|
(1,404,244
|
)
|
Other current liabilities
|
|
|
(540
|
)
|
|
|
(208,328
|
)
|
Other liabilities
|
|
|
—
|
|
|
|
99,475
|
|
Net cash provided by (used in) operating activities
|
|
|
4,163,983
|
|
|
|
(1,510,493
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
—
|
|
|
|
161,250
|
|
Capital expenditures
|
|
|
(1,832,925
|
)
|
|
|
(2,707,638
|
)
|
Net cash used in investing activities
|
|
|
(1,832,925
|
)
|
|
|
(2,546,388
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Cash dividends paid on common stock
|
|
|
(68,245
|
)
|
|
|
(12,492
|
)
|
Shares withheld on RSU vesting to pay for withholding taxes
|
|
|
(12,469
|
)
|
|
|
(5,057
|
)
|
Net cash used in financing activities
|
|
|
(80,714
|
)
|
|
|
(17,549
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange
rate changes on cash and cash equivalents
|
|
|
368,713
|
|
|
|
(425,091
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,619,057
|
|
|
|
(4,499,521
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
21,371,122
|
|
|
|
28,445,416
|
|
Cash and cash equivalents, end of period
|
|
$
|
23,990,179
|
|
|
$
|
23,945,895
|
|
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 September 30, 2017, the condensed consolidated statements of operations and
comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016, and the condensed statements of cash
flows for the nine months ended September 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 September 30, 2017, its results of consolidated operations and comprehensive income (loss) for the three and nine months
ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The financial data and
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 nine months ended September 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. In addition, this guidance
requires new or expanded disclosures related to the judgments made by companies when following this framework and additional quantitative
disclosures regarding contract balances and remaining performance obligations. 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). The Company will adopt this guidance on January 1, 2018.
The
Company is currently evaluating the overall impact that ASU 2014-09 will have on the Company’s consolidated financial statements,
as well as the expected timing and method of adoption. The Company has established an implementation team, including external
advisers, and has commenced the review of the Company’s revenue portfolio and related contracts across its various business
units and geographies. Discussions regarding changes to the Company’s current accounting policies and practices remain ongoing
and preliminary conclusions are subject to change.
Upon
adoption, the Company will recognize revenue from contracts with customers as each performance obligation is satisfied, either
at a point in time or over a period of time, based on when control transfers to customers.
The
Company plans to adopt the new revenue recognition standard under the modified retrospective transition method by recognizing
the cumulative effect of applying the standard as an adjustment to the Company’s Balance Sheet. Until the Company completes
testing of the new revenue recognition standard, the Company does not anticipate being able to provide the impact of the new standard
on the Balance Sheets or Statements of Operations however from the initial review and assessment of a sample of contracts with
customers the Company does not anticipate the new accounting pronouncement to have a material impact on the Company’s financial
statements, except enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations,
variable consideration and the related judgments and estimates necessary to apply the new standard.
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. The Company is in the process of evaluating the effect
the standard will have on its financial statements, however the Company does not lease any office equipment and our office space
leases are the only leases with a term longer than 12 months.
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”). ASU 2016-13 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 this new standard will have a material impact on our consolidated financial statements.
In
August 2016, the FASB issued ASU 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 pending adoption of this new
standard is not expected to have a material impact on our consolidated statement of cash flows.
In
November 2016, the FASB issued ASU No. 2016-18,
Restricted Cash
(ASU 2016-18). ASU 2016-18 addresses 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 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 pending adoption of this standard is not expected to have a material
impact on our consolidated financial statements.
In
January 2017, the FASB issued ASU 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 pending
adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In
May 2017, the FASB issued ASU 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 pending adoption of this standard
is not expected to have a material impact on our consolidated financial statements.
|
2.
|
CASH
AND CASH EQUIVALENTS, MARKETABLE SECURITIES AND RESTRICTED CASH
|
The
Company’s cash and cash equivalents and restricted cash primarily consist of checking accounts and money market funds. As
of September 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 $1.6 million
and $1.6 million, respectively. With the exception of the ARS, Company policy limits the maximum maturity for any investment to
three years. The ARS mature in the year 2038. The Company accounts for its marketable securities in accordance with the provisions
of ASC 320-10. The Company classifies these securities as available for sale and the securities are reported at fair value. Unrealized
gains and losses are recorded as a component of accumulated other comprehensive loss and excluded from net income (loss) as they
are deemed temporary. Additionally, as of September 30, 2017 and December 31, 2016, the Company has a total of approximately $500
thousand of cash that serves as collateral for an outstanding letter of credit, and which cash is therefore restricted. The letter
of credit serves as a security deposit for the Company’s office space in New York City.
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Cash and cash equivalents
|
|
$
|
23,990,179
|
|
|
$
|
21,371,122
|
|
Marketable securities
|
|
|
1,600,250
|
|
|
|
1,550,000
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and restricted cash
|
|
$
|
26,090,429
|
|
|
$
|
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 September 30, 2017
|
|
Description:
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Cash
and cash equivalents (1)
|
|
$
|
23,990,179
|
|
|
$
|
23,990,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted
cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable
securities (2)
|
|
|
1,600,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,600,250
|
|
Contingent
earn-out (3)
|
|
|
940,815
|
|
|
|
—
|
|
|
|
—
|
|
|
|
940,815
|
|
Total
at fair value
|
|
$
|
27,031,244
|
|
|
$
|
24,490,179
|
|
|
$
|
—
|
|
|
$
|
2,541,065
|
|
|
|
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 $24.5 million and $21.9 million as of September 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 $1.6 million
and $1.6 million as of September 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 September 30, 2017, the Company determined there was a decline in the fair value of its ARS investments of approximately
$250 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
|
|
|
50,250
|
|
Balance September 30, 2017
|
|
$
|
1,600,250
|
|
|
|
Contingent
Earn-Out
|
|
Balance December 31, 2016
|
|
$
|
907,657
|
|
Accretion to net present value
|
|
|
33,158
|
|
Balance September 30, 2017
|
|
$
|
940,815
|
|
|
4.
|
STOCK-BASED
COMPENSATION
|
Stock-based
compensation expense recognized in the Company’s consolidated statements of operations for the nine months ended September
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 period. 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 nine months
ended September 30, 2017 and 2016 was $0.27 and $0.37, respectively, using the Black-Scholes model with the following weighted-average
assumptions:
|
|
For
the Nine Months Ended
September 30,
|
|
|
2017
|
|
2016
|
Expected
option lives
|
|
3.7
years
|
|
4.5
years
|
Expected
volatility
|
|
37.64%
|
|
34.78%
|
Risk-free
interest rate
|
|
1.55%
|
|
1.11%
|
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 nine months
ended September 30, 2017 and 2016 was $0.90 and $1.30, respectively.
