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 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 premium subscription products and advertising revenue.
Unaudited
Interim Financial Statements
The
interim condensed consolidated balance sheet as of September 30, 2018, the condensed consolidated statements of operations and
comprehensive (loss) income for the three and nine months ended September 30, 2018 and 2017, and the condensed statements of cash
flows for the nine months ended September 30, 2018 and 2017 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, 2018, its results of consolidated operations and comprehensive (loss) income for the three and nine months
ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017. 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 nine months ended September 30, 2018 are not necessarily indicative of the results to be expected
for the fiscal year ending December 31, 2018 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, 2017 filed with the SEC on March 13, 2018. These financial statements
should also be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December
31, 2017. 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, 2017 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
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 the Company’s financial receivables, past loss activity and current known activity regarding our outstanding
receivables, the Company does not expect that the adoption of this new standard will have a material impact on its consolidated
financial statements.
2. DIVESTITURE
On
June 20, 2018, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with S&P Global
Market Intelligence Inc., an affiliate of S&P Global Inc.(“S&P”), pursuant to which the Company agreed to
sell the assets comprising its RateWatch business to S&P. The Purchase Agreement provides that S&P will pay an aggregate
consideration of $33.5 million in cash to acquire the business, subject to working capital and certain other closing adjustments.
Operating
results for the RateWatch business, which have been previously included in the Business to Business Segment, have now been reclassified
as discontinued operations for all periods presented.
Gain
on sale of RateWatch amounting to $27.1 million, net of a tax expense of $1.6 million, was calculated as the selling price less
direct costs to complete the transaction. Included in such costs is approximately $568 thousand pertaining to certain employee
costs that were assumed by the Company as part of the transaction.
The
following table presents the discontinued operations of RateWatch in the Condensed Consolidated Balance Sheets:
ASSETS
|
|
December 31, 2017
|
|
Current Assets:
|
|
|
|
|
Accounts Receivable, net
|
|
$
|
138,262
|
|
Prepaid Expenses and Other Current Assets
|
|
|
91,854
|
|
Total Current Assets
|
|
|
230,116
|
|
Noncurrent Assets:
|
|
|
|
|
Property and Equipment, net
|
|
|
659,143
|
|
Goodwill
|
|
|
5,851,050
|
|
Other Intangibles, net
|
|
|
1,054,413
|
|
Total Assets
|
|
$
|
7,794,722
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts Payable
|
|
$
|
14,026
|
|
Accrued Expenses
|
|
|
75,458
|
|
Deferred Revenue
|
|
|
4,106,985
|
|
Other Current Liabilities
|
|
|
50,422
|
|
Total Current Liabilities
|
|
|
4,246,891
|
|
Noncurrent Liabilities:
|
|
|
|
|
Noncurrent Deferred Rent
|
|
|
462,183
|
|
Noncurrent Deferred Revenue
|
|
|
58,323
|
|
Deferred Tax Liability
|
|
|
221,350
|
|
Total Liabilities
|
|
$
|
4,988,747
|
|
The
following table presents the discontinued operations of RateWatch in the Condensed Consolidated Statement of Operations:
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Net revenue
|
|
$
|
—
|
|
|
$
|
1,918,543
|
|
|
$
|
3,944,302
|
|
|
$
|
5,694,057
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
(24
|
)
|
|
|
460,051
|
|
|
|
870,519
|
|
|
|
1,370,077
|
|
Sales and marketing
|
|
|
1,793
|
|
|
|
295,187
|
|
|
|
718,299
|
|
|
|
933,409
|
|
General and administrative
|
|
|
96,717
|
|
|
|
164,804
|
|
|
|
365,753
|
|
|
|
492,704
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
237,725
|
|
|
|
160,293
|
|
|
|
645,247
|
|
Total operating expense
|
|
|
98,486
|
|
|
|
1,157,767
|
|
|
|
2,114,864
|
|
|
|
3,441,437
|
|
Operating (loss) income
|
|
|
(98,486
|
)
|
|
|
760,776
|
|
|
|
1,829,438
|
|
|
|
2,252,620
|
|
(Provision) benefit for income taxes
|
|
|
(31,323
|
)
|
|
|
81,812
|
|
|
|
(103,792
|
)
|
|
|
316,337
|
|
Net (loss) income
|
|
$
|
(129,809
|
)
|
|
$
|
842,588
|
|
|
$
|
1,725,646
|
|
|
$
|
2,568,957
|
|
The
following table presents the discontinued operations of RateWatch in the Condensed Consolidated Statements of Cash Flows:
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Net cash provided by operating activities
|
|
$
|
2,103,406
|
|
|
$
|
3,375,137
|
|
Net cash used in investing activities
|
|
|
(37,006
|
)
|
|
|
(10,538
|
)
|
Net cash used in financing activities
|
|
|
—
|
|
|
|
—
|
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
$
|
2,066,400
|
|
|
$
|
3,364,599
|
|
3.