As
of September 30, 2017, there remained approximately 1.2 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 $401 thousand and $1.2 million
of noncash stock-based compensation for the three and nine month periods ended September 30, 2017, respectively, as compared to
$407 thousand and $1.3 million (inclusive of approximately $105 thousand included in restructuring and other charges) of noncash
stock-based compensation expense for the three and nine month periods ended September 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
|
|
|
(27,923
|
)
|
|
$
|
1.15
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(623,714
|
)
|
|
$
|
1.78
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2017
|
|
|
5,384,094
|
|
|
$
|
1.47
|
|
|
$
|
48
|
|
|
|
3.59
|
|
Awards vested and expected to vest at September 30, 2017
|
|
|
5,350,569
|
|
|
$
|
1.47
|
|
|
$
|
47
|
|
|
|
3.58
|
|
Awards exercisable at September 30, 2017
|
|
|
3,491,073
|
|
|
$
|
1.62
|
|
|
$
|
10
|
|
|
|
2.48
|
|
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
|
|
|
(467,466
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
(46,389
|
)
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2017
|
|
|
769,739
|
|
|
$
|
831
|
|
|
|
0.63
|
|
Awards expected to vest at September 30, 2017
|
|
|
763,739
|
|
|
$
|
825
|
|
|
|
0.54
|
|
A
summary of the status of the Company’s unvested stock-based payment awards as of September 30, 2017 and changes in the nine
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
|
|
|
(1,432,488
|
)
|
|
$
|
0.38
|
|
Shares underlying restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(467,466
|
)
|
|
$
|
1.15
|
|
Shares underlying options forfeited
|
|
|
(27,923
|
)
|
|
$
|
0.37
|
|
Shares underlying restricted stock units cancelled
|
|
|
(46,389
|
)
|
|
$
|
1.20
|
|
Shares underlying awards unvested at September 30, 2017
|
|
|
2,662,760
|
|
|
$
|
0.70
|
|
For
the nine months ended September 30, 2017 and 2016, the total fair value of stock-based awards vested was approximately $952 thousand
and $389 thousand, respectively. For the nine months ended September 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 nine months ended September 30, 2017
and 2016, approximately 135 thousand and 2.9 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 nine months ended September 30, 2017 and 2016,
approximately 566 thousand and 558 thousand restricted stock units, respectively, were granted, and approximately 467 thousand
and 136 thousand shares, respectively, were issued under restricted stock unit grants. For the nine months ended September 30,
2017 and 2016, the total intrinsic value of restricted stock units that vested was approximately $409 thousand and $193 thousand,
respectively. As of September 30, 2017 and 2016, the total intrinsic value of awards outstanding was approximately $879 thousand
and $1.3 million, respectively. As of September 30, 2017, there was approximately $1.1 million of unrecognized stock-based compensation
expense remaining to be recognized over a weighted-average period of 1.18 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 nine months ended September 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 amount of applicable withholding taxes then due. Through September 30, 2017, the Company had withheld
an aggregate of 1,866,759 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 nine months ended September 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
INCOME (LOSS) PER SHARE OF COMMON STOCK
|
Basic
net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted
net income (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 September 30, 2016, approximately 1.4 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. For the nine months ended September 30, 2017 and 2016, approximately 569 thousand and 1.2 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 Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic and diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
189,869
|
|
|
$
|
(1,221,131
|
)
|
|
$
|
(592,827
|
)
|
|
$
|
(5,875,939
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
35,869,751
|
|
|
|
35,253,930
|
|
|
|
35,710,049
|
|
|
|
35,228,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
36,142,548
|
|
|
|
35,253,930
|
|
|
|
35,710,049
|
|
|
|
35,228,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.17
|
)
|
Diluted net income (loss) attributable to common stockholders
|
|
$
|
0.01
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.17
|
)
|
Income
tax expense for the three and nine months ended September 30, 2017 was approximately $112 thousand and $486 thousand, respectively,
and reflects an effective tax rate of 37% and -454%, respectively, as compared to approximately $326 thousand and $950 thousand,
respectively, for the three and nine months ended September 30, 2016, reflecting an effective tax rate of -36% and -19%, respectively.
Income tax expense for the three and nine months ended September 30, 2017 primarily relates to the recognition of $148 thousand
and $445 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 a $36 thousand credit and $41
thousand expense, respectively, of income tax in certain jurisdictions where there are no net operating losses available to offset
taxable income. Income tax expense for the three and nine months ended September 30, 2016 primarily relates to the recognition
of $281 thousand and $842 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 $45 thousand
and $108 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 September 30, 2017 and December
31, 2016, the Company’s cash, cash equivalents and restricted cash primarily consisted of checking accounts and money market
funds.
For
the three and nine months ended September 30, 2017 and 2016, no individual client accounted for 10% or more of consolidated revenue.
As of September 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 recorded an adjustment
to its restructuring reserve totaling approximately $1.2 million during the three months ended September 30, 2015 and a lease
termination credit of approximately $583 thousand when the office space was vacated in August 2016. 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 nine months ended September 30, 2016.
|
|
Lease Termination
|
|
Balance December 31, 2015
|
|
$
|
99,309
|
|
Payments net of sublease receipts
|
|
|
(77,609
|
)
|
Balance September 30, 2016
|
|
$
|
21,700
|
|
Other
liabilities consist of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Deferred rent
|
|
$
|
1,506,965
|
|
|
$
|
1,904,319
|
|
Acquisition contingent earn-out
|
|
|
—
|
|
|
|
907,657
|
|
Deferred revenue
|
|
|
581,313
|
|
|
|
460,748
|
|
Other
|
|
|
58,176
|
|
|
|
2,092
|
|
Total other liabilities
|
|
$
|
2,146,454
|
|
|
$
|
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 recorded a reserve totaling approximately $1.4 million during the six months ended 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 reduction to that estimate totaling $700 thousand. As of September 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 nine months ended September 30, 2016 to conform to the current segment
presentation.