REVENUES
Adoption
of ASC Topic 606, “Revenue from Contracts with Customers”
On
January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed
as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior
period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
The
Company recorded an adjustment to opening accumulated deficit of approximately $774 thousand due to the cumulative impact of adopting
Topic 606, with the impact primarily related to sales commissions.
Nature
of our Services
Business
to business subscription revenue is primarily comprised of subscriptions that provide access to director and officer profiles,
relationship capital management services and transactional information pertaining to the mergers and acquisitions environment.
Business to consumer subscription revenue is primarily comprised of subscriptions that provide access to securities investment
information and stock market commentary. Advertising revenue is comprised of fees charged for the placement of advertising and
sponsorships, primarily within
TheStreet.com
website. Other revenue is primarily composed of events/conferences, information
services and other miscellaneous revenue.
We
provide subscription and advertising services on a global basis to a broad range of clients. Our principal source of revenue is
derived from fees for subscription services that is sold on an annual or monthly basis. We measure revenue based upon the consideration
specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are
satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction
price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives
the benefit of the performance obligation. Clients typically receive the benefit of our services as they are performed. Under
ASC 606, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration
we expect to receive in exchange for those services. To achieve this core principal, the Company applies the following five steps:
1)
Identify
the contract with a customer
A
contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s
rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract
has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies
judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the
customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining
to the customer.
2)
Identify
the performance obligations in the contract
Performance
obligations promised in a contract are identified based on the services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources
that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised services, the Company must apply judgment to determine whether promised services are capable of being distinct in the
context of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
3)
Determine
the transaction price
The
transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
services to the customer.
4)
Allocate
the transaction price to performance obligations in the contract
If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract
with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or
to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction
price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable
and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single
performance obligation. The Company determines standalone selling price based on the price at which the performance obligation
is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone
selling price taking into account available information such as market conditions and internally approved pricing guidelines related
to the performance obligations.
5)
Recognize
revenue when or as the Company satisfies a performance obligation
The
Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised service to a customer.
Substantially
all of our revenue is recognized over time, as the services are performed. For subscriptions, revenue is recognized ratably over
the subscription period. For advertising, revenue is recognized as the advertisement is displayed provided that collection of
the resulting receivable is reasonably assured.
The
following table presents our revenues disaggregated by revenue discipline.
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Subscription
|
|
$
|
10,934,315
|
|
|
$
|
10,619,614
|
|
|
$
|
32,061,595
|
|
|
$
|
31,276,063
|
|
Advertising
|
|
|
1,507,231
|
|
|
|
2,168,434
|
|
|
|
4,823,978
|
|
|
|
7,324,198
|
|
Other
|
|
|
565,682
|
|
|
|
546,205
|
|
|
|
2,286,075
|
|
|
|
2,198,519
|
|
Total Revenue
|
|
$
|
13,007,228
|
|
|
$
|
13,334,253
|
|
|
$
|
39,171,648
|
|
|
$
|
40,798,780
|
|
Deferred
Revenues
We
record deferred revenues when cash payments are received in advance of our performance, primarily for subscription revenues. The
increase in deferred revenues for the nine months ended September 30, 2018 is primarily driven by cash payments received in advance
of satisfying our performance obligations.
Contract
Costs
As
of September 30, 2018, the Company has a total of $998 thousand in assets relating to costs incurred to obtain or fulfill contracts,
consisting predominantly of prepaid commissions. Prepaid commissions are amortized over the average customer relationship period.