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Revenue:
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
- The Deal / BoardEx
|
|
$
|
5,951,582
|
|
|
$
|
5,429,641
|
|
|
$
|
17,418,253
|
|
|
$
|
16,463,193
|
|
- RateWatch
|
|
|
1,918,542
|
|
|
|
1,786,269
|
|
|
|
5,694,057
|
|
|
|
5,416,676
|
|
Total business to business
|
|
|
7,870,124
|
|
|
|
7,215,910
|
|
|
|
23,112,310
|
|
|
|
21,879,869
|
|
- Business to consumer
|
|
|
7,382,672
|
|
|
|
7,997,944
|
|
|
|
23,380,528
|
|
|
|
25,695,944
|
|
Total
|
|
$
|
15,252,796
|
|
|
$
|
15,213,854
|
|
|
$
|
46,492,838
|
|
|
$
|
47,575,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(356,519
|
)
|
|
$
|
(315,527
|
)
|
|
$
|
(1,344,469
|
)
|
|
$
|
(3,482,414
|
)
|
- RateWatch
|
|
|
212,600
|
|
|
|
151,288
|
|
|
|
540,441
|
|
|
|
(215,843
|
)
|
Total business to business
|
|
|
(143,919
|
)
|
|
|
(164,239
|
)
|
|
|
(804,028
|
)
|
|
|
(3,698,257
|
)
|
- Business to consumer
|
|
|
437,470
|
|
|
|
(718,932
|
)
|
|
|
670,889
|
|
|
|
(1,203,752
|
)
|
Total
|
|
$
|
293,551
|
|
|
$
|
(883,171
|
)
|
|
$
|
(133,139
|
)
|
|
$
|
(4,902,009
|
)
|
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 nine months ended September 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.
14. SUBSEQUENT EVENTS
Exchange Agreement
On November 10, 2017, TheStreet,
Inc. (the “Company”) entered into an Exchange Agreement (the “Exchange Agreement”) with TCV VI, L.P., a
Delaware limited partnership (“TCV VI”), and TCV Member Fund, L.P., a Cayman Islands exempted limited partnership (“TCV
Member Fund” and, together with TCV VI, the “TCV Holders”), which provided for, among other things, the exchange
by the TCV Holders of all shares of Series B Preferred Stock of the Company held by them for an aggregate of (i) 6,000,000 shares
of newly issued common stock, par value $0.01 per share of the Company (“Common Stock”) and (ii) cash consideration
in the amount of $20,000,000 (the “Exchange Transaction”). The Exchange Transaction closed on November 10, 2017. The
retirement of the Series B Preferred Stock removes, among other rights of the TCV Holders and restrictions on the Company, a $55
million liquidation preference previously held by TCV.
Purchase Agreement
On November 10, 2017, the Company
entered into a Securities Purchase Agreement (the “Purchase Agreement”) with 180 Degree Capital Corp. (“180 Degree
Capital”) and TheStreet SPV Series, a limited liability company series of 180 Degree Capital Management, LLC (the “Investors”),
pursuant to which the Company sold and issued 7,136,363 shares of its Common Stock, to the Investors at a purchase price of $1.10
per Common Stock in a closing that occurred on November 10, 2017 (the “Financing Transaction”). The closing bid price
of the Company’s Common Stock as reported by NASDAQ on November 9, 2017, was $0.92 per share, and the Financing Transaction
closed on November 10, 2017.
Registration Rights Agreement
In connection with the Exchange
and Financing Transaction, the Company agreed to register the shares for resale and the Company has agreed to prepare and file
a registration statement with the Securities and Exchange Commission within 90 days of the closing. The TCV Holders and the Investors
received additional registration rights as set forth in the transaction documents.
Amended and Restated Employment Agreement
On November 8, 2017,
the Company and James Cramer entered into an amended and restated employment agreement with a new four-year term commencing
January 1, 2018 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Cramer will
author articles for the Company’s publications, provide online video content for the Company’s websites,
participate in events and provide reasonable promotional and other services, subject to his personal and professional
availability, effective January 1, 2018 through December 31, 2021.
In consideration for
providing these services, Mr. Cramer will receive a royalty based on the total net revenues of the Company’s consumer
subscription products as well as revenues from investor and conference programs, presentations or events offered by the
Company in which Mr. Cramer is advertised or serves as a presenter, speaker, participant or panelist. The annual minimum
royalty shall not be less than $2.0 million and effective January 1, 2018, the Company will pay Mr. Cramer a monthly draw
against the annual royalty payment equal to $2.5 million. At the end of each year, the Company will prepare a royalty
statement and calculate and pay the total royalty payable to Mr. Cramer for such year. To the extent the annual royalty
amount exceeds the total monthly draw we paid during the period, then such excess amounts will be paid to Mr. Cramer, to the
extent the total monthly draw paid during the period exceeds the annual royalty amount, such excess (up to a maximum of
$500,000) shall be recoverable by the Company as set forth in the agreement. In addition, during the term of the
Employment Agreement, the Company will pay Mr. Cramer an annual license fee in the amount of $300,000 for the use of his name
and likeness, payable in four equal installments of $75,000 on each of January 1, April 1, July 1 and October 1.
Effective January 2, 2018, Mr.
Cramer will be granted restricted stock units (“RSUs”) under the Company’s 2007 Performance Incentive Plan covering
1,000,000 shares of the Company’s Common Stock. The RSUs will be payable in shares of Common Stock and will vest and become
payable as to 25% of the shares in four equal installments on December 31 of each of 2018, 2019, 2020 and 2021, respectively, subject
to Mr. Cramer’s continued service through each such vesting date and other terms as set forth in the applicable award agreement.
Upon (i) the consummation of a “change of control” of the Company, (ii) a termination of Mr. Cramer’s employment
by the Company without “cause” or (iii) Mr. Cramer’s resignation for “good reason” (as such terms
are defined in the Employment Agreement or the award agreement, as applicable), all of the unvested RSUs held by Mr. Cramer will
become fully vested.
Mr. Cramer has agreed that,
during the term of the Employment Agreement and, if, during the term of the Employment Agreement, either the Company
terminates Mr. Cramer’s employment for cause or Mr. Cramer resigns without good reason, for a period of 18 months
following such termination of employment, Mr. Cramer will not author articles or columns for any other digital
financial publication that competes with the Company without first obtaining the Company’s consent. In addition,
subject to certain exceptions, during the term of the Employment Agreement and for a period of 18 months after the cessation
of his employment, he will not solicit for employment, in any business enterprise or activity, any person who was
employed by the Company during the six months prior to the cessation of his employment.