The amortization expense recognized during the nine months ended September 30, 2018 was $102 thousand. There was no impairment
loss recognized during the period.
Practical
Expedients and Exemptions
The
Company did not apply any practical expedients during the adoption of ASC 606. The Company elected to use the portfolio method
in the calculation of the deferred contract costs.
|
4.
|
REVISION
OF PRIOR PERIOD FINANCIAL STATEMENTS
|
In
connection with the preparation of our condensed consolidated financial statements for the quarter ended March 31, 2018, we identified
an error as of December 31, 2017 in our recognition of a deferred tax asset related to the change in the tax law, which causes
net operating losses (NOL) generated in taxable years ending after December 31, 2017 to have an indefinite carryforward period.
This means that a deferred tax liability that has an indefinite reversal pattern may serve as a source of taxable income for those
NOLs. The correction of this error requires a reduction to the valuation allowance with a corresponding adjustment to the opening
equity balance as this error existed as of December 31, 2017.
In
accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the error and determined
that the related impact was not material to our results of operations or financial position for any prior annual or interim period,
but that correcting the $926 thousand cumulative impact of the error would be material to our results of operations for the three
months ended March 31, 2018. Accordingly, we have corrected the consolidated balance sheets and consolidated statement of operations
as of December 31, 2017. There was no impact to cash provided by operations in the consolidated statements of cash flows. This
error had no impact on the three months ended March 31, 2018. The impact to the consolidated balance sheets and consolidated statements
of operations as of December 31, 2017 is as follows:
|
|
As of December 31, 2017
|
|
Consolidated Balance Sheets
|
|
As Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Deferred tax liability
|
|
$
|
1,932,606
|
|
|
$
|
(925,852
|
)
|
|
$
|
1,006,754
|
|
Total liabilities
|
|
|
34,989,599
|
|
|
|
(925,852
|
)
|
|
|
34,063,747
|
|
Accumulated deficit
|
|
|
(207,787,130
|
)
|
|
|
925,852
|
|
|
|
(206,861,278
|
)
|
Total stockholders’ equity
|
|
|
34,020,949
|
|
|
|
925,852
|
|
|
|
34,946,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
$
|
1,882,310
|
|
|
$
|
925,852
|
|
|
$
|
2,808,162
|
|
Net income
|
|
|
2,626,837
|
|
|
|
925,852
|
|
|
|
3,552,689
|
|
5.
|
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, 2018 and December 31, 2017, 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 $1.8 million
and $1.7 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 income and excluded from net income as they are
deemed temporary. Additionally, as of September 30, 2018 and December 31, 2017, the Company has a total of $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,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
40,833,954
|
|
|
$
|
11,684,817
|
|
Marketable securities
|
|
|
1,833,535
|
|
|
|
1,680,000
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and restricted cash
|
|
$
|
43,167,489
|
|
|
$
|
13,864,817
|
|
6.
|
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, 2018
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
40,833,954
|
|
|
$
|
40,833,954
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,833,535
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,833,535
|
|
Total at fair value
|
|
$
|
43,167,489
|
|
|
$
|
41,333,954
|
|
|
$
|
—
|
|
|
$
|
1,833,535
|
|
|
|
As of December 31, 2017
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
11,684,817
|
|
|
$
|
11,684,817
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,680,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,680,000
|
|
Contingent earn-out (3)
|
|
|
951,867
|
|
|
|
—
|
|
|
|
—
|
|
|
|
951,867
|
|
Total at fair value
|
|
$
|
14,816,684
|
|
|
$
|
12,184,817
|
|
|
$
|
—
|
|
|
$
|
2,631,867
|
|
(1)
|
Cash, cash equivalents and restricted cash, totaling approximately $41.3 million and $12.2 million as of September 30, 2018
and December 31, 2017, 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 $1.8 million
and $1.7 million as of September 30, 2018 and December 31, 2017, 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, 2018, the Company determined there was a cumulative decline in the fair value
of its ARS investments of approximately $16 thousand from its cost basis, which was deemed temporary and was included within
accumulated other comprehensive (loss) income.
|
(3)
|
Contingent
earn-out represented additional purchase consideration payable to the former shareholders of Management Diagnostics Limited
based upon the achievement of specific 2017 audited revenue benchmarks. The balance was paid in May 2018.