The Employment Agreement may be terminated by the Company for cause, by Mr. Cramer
for good reason, upon Mr. Cramer’s death, disability, upon the dissolution or liquidation of the Company, or by Mr.
Cramer for specified events provided under the employment agreement.
|
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 nine months
ended September 30, 2017 and 2016, our B2B businesses generated 50% and 46%, 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
our 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 nine months ended September
30, 2017 and 2016, our B2C business generated 50% and 54%, respectively, of our total revenue.
Recent
Transactions
Exchange
Agreement
On
November 10, 2017, TheStreet, Inc. (the “Company”) entered into an Exchange Agreement (the “Exchange Agreement”)
with TCV VI, L.P., a Delaware limited partnership (“TCV VI”), and TCV Member Fund, L.P., a Cayman Islands exempted
limited partnership (“TCV Member Fund” and, together with TCV VI, the “TCV Holders”), which provided for,
among other things, the exchange by the TCV Holders of all shares of Series B Preferred Stock of the Company held by them for
an aggregate of (i) 6,000,000 shares of newly issued common stock, par value $0.01 per share of the Company (“Common Stock”)
and (ii) cash consideration in the amount of $20,000,000 (the “Exchange Transaction”). The Exchange Transaction closed
on November 10, 2017. The retirement of the Series B Preferred Stock removes, among other rights of the TCV Holders and restrictions
on the Company, a $55 million liquidation preference previously held by TCV.
Purchase
Agreement
On
November 10, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with 180 Degree
Capital Corp. (“180 Degree Capital”) and TheStreet SPV Series, a limited liability company series of 180 Degree Capital
Management, LLC (the “Investors”), pursuant to which the Company sold and issued 7,136,363 shares of its Common Stock,
to the Investors at a purchase price of $1.10 per Common Stock in a closing that occurred on November 10, 2017 (the “Financing
Transaction”). The closing bid price of the Company’s Common Stock as reported by NASDAQ on November 9, 2017, was
$0.92 per share, and the Financing Transaction closed on November 10, 2017.
Registration
Rights Agreement
In
connection with the Exchange and Financing Transaction, the Company agreed to register the shares for resale and the Company has
agreed to prepare and file a registration statement with the Securities and Exchange Commission within 90 days of the closing.
The TCV Holders and the Investors received additional registration rights as set forth in the transaction documents.
Amended
and Restated Employment Agreement
On
November 8, 2017, the Company and James Cramer entered into an amended and restated employment agreement with a new
four-year term commencing January 1, 2018 (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr.
Cramer will author articles for the Company’s publications, provide online video content for the Company’s
websites, participate in events and provide reasonable promotional and other services, subject to his personal and
professional availability, effective January 1, 2018 through December 31, 2021.
In
consideration for providing these services, Mr. Cramer will receive a royalty based on the total net revenues of the
Company’s consumer subscription products as well as revenues from investor and conference programs, presentations or
events offered by the Company in which Mr. Cramer is advertised or serves as a presenter, speaker, participant or panelist.
The annual minimum royalty shall not be less than $2.0 million and effective January 1, 2018, the Company will pay Mr. Cramer
a monthly draw against the annual royalty payment equal to $2.5 million. At the end of each year, the Company will prepare a
royalty statement and calculate and pay the total royalty payable to Mr. Cramer for such year. To the extent the annual
royalty amount exceeds the total monthly draw we paid during the period, then such excess amounts will be paid to Mr. Cramer,
to the extent the total monthly draw paid during the period exceeds the annual royalty amount, such excess (up to a maximum
of $500,000) shall be recoverable by the Company as set forth in the agreement. In addition, during the term of the
Employment Agreement, the Company will pay Mr. Cramer an annual license fee in the amount of $300,000 for the use of his name
and likeness, payable in four equal installments of $75,000 on each of January 1, April 1, July 1 and October 1.
Effective
January 2, 2018, Mr. Cramer will be granted restricted stock units (“RSUs”) under the Company’s 2007 Performance
Incentive Plan covering 1,000,000 shares of the Company’s Common Stock. The RSUs will be payable in shares of Common Stock
and will vest and become payable as to 25% of the shares in four equal installments on December 31 of each of 2018, 2019, 2020
and 2021, respectively, subject to Mr. Cramer’s continued service through each such vesting date and other terms as set
forth in the applicable award agreement. Upon (i) the consummation of a “change of control” of the Company, (ii) a
termination of Mr. Cramer’s employment by the Company without “cause” or (iii) Mr. Cramer’s resignation
for “good reason” (as such terms are defined in the Employment Agreement or the award agreement, as applicable), all
of the unvested RSUs held by Mr. Cramer will become fully vested.
Mr.
Cramer has agreed that, during the term of the Employment Agreement and, if, during the term of the Employment
Agreement, either the Company terminates Mr. Cramer’s employment for cause or Mr. Cramer resigns without good reason,
for a period of 18 months following such termination of employment, Mr. Cramer will not author articles or columns for any other
digital financial publication that competes with the Company without first obtaining the Company’s consent. In
addition, subject to certain exceptions, during the term of the Employment Agreement and for a period of 18 months after the
cessation of his employment, he will not solicit for employment, in any business enterprise or activity, any person
who was employed by the Company during the six months prior to the cessation of his employment.
The
Employment Agreement may be terminated by the Company for cause, by Mr. Cramer for good reason, upon Mr. Cramer’s
death, disability, upon the dissolution or liquidation of the Company, or by Mr. Cramer for specified events provided under
the employment agreement.