|
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, 2017
|
|
$
|
1,680,000
|
|
Change in fair value of investment
|
|
|
153,535
|
|
Balance September 30, 2018
|
|
$
|
1,833,535
|
|
|
|
Contingent Earn-Out
|
|
Balance December 31, 2017
|
|
$
|
951,867
|
|
Payment made May 2018
|
|
|
(951,867
|
)
|
Balance September 30, 2018
|
|
$
|
—
|
|
|
7.
|
STOCK-BASED
COMPENSATION
|
Stock-based
compensation expense recognized in the Company’s consolidated statements of operations for the three and nine months ended
September 30, 2018 and 2017 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, 2018 and 2017 was $0.42 and $0.27, respectively, using the Black-Scholes model with the following weighted-average
assumptions:
|
|
For
the Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
Expected
option lives
|
|
1.78
years
|
|
3.7
years
|
Expected
volatility
|
|
47.28%
|
|
37.64%
|
Risk-free
interest rate
|
|
2.47%
|
|
1.55%
|
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, 2018 and 2017 was $1.68 and $0.90, respectively.
At
the Company’s May 2018 Board meeting, the number of shares available for grant was increased by 5.2 million shares. As of
September 30, 2018, there remained approximately 3.3 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 $797 thousand and $1.7 million
of stock-based compensation for the three and nine month periods ended September 30, 2018, respectively, as compared to approximately
$401 thousand and $1.2 million of stock-based compensation for the three and nine month periods ended September 30, 2017, 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, 2017
|
|
|
5,491,928
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
282,333
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(8,000
|
))
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(182,752
|
)
|
|
$
|
2.15
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(1,816,502
|
)
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2018
|
|
|
3,767,007
|
|
|
$
|
1.30
|
|
|
$
|
3,393
|
|
|
|
4.32
|
|
Awards outstanding, vested and expected to vest at September 30, 2018
|
|
|
3,758,212
|
|
|
$
|
1.30
|
|
|
$
|
3,383
|
|
|
|
4.31
|
|
Awards exercisable at September 30, 2018
|
|
|
2,891,515
|
|
|
$
|
1.33
|
|
|
$
|
2,535
|
|
|
|
4.10
|
|
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, 2017
|
|
|
446,668
|
|
|
|
|
|
|
|
|
|
Restricted stock units granted
|
|
|
3,149,720
|
|
|
|
|
|
|
|
|
|
Restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(430,838
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
(64,722
|
)
|
|
|
|
|
|
|
|
|
Awards outstanding at September 30, 2018
|
|
|
3,100,828
|
|
|
$
|
6,822
|
|
|
|
2.42
|
|
Awards expected to vest at September 30, 2018
|
|
|
3,004,078
|
|
|
$
|
6,609
|
|
|
|
1.62
|
|
A
summary of the status of the Company’s unvested stock-based awards as of September 30, 2018 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, 2017
|
|
|
2,131,135
|
|
|
$
|
0.48
|
|
Shares underlying options granted
|
|
|
282,333
|
|
|
$
|
0.42
|
|
Shares underlying restricted stock units granted
|
|
|
3,149,720
|
|
|
$
|
1.68
|
|
Shares underlying options vested
|
|
|
(1,087,556
|
)
|
|
$
|
0.34
|
|
Shares underlying restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(430,838
|
)
|
|
$
|
0.95
|
|
Shares underlying options forfeited
|
|
|
(3,752
|
)
|
|
$
|
0.43
|
|
Shares underlying restricted stock units forfeited
|
|
|
(64,722
|
)
|
|
$
|
1.72
|
|
Shares underlying awards unvested at September 30, 2018
|
|
|
3,976,320
|
|
|
$
|
1.40
|
|
For
the nine months ended September 30, 2018 and 2017, the total fair value of stock option awards vested was approximately $492 thousand
and $952 thousand, respectively. For the nine months ended September 30, 2018 and 2017, the total intrinsic value of options exercised
was $8 thousand and $0, respectively (there were no options exercised during the nine months ended September 30, 2017), yielding
$10 thousand of cash proceeds to the Company. For the nine months ended September 30, 2018 and 2017, approximately 282 thousand
and 135 thousand stock options were granted, respectively. Additionally, for the nine months ended September 30, 2018 and 2017,
approximately 3.1 million and 566 thousand restricted stock units were granted, respectively, and approximately 431 thousand and
467 thousand shares, respectively, were issued under restricted stock unit grants. For the nine months ended September 30, 2018
and 2017, the total intrinsic value of restricted stock units that vested was approximately $773 thousand and $409 thousand, respectively.