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 required 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 estimated (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 of goodwill and could result in an impairment charge to reduce the carrying value, 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 September 30, 2017 and September 30, 2016
Revenue
|
|
For the Three Months Ended September 30,
|
|
|
|
|
Revenue:
|
|
2017
|
|
|
Percent
of Total Revenue
|
|
|
2016
|
|
|
Percent
of Total Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
5,951,582
|
|
|
|
39
|
%
|
|
$
|
5,429,641
|
|
|
|
35
|
%
|
|
|
9
|
%
|
RateWatch
|
|
|
1,918,542
|
|
|
|
13
|
%
|
|
|
1,786,269
|
|
|
|
12
|
%
|
|
|
7
|
%
|
Total Business to business
|
|
|
7,870,124
|
|
|
|
52
|
%
|
|
|
7,215,910
|
|
|
|
47
|
%
|
|
|
9
|
%
|
Business to consumer
|
|
|
7,382,672
|
|
|
|
48
|
%
|
|
|
7,997,944
|
|
|
|
53
|
%
|
|
|
-8
|
%
|
Total revenue
|
|
$
|
15,252,796
|
|
|
|
100
|
%
|
|
$
|
15,213,854
|
|
|
|
100
|
%
|
|
|
0
|
%
|
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 $522 thousand, or 10%, in the third quarter of 2017
as compared to the third quarter of 2016. This increase was primarily due to an approximate $691 thousand, or 29%, increase in
BoardEx subscription revenue, which had a 10% increase in the weighted-average number of subscriptions and a 19% increase in
the average revenue recognized per subscription. The increase in revenue attributable to The Deal / BoardEx segment was offset
by an approximate $107 thousand, or 4%, decrease in subscription revenue from The Deal products, which had an 8% decline in the
weighted-average number of subscriptions partially offset by a 4% increase in the average revenue recognized per subscription.
Additionally, information services revenue from one-time reports sold by BoardEx increased by approximate $28 thousand and event/conference
revenue declined by $95 thousand.
B2B
revenue attributable to RateWatch increased by approximately $132 thousand, or 7%, in the third quarter of 2017 as compared to
the third quarter of 2016. RateWatch subscription revenue increased by approximately $124 thousand, or 8%, due to a 12% 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 $8 thousand, or 4%.
Business
to consumer
. Our B2C business generates revenue primarily from premium subscription products and advertising.
B2C
revenue decreased by approximately $615 thousand, or 8%, in the third quarter of 2017 as compared to the third quarter of 2016.
This decrease was due to an approximate $649 thousand, or 12%, decline in revenue generated from premium subscription products,
which had a 14% 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 $24 thousand, or 8%. Partially
offsetting these declines was an increase in advertising revenue of approximately $46 thousand, or 2%, and approximately $12 thousand
of event related revenue (there was no business to consumer event revenue during 2016), when compared to the prior year.
Operating
Expense
Cost
of Services
|
|
For the Three Months Ended September 30,
|
|
|
|
|
Cost of services:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
2,279,089
|
|
|
|
38
|
%
|
|
$
|
2,574,548
|
|
|
|
47
|
%
|
|
|
-11
|
%
|
RateWatch
|
|
|
478,793
|
|
|
|
25
|
%
|
|
|
512,009
|
|
|
|
29
|
%
|
|
|
-6
|
%
|
Total Business to business
|
|
|
2,757,882
|
|
|
|
35
|
%
|
|
|
3,086,557
|
|
|
|
43
|
%
|
|
|
-11
|
%
|
Business to consumer
|
|
|
3,887,922
|
|
|
|
53
|
%
|
|
|
4,838,295
|
|
|
|
60
|
%
|
|
|
-20
|
%
|
Total cost of services
|
|
$
|
6,645,804
|
|
|
|
44
|
%
|
|
$
|
7,924,852
|
|
|
|
52
|
%
|
|
|
-16
|
%
|
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 $295 thousand, or 11%, in the third
quarter of 2017 as compared to the third 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 and a reduction in the Company’s matching portion of employee contributions to 401-K
plans, lower consulting and outside contributor costs, the aggregate of which decreased by approximately $385 thousand. These
cost decreases were partially offset by an increase in hosting and internet access fees, the aggregate of which increased by
approximately $88 thousand.
Cost
of services expense attributable to RateWatch decreased by $33 thousand, or 6%, in the third quarter of 2017 as compared to the
third 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 $53 thousand. These
cost decreases were partially offset by an approximate $18 thousand increase in corporate expense allocations.
Cost
of services expense attributable to our business to consumer business decreased by approximately $950 thousand, or 20%, in the
third quarter of 2017 as compared to the third 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 and
a reduction in the Company’s matching portion of employee contributions to 401-K plans, lower outside contributor, traffic
acquisition and temporary help costs, the aggregate of which decreased by approximately $966 thousand. Also contributing to the
decline was a reduction in corporate expense allocations totaling approximately $73 thousand. These cost decreases were partially
offset by increases in hosting, internet access and data costs, the aggregate of which increased by approximately $169 thousand.
Sales
and Marketing
|
|
For the Three Months Ended September 30,
|
|
|
|
|
Sales and marketing:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
1,388,471
|
|
|
|
23
|
%
|
|
$
|
1,298,428
|
|
|
|
24
|
%
|
|
|
7
|
%
|
RateWatch
|
|
|
330,909
|
|
|
|
17
|
%
|
|
|
313,231
|
|
|
|
18
|
%
|
|
|
6
|
%
|
Total Business to business
|
|
|
1,719,380
|
|
|
|
22
|
%
|
|
|
1,611,659
|
|
|
|
22
|
%
|
|
|
7
|
%
|
Business to consumer
|
|
|
1,358,403
|
|
|
|
18
|
%
|
|
|
2,125,156
|
|
|
|
27
|
%
|
|
|
-36
|
%
|
Total sales and marketing
|
|
$
|
3,077,783
|
|
|
|
20
|
%
|
|
$
|
3,736,815
|
|
|
|
25
|
%
|
|
|
-18
|
%
|
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 increased by approximately $90 thousand, or 7%, in the third quarter
of 2017 as compared to the third quarter of 2016. The increase was primarily the result of an approximate $73 thousand increase
in corporate expense allocations.
Sales
and marketing expense attributable to our RateWatch business increased by approximately $18 thousand, or 6%, in the third quarter
of 2017 as compared to the third quarter of 2016. The increase was primarily the result of an approximate $29 thousand increase
in corporate expense allocations.
Sales
and marketing expense attributable to our business to consumer business unit decreased by approximately $767 thousand, or 36%,
in the third quarter of 2017 as compared to the third 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 and a reduction in the Company’s matching portion of employee contributions to 401-K plans, reduced advertising and
promotion, advertisement serving, consulting and travel and entertainment costs, the aggregate of which decreased by approximately
$831 thousand. The decrease was partially offset by an approximate $45 thousand increase in corporate expense allocations.