As of September 30, 2018 and 2017, the total intrinsic value of awards outstanding was approximately $10.2 million and $879 thousand,
respectively. As of September 30, 2018, there was approximately $4.4 million of unrecognized stock-based compensation expense
remaining to be recognized over a weighted-average period of 2.31 years.
Treasury
Stock
In
November 2017, our Board of Directors approved a new share buyback program authorizing the repurchase of up to five million shares
of the Company’s Common Stock (the “Program”). Purchases may be made in the open market or in privately negotiated
transactions as deemed appropriate by management. The Company may, among other things, utilize existing cash reserves and cash
flows from operations to fund any repurchases. The timing and amount of any repurchases will be determined by the Company’s
management based upon its evaluation of the trading prices of the security, market conditions and other factors. The Program does
not obligate the Company to repurchase any dollar amount or number of shares and may be extended, modified, suspended or discontinued
at any time.
During
the three months ended September 30, 2018, the Company did not purchase any shares of Common Stock under the Program. During the
nine months ended September 30, 2018, and since the Program’s inception in November 2017, the Company purchased a total
of 1,105 shares of Common Stock under the Program at an aggregate cost of approximately $1,415, inclusive of commissions.
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. During the nine months ended
September 30, 2018, 10,043 shares were withheld in settlement of the exercise of stock options and vested restricted stock units.
Through September 30, 2018, the Company had withheld an aggregate of 2,055,108 shares which have been recorded as treasury stock.
In addition, the Company received an aggregate of 211,608 shares in treasury stock resulting from prior acquisitions. These shares
have also been recorded as treasury stock.
Dividends
Beginning
with the first quarter of 2016, the Company’s Board of Directors suspended the payment of a quarterly dividend and will
continue to evaluate the uses of its cash in connection with planned investments in the business.
The
Company is party to legal proceedings arising in the ordinary course of business or otherwise, none of which is deemed material.
|
10.
|
NET
(LOSS) INCOME PER SHARE OF COMMON STOCK
|
Basic
net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss
per share is computed using the weighted average number of common shares and potential common shares outstanding during the period,
so long as the inclusion of potential common shares does not result in a lower net loss per share. Potential common shares consist
of restricted stock units (using the treasury stock method) and the incremental common shares issuable upon the exercise of stock
options (using the treasury stock method). For the three months ended September 30, 2018, approximately 6.7 million restricted
stock units and vested and unvested stock options were excluded from the calculation, as their effect would result in a lower
net loss per share. For the nine months ended September 30, 2017, approximately 569 thousand unvested restricted stock units and
vested and unvested stock options were excluded from the calculation, as their effect would result in a lower net loss per share.
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(1,811,951
|
)
|
|
$
|
189,869
|
|
|
$
|
25,022,334
|
|
|
$
|
(592,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
49,600,837
|
|
|
|
35,869,751
|
|
|
|
49,362,018
|
|
|
|
35,710,049
|
|
Weighted average diluted shares outstanding
|
|
|
49,600,837
|
|
|
|
36,142,548
|
|
|
|
50,695,450
|
|
|
|
35,710,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income attributable to common stockholders
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.51
|
|
|
$
|
(0.02
|
)
|
Diluted net (loss) income attributable to common stockholders
|
|
$
|
(0.04
|
)
|
|
$
|
0.01
|
|
|
$
|
0.49
|
|
|
$
|
(0.02
|
)
|
The
income tax benefit from continuing operations for the three months ended September 30, 2018 was approximately $775 thousand
and income tax benefit for the nine months ended September 30, 2018 was approximately $1.1 million, and reflects an
effective tax rate of 40.7% and 22.3%, respectively, as compared to an expense of approximately $194 thousand and $802
thousand for the three and nine months ended September 30, 2017, respectively, reflecting an effective tax rate of
approximately -42.2% and -34.0%, respectively. The Company’s effective tax rate (ETR) for the three and nine months ended
September 30, 2018 was primarily impacted by the mix of domestic and foreign earnings, the election to treat the UK as a
disregarded entity for US tax purposes, certain foreign taxes and the movement in the deferred tax liability related to the
tax amortization of goodwill. During the three months ended June 30, 2018, the Company made certain adjustments to the
beginning balance of the state deferred tax liability which resulted in a $272 thousand discrete tax benefit for domestic
losses, as the US taxable income from discontinued operations is treated as a source of income to realize such losses under
the intra-period allocation guidance. The Company’s ETR for the three and nine months ended September 30, 2017 was
primarily impacted by the mix of domestic and foreign earnings, the election to treat the UK as a disregarded entity for US
tax purposes and the movement in the deferred tax liability related to the tax amortization of goodwill.
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 is required to
file U.S. federal, U.S. 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 $173 million of federal and state net operating loss carryforwards (“NOL”) as of December
31, 2017. The Company has a full valuation allowance against its U.S. 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. 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 2037 and expire
from 2019 through 2037. 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 2037. The company also
has approximately $10.5 million in U.K. NOLs as of December 31, 2017. During the fourth quarter ended December 31, 2017, the Company
released its U.K. valuation allowance as it was concluded that this entity has cumulative income over the last three years and
Management believes it is more likely than not that the deferred tax asset will be utilized.
In
June 2018, the U.S. Supreme Court decided the
South Dakota v. Wayfair, Inc.
sales tax nexus case. As
a result of the Supreme Court ruling, states now have the ability to require taxpayers to collect and remit sales tax on a basis
of economic nexus. While the impact of this ruling is uncertain, we are currently in the process of evaluating the future impact
of the ruling on our financial position, results of operations and cash flows. New taxes could also create significant increases
in internal costs necessary to capture data and collect and remit taxes. These events could have an adverse effect on our business
and results of operations.
At
September 30, 2018, the Company has no uncertain tax positions or interest and penalties accrued pursuant to ASC 740-10.
12.
|
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, 2018 and 2017, 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, 2018 and 2017, no individual client accounted for 10% or more of consolidated revenue.
As of September 30, 2018, and December 31, 2017, one 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.
13.
|
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.
Other
liabilities consist of the following:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Deferred revenue
|
|
$
|
1,033,812
|
|
|
$
|
629,309
|
|
Deferred rent
|
|
|
710,840
|
|
|
|
912,201
|
|
Other
|
|
|
—
|
|
|
|
2,092
|
|
Total other liabilities
|
|
$
|
1,744,652
|
|
|
$
|
1,543,602
|
|
15.
|
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
two segments: (i) business to business, which is primarily comprised of The Deal and BoardEx, and (ii) business to consumer, which
is primarily comprised of the Company’s premium subscription newsletter products and website advertising. Results were as
follows:
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Revenue:
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
- Business to business
|
|
$
|
6,274,824
|
|
|
$
|
5,951,581
|
|
|
$
|
18,866,397
|
|
|
$
|
17,418,252
|
|
- Business to consumer
|
|
|
6,732,404
|
|
|
|
7,382,672
|
|
|
|
20,305,251
|
|
|
|
23,380,528
|
|
Total
|
|
$
|
13,007,228
|
|
|
$
|
13,334,253
|
|
|
$
|
39,171,648
|
|
|
$
|
40,798,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Business to business
|
|
$
|
(766,477
|
)
|
|
$
|
(613,860
|
)
|
|
$
|
(1,820,414
|
)
|
|
$
|
(2,157,859
|
)
|
- Business to consumer
|
|
|
(1,171,286
|
)
|
|
|
146,635
|
|
|
|
(3,114,899
|
)
|
|
|
(227,900
|
)
|
Total
|
|
$
|
(1,937,763
|
)
|
|
$
|
(467,225
|
)
|
|
$
|
(4,935,313
|
)
|
|
$
|
(2,385,759
|
)
|
Due
to the nature of the Company’s operations, a majority of its assets are utilized across both 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, 2018 and 2017, 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.