General
and Administrative
|
|
For the Three Months Ended September 30,
|
|
|
|
|
General and administrative:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
1,898,341
|
|
|
|
32
|
%
|
|
$
|
1,727,770
|
|
|
|
32
|
%
|
|
|
10
|
%
|
RateWatch
|
|
|
509,855
|
|
|
|
27
|
%
|
|
|
554,741
|
|
|
|
31
|
%
|
|
|
-8
|
%
|
Total Business to business
|
|
|
2,408,196
|
|
|
|
31
|
%
|
|
|
2,282,511
|
|
|
|
32
|
%
|
|
|
6
|
%
|
Business to consumer
|
|
|
1,474,702
|
|
|
|
20
|
%
|
|
|
1,654,715
|
|
|
|
21
|
%
|
|
|
-11
|
%
|
Total general and administrative
|
|
$
|
3,882,898
|
|
|
|
25
|
%
|
|
$
|
3,937,226
|
|
|
|
26
|
%
|
|
|
-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 $171 thousand, or 10%, in the
third quarter of 2017 as compared to the third quarter of 2016. The increase was primarily the result of transaction losses caused
by the fluctuation in foreign currency exchange rates and higher recruiting fees, the aggregate of which increased by $215 thousand,
partially offset by reduced employee compensation costs, which decreased by approximately $88 thousand. Also contributing to the
increase was an approximate $45 thousand increase in corporate expense allocations.
General
and administrative expense attributable to our RateWatch business decreased by approximately $45 thousand, or 8%, in the third
quarter of 2017 as compared to the third quarter of 2016. The decrease was primarily the result of an approximate $24 thousand
reduction in employee compensation costs.
General
and administrative expense attributable to our business to consumer business decreased by approximately $180 thousand, or 11%,
in the third quarter of 2017 as compared to the third quarter of 2016. The decrease was primarily the result of an approximate
$160 thousand reduction in corporate expense allocations combined with lower employee compensation and reduced occupancy costs,
the aggregate of which decreased by approximately $94 thousand. These cost decreases were partially offset by an approximate $86
thousand cost increase related to an expanded business analytics group designed to provide management with information needed
to improve business results.
Depreciation
and Amortization
|
|
For the Three Months Ended September 30,
|
|
|
|
|
Depreciation and amortization:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
742,200
|
|
|
|
12
|
%
|
|
$
|
726,941
|
|
|
|
13
|
%
|
|
|
2
|
%
|
RateWatch
|
|
|
386,385
|
|
|
|
20
|
%
|
|
|
255,000
|
|
|
|
14
|
%
|
|
|
52
|
%
|
Total Business to business
|
|
|
1,128,585
|
|
|
|
14
|
%
|
|
|
981,941
|
|
|
|
14
|
%
|
|
|
15
|
%
|
Business to consumer
|
|
|
224,175
|
|
|
|
3
|
%
|
|
|
98,710
|
|
|
|
1
|
%
|
|
|
127
|
%
|
Total depreciation and amortization
|
|
$
|
1,352,760
|
|
|
|
9
|
%
|
|
$
|
1,080,651
|
|
|
|
7
|
%
|
|
|
25
|
%
|
Depreciation
and amortization.
Depreciation and amortization expense increased by approximately $272 thousand, or 25%, in the third quarter
of 2017 as compared to the third 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 September 30,
|
|
|
|
|
Restructuring and other charges:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
—
|
|
|
|
N/A
|
|
|
$
|
(582,519
|
)
|
|
|
-11
|
%
|
|
|
100
|
%
|
RateWatch
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total Business to business
|
|
|
—
|
|
|
|
N/A
|
|
|
|
(582,519
|
)
|
|
|
-8
|
%
|
|
|
100
|
%
|
Business to consumer
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total restructuring and other charges
|
|
$
|
—
|
|
|
|
N/A
|
|
|
$
|
(582,519
|
)
|
|
|
-4
|
%
|
|
|
100
|
%
|
Restructuring
and other charges.
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 received a lease termination credit of approximately $583 thousand from the landlord when the office space was
vacated in August 2016.
Net
Interest Income (Expense)
|
|
For the Three Months Ended
September 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net interest income (expense)
|
|
$
|
8,168
|
|
|
$
|
(12,179
|
)
|
|
|
167
|
%
|
Net
interest income totaled approximately $8 thousand in the third quarter of 2017 as compared to net interest expense approximating
$12 thousand in the third 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
September 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Provision
for income taxes
|
|
$
|
111,850
|
|
|
$
|
325,781
|
|
|
|
-66
|
%
|
Income
tax expense for the three months ended September 30, 2017 was approximately $112 thousand, as compared to approximately $326 thousand
for the three months ended September 30, 2016, and reflects an effective tax rate of 37% and -36%, respectively. Income tax expense
for the three months ended September 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 a $36 thousand credit and $45 thousand expense,
respectively, of income tax 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 September 30, 2017 totaled approximately $190 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 September 30, 2016.
Comparison
of Nine Months Ended September 30, 2017 and September 30, 2016
Revenue
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
Revenue:
|
|
2017
|
|
|
Percent
of Total
Revenue
|
|
|
2016
|
|
|
Percent
of Total
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
17,418,253
|
|
|
|
38
|
%
|
|
$
|
16,463,193
|
|
|
|
35
|
%
|
|
|
6
|
%
|
RateWatch
|
|
|
5,694,057
|
|
|
|
12
|
%
|
|
|
5,416,676
|
|
|
|
11
|
%
|
|
|
5
|
%
|
Total Business to business
|
|
|
23,112,310
|
|
|
|
50
|
%
|
|
|
21,879,869
|
|
|
|
46
|
%
|
|
|
6
|
%
|
Business to consumer
|
|
|
23,380,528
|
|
|
|
50
|
%
|
|
|
25,695,944
|
|
|
|
54
|
%
|
|
|
-9
|
%
|
Total revenue
|
|
$
|
46,492,838
|
|
|
|
100
|
%
|
|
$
|
47,575,813
|
|
|
|
100
|
%
|
|
|
-2
|
%
|
B2B
revenue attributable to The Deal / BoardEx segment increased by approximately $955 thousand, or 6%, in the nine months ended September
30, 2017 as compared to the nine months ended September 30, 2016. This increase was primarily due to an approximate $1.2 million,
or 16%, increase in BoardEx subscription revenue, which had an 8% increase in the weighted-average number of subscriptions and
an 8% increase in the average revenue recognized per subscription. Additionally, The Deal / BoardEx revenue from one-time projects
increased by approximately $138 thousand and revenue from The Deal events/conferences decreased by approximately $38 thousand.
The increase in revenue attributable to The Deal / BoardEx segment was offset by an approximate $315 thousand, or 4%, decrease
in subscription revenue from The Deal products, which had a 7% decline in the weighted-average number of subscriptions partially
offset by a 3% 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 8% reduction in the foreign exchange rate during the
nine months ended September 2017 as compared to the nine months ended September 2016 resulting from the strengthening of the U.S.
Dollar.
B2B
revenue attributable to RateWatch increased by approximately $277 thousand, or 5%, in the nine months ended September 30, 2017
as compared to the nine months ended September 30, 2016. RateWatch subscription revenue increased by approximately $205 thousand,
or 4%, due to an 8% 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
$72 thousand, or 11%.
B2C
revenue decreased by approximately $2.3 million, or 9%, in the nine months ended September 30, 2017 as compared to the nine months
ended September 30, 2016. This decrease was primarily due to an approximate $2.4 million, or 14%, decline in revenue generated
from premium subscription products, which had a 15% 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 $219 thousand, or 18%. Partially offsetting these declines was an increase in advertising revenue of approximately
$200 thousand, or 3%, when compared to the prior year and approximately $132 thousand of event related revenue (there was no business
to consumer event revenue during 2016).
Operating
Expense
Cost
of Services
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
Cost of services:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
6,771,361
|
|
|
|
39
|
%
|
|
$
|
8,262,419
|
|
|
|
50
|
%
|
|
|
-18
|
%
|
RateWatch
|
|
|
1,434,861
|
|
|
|
25
|
%
|
|
|
1,529,755
|
|
|
|
28
|
%
|
|
|
-6
|
%
|
Total Business to business
|
|
|
8,206,222
|
|
|
|
36
|
%
|
|
|
9,792,174
|
|
|
|
45
|
%
|
|
|
-16
|
%
|
Business to consumer
|
|
|
12,425,633
|
|
|
|
53
|
%
|
|
|
14,164,111
|
|
|
|
55
|
%
|
|
|
-12
|
%
|
Total cost of services
|
|
$
|
20,631,855
|
|
|
|
44
|
%
|
|
$
|
23,956,285
|
|
|
|
50
|
%
|
|
|
-14
|
%
|
Cost
of services expense attributable to The Deal / BoardEx decreased by approximately $1.5 million, or 18%, in the nine months ended
September 30, 2017 as compared to the nine months ended September 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 and a reduction in the Company’s matching portion of employee contributions to 401-K plans, and lower
outside contributor costs, the aggregate of which decreased by approximately $1.5 million. Also contributing to the decline was
an approximate $241 reduction in corporate expense allocations. These cost decreases were partially offset by an increase in hosting
and internet access expenses, the aggregate of which increased by approximately $291 thousand.
Cost
of services expense attributable to RateWatch decreased by $95 thousand, or 6%, in the nine months ended September 30, 2017 as
compared to the nine months ended September 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
$191 thousand. These cost decreases were partially offset by an approximate $64 thousand increase in corporate expense allocations
and higher hosting and internet access costs totaling approximately $38 thousand.
Cost
of services expense attributable to our business to consumer business decreased by approximately $1.7 million, or 12%, in the
nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease was primarily the result
of 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,
reduced outside contributor and traffic acquisition costs, the aggregate of which decreased by approximately $1.8 million. Also
contributing to the decline was an approximate $448 thousand reduction in corporate expense allocations. These cost decreases
were partially offset by an increase in hosting, internet access, consulting and data fees, the aggregate of which increased by
approximately $484 thousand.
Sales
and Marketing
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
Sales and marketing:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
4,066,306
|
|
|
|
23
|
%
|
|
$
|
4,006,285
|
|
|
|
24
|
%
|
|
|
1
|
%
|
RateWatch
|
|
|
1,063,233
|
|
|
|
19
|
%
|
|
|
970,988
|
|
|
|
18
|
%
|
|
|
10
|
%
|
Total Business to business
|
|
|
5,129,539
|
|
|
|
22
|
%
|
|
|
4,977,273
|
|
|
|
23
|
%
|
|
|
3
|
%
|
Business to consumer
|
|
|
5,069,417
|
|
|
|
22
|
%
|
|
|
6,657,129
|
|
|
|
26
|
%
|
|
|
-24
|
%
|
Total sales and marketing
|
|
$
|
10,198,956
|
|
|
|
22
|
%
|
|
$
|
11,634,402
|
|
|
|
24
|
%
|
|
|
-12
|
%
|
Sales
and marketing expense attributable to The Deal / BoardEx increased by approximately $60 thousand, or 1%, in the nine months ended
September 30, 2017 as compared to the nine months ended September 30, 2016. The increase was primarily the result of an approximate
$224 thousand increase in corporate expense allocations, partially offset by 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 and decreased employee travel and entertainment expense, the aggregate of which decreased by approximately $141 thousand.
Sales
and marketing expense attributable to our RateWatch business increased by approximately $92 thousand, or 10%, in the nine months
ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase was primarily the result of an
approximate $102 thousand increase in corporate expense allocations.
Sales
and marketing expense attributable to our business to consumer business unit decreased by approximately $1.6 million, or 24%,
in the nine months ended September 30, 2017 as compared to the nine months ended September 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, reduced advertising and promotion, consulting, advertisement serving and travel and entertainment costs, the aggregate
of which decreased by approximately $1.8 million. The decrease was partially offset by an approximate $123 thousand increase in
corporate expense allocations.
General
and Administrative
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
General and administrative:
|
|
2017
|
|
|
Percent of Segment Revenue
|
|
|
2016
|
|
|
Percent of Segment Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
5,728,478
|
|
|
|
33
|
%
|
|
$
|
5,829,609
|
|
|
|
35
|
%
|
|
|
-2
|
%
|
RateWatch
|
|
|
1,561,421
|
|
|
|
27
|
%
|
|
|
2,171,584
|
|
|
|
40
|
%
|
|
|
-28
|
%
|
Total Business to business
|
|
|
7,289,899
|
|
|
|
32
|
%
|
|
|
8,001,193
|
|
|
|
37
|
%
|
|
|
-9
|
%
|
Business to consumer
|
|
|
4,471,503
|
|
|
|
19
|
%
|
|
|
4,929,330
|
|
|
|
19
|
%
|
|
|
-9
|
%
|
Total general and administrative
|
|
$
|
11,761,402
|
|
|
|
25
|
%
|
|
$
|
12,930,523
|
|
|
|
27
|
%
|
|
|
-9
|
%
|
General
and administrative expense attributable to The Deal / BoardEx business decreased by approximately $101 thousand, or 2%, in the
nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease was primarily the result
of an approximate $456 thousand reduction in corporate expense allocations combined with 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
$279 thousand. These cost decreases were partially offset by increased expenses resulting from transaction losses caused by the
fluctuation in foreign currency exchange rates and higher recruiting fees, the aggregate of which increased by $645 thousand.
General
and administrative expense attributable to our RateWatch business decreased by approximately $610 thousand, or 28%, in the nine
months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease was primarily the result
of an approximate $372 thousand reduction in corporate expense allocations combined with 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 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 $179 thousand.
General
and administrative expense attributable to our business to consumer business decreased by approximately $458 thousand, or 9%,
in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The decrease was primarily
the result of an approximate $563 thousand reduction in corporate expense allocations combined with reduced occupancy costs and
employee compensation, the aggregate of which decreased by approximately $151 thousand. 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
$293 thousand.
Depreciation
and Amortization
|
|
For the Nine Months Ended September 30,
|
|
|
|
|
Depreciation and amortization:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
2,149,113
|
|
|
|
12
|
%
|
|
$
|
1,932,515
|
|
|
|
12
|
%
|
|
|
11
|
%
|
RateWatch
|
|
|
1,094,720
|
|
|
|
19
|
%
|
|
|
779,677
|
|
|
|
14
|
%
|
|
|
40
|
%
|
Total Business to business
|
|
|
3,243,833
|
|
|
|
14
|
%
|
|
|
2,712,192
|
|
|
|
12
|
%
|
|
|
20
|
%
|
Business to consumer
|
|
|
590,952
|
|
|
|
3
|
%
|
|
|
283,929
|
|
|
|
1
|
%
|
|
|
108
|
%
|
Total depreciation and amortization
|
|
$
|
3,834,785
|
|
|
|
8
|
%
|
|
$
|
2,996,121
|
|
|
|
6
|
%
|
|
|
28
|
%
|
Depreciation
and amortization expense increased by approximately $839 thousand, or 28%, in the nine months ended September 30, 2017 as compared
to the nine months ended September 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 Nine Months Ended September 30,
|
|
|
|
|
Restructuring and other charges:
|
|
2017
|
|
|
Percent of
Segment
Revenue
|
|
|
2016
|
|
|
Percent of
Segment
Revenue
|
|
|
Percent
Change
|
|
The Deal / BoardEx
|
|
$
|
47,464
|
|
|
|
0
|
%
|
|
$
|
(85,221
|
)
|
|
|
-1
|
%
|
|
|
-156
|
%
|
RateWatch
|
|
|
(619
|
)
|
|
|
-0
|
%
|
|
|
180,515
|
|
|
|
3
|
%
|
|
|
-100
|
%
|
Total Business to business
|
|
|
46,845
|
|
|
|
0
|
%
|
|
|
95,294
|
|
|
|
0
|
%
|
|
|
-51
|
%
|
Business to consumer
|
|
|
152,134
|
|
|
|
1
|
%
|
|
|
865,197
|
|
|
|
3
|
%
|
|
|
-82
|
%
|
Total restructuring and other charges
|
|
$
|
198,979
|
|
|
|
0
|
%
|
|
$
|
960,491
|
|
|
|
2
|
%
|
|
|
-79
|
%
|
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, agreed to provide continuing medical coverage for 18 months, and incurred recruiting fees, resulting in restructuring
and other charges of approximately $1.5 million. Additionally, in August 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 received a lease termination credit of approximately $583 thousand from the landlord
when the office space was vacated in August 2016.
Net Interest Income (Expense)
|
|
For the Nine Months Ended
September 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net interest income (expense)
|
|
$
|
26,224
|
|
|
$
|
(24,273
|
)
|
|
|
-208
|
%
|
Net interest income totaled approximately $26 thousand
in the nine months ended September 30, 2017 as compared to net interest expense approximating $24 thousand in the nine months ended
September 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 Nine Months Ended
September 30,
|
|
|
Percent
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Provision for income taxes
|
|
$
|
485,912
|
|
|
$
|
949,657
|
|
|
|
-49
|
%
|
Income tax expense for the nine months ended September
30, 2017 was approximately $486 thousand, as compared to approximately $950 thousand for the nine months ended September 30, 2016,
and reflects an effective tax rate of -454% and -19%, respectively. Income tax expense for the nine months ended September 30,
2017 and 2016 primarily relates to the recognition of $445 thousand and $842 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 $41 thousand and $108 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 nine months ended September 30, 2017 totaled approximately $593 thousand, or $0.02 per basic and diluted share, compared to
net loss attributable to common stockholders totaling approximately $5.9 million, or $0.17 per basic and diluted share, for the
nine months ended September 30, 2016.
Liquidity and Capital Resources
As of September 30, 2017, our current assets consisted
primarily of cash and cash equivalents, accounts receivable and prepaid expenses, and our current liabilities consisted primarily
of deferred revenue, accrued expenses and accounts payable. We do not hold inventory. As of September 30, 2017, our current assets
were approximately $31.1 million, 3% 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 September 30, 2017, our cash, cash equivalents, marketable
securities and restricted cash amounted to approximately $26.1 million, representing 33% 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 $1.6 million that mature
in the year 2038. Our total cash-related position is as follows:
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Cash and cash equivalents
|
|
$
|
23,990,179
|
|
|
$
|
21,371,122
|
|
Marketable securities
|
|
|
1,600,250
|
|
|
|
1,550,000
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and restricted cash
|
|
$
|
26,090,429
|
|
|
$
|
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 $4.2 million for the nine months ended September 30, 2017, as compared to net cash used in operating activities totaling
approximately $1.5 million for the nine months ended September 30, 2016. The increase in net operating cash was primarily the result
of the change in our net income (loss) combined with the change in the balance of deferred revenue, partially offset by the change
in the balance of accrued expenses and accounts receivable.
Net cash used in investing activities totaled approximately
$1.8 million for the nine months ended September 30, 2017, as compared to net cash used in investing activities totaling approximately
$2.5 million for the nine months ended September 30, 2016. The decrease in cash used in investing activities was primarily the
result of reduced capital expenditures.
Net cash used in financing activities totaled approximately
$81 thousand for the nine months ended September 30, 2017, as compared to net cash used in financing activities totaling approximately
$18 thousand for the nine months ended September 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 $3.3 million through September 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 September 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 nine months ended
September 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 September 30, 2017, the Company had withheld an aggregate of 1,866,759 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.