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 premium subscription products and advertising revenue.
Unaudited
Interim Financial Statements
The
interim condensed consolidated balance sheet as of March 31, 2018, the condensed consolidated statements of operations and comprehensive
loss for the three months ended March 31, 2018 and 2017, and the condensed statements of cash flows for the three months ended
March 31, 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 March 31, 2018, its results
of consolidated operations and comprehensive loss for the three months ended March 31, 2018 and 2017, and cash flows for the three
months ended March 31, 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 three months ended March 31, 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
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. ASU No. 2014-09 may be applied using
either a full retrospective approach, under which all years included in the financial statements will be presented under the revised
guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for
the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment
to the opening balance of retained earnings at the effective date for contracts that still require performance by the entity.
ASU
No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those
annual reporting periods. The Company developed an implementation plan to adopt this new guidance, which included an assessment
of the impact of the new guidance on our financial position and results of operations. The Company has completed its assessment
and has determined that this standard will have no impact on its financial position or results of operations, 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. On January 1, 2018, the Company adopted the new accounting
standard ASC 606,
Revenue from Contracts with Customers
and for all open contracts and related amendments as of January
1, 2018 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 will be presented
under ASC 606, while the comparative information will not be restated and will continue to be reported under the accounting standards
in effect for those periods.
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.
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, bank rate data 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 and 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
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Subscription
|
|
$
|
12,213,057
|
|
|
$
|
11,862,829
|
|
Advertising
|
|
|
1,726,786
|
|
|
|
2,490,106
|
|
Other
|
|
|
768,984
|
|
|
|
927,502
|
|
Total Revenue
|
|
$
|
14,708,827
|
|
|
$
|
15,280,437
|
|
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 three months ended March 31, 2018 is primarily driven by cash payments received in advance
of satisfying our performance obligations.
Contract Costs
As of March 31, 2018, the Company
has a total of $774 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 three months ended March 31, 2018 was immaterial, and 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.
|
3.
|
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
|
|
|
4.
|
CASH
AND CASH EQUIVALENTS, MARKETABLE SECURITIES AND RESTRICTED CASH
|
The
Company’s cash and cash equivalents and restricted cash primarily consist of checking accounts and money market funds. As
of March 31, 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 $1.7 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 loss and excluded from net loss as they are deemed
temporary. Additionally, as of March 31, 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.
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
13,223,536
|
|
|
$
|
11,684,817
|
|
Marketable securities
|
|
|
1,748,805
|
|
|
|
1,680,000
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Total cash and cash equivalents, marketable securities and restricted cash
|
|
$
|
15,472,341
|
|
|
$
|
13,864,817
|
|
|
5.
|
FAIR
VALUE MEASUREMENTS
|
The
Company measures the fair value of its financial instruments in accordance with ASC 820-10, which refines the definition of fair
value, provides a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820-10 defines
fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants at the reporting date. The statement establishes consistency and comparability by providing
a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:
|
•
|
Level 1: Inputs are quoted market prices in
active markets for identical assets or liabilities (these are observable market inputs).
|
|
•
|
Level 2: Inputs other than quoted market prices
included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or
identical or similar assets in markets in which there are few transactions, prices that are not current or vary substantially).
|
|
•
|
Level 3: Inputs are unobservable inputs that
reflect the entity’s own assumptions in pricing the asset or liability (used when little or no market data is available).
|
Financial
assets and liabilities included in our financial statements and measured at fair value are classified based on the valuation technique
level in the table below:
|
|
As of March 31, 2018
|
|
Description:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents (1)
|
|
$
|
13,223,536
|
|
|
$
|
13,223,536
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash (1)
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities (2)
|
|
|
1,748,805
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,748,805
|
|
Contingent earn-out (3)
|
|
|
951,867
|
|
|
|
—
|
|
|
|
—
|
|
|
|
951,867
|
|
Total at fair value
|
|
$
|
16,424,208
|
|
|
$
|
13,723,536
|
|
|
$
|
—
|
|
|
$
|
2,700,672
|
|
|
|
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
and cash equivalents and restricted cash, totaling approximately $13.7 million and $12.2 million as of March 31, 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 $1.7 million
and $1.7 million as of March, 31, 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 March 31,
2018, the Company determined there was a decline in the fair value of its ARS investments of approximately $101 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
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
|
|
|
68,805
|
|
Balance March 31, 2018
|
|
$
|
1,748,805
|
|
|
|
Contingent Earn-Out
|
|
Balance December 31, 2017
|
|
$
|
951,867
|
|
Accretion to net present value
|
|
|
—
|
|
Balance March 31, 2018
|
|
$
|
951,867
|
|
|
6.
|
STOCK-BASED
COMPENSATION
|
Stock-based
compensation expense recognized in the Company’s consolidated statements of operations for the three months ended March
31, 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 three months
ended March 31, 2018 and 2017 was $0.49 and $0.23, respectively, using the Black-Scholes model with the following weighted-average
assumptions:
|
|
For
the Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
Expected option lives
|
|
3.5 years
|
|
3.0 years
|
Expected volatility
|
|
42.67%
|
|
36.68%
|
Risk-free interest rate
|
|
2.05%
|
|
1.46%
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
The
value of each restricted stock unit awarded is equal to the closing price per share of the Company’s Common Stock on the
date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite
service periods. The weighted-average grant date fair value per share of restricted stock units granted during the three months
ended March 31, 2018 and 2017 was $1.47 and $0.85, respectively.
As
of March 31, 2018, there remained approximately 156 thousand 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 $340 thousand and $396 thousand
of stock-based compensation for the three month period ended March 31, 2018 and 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
|
|
|
3,333
|
|
|
$
|
1.45
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
—
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(834
|
)
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(1,777,611
|
)
|
|
$
|
1.79
|
|
|
|
|
|
|
|
|
|
Awards outstanding at March 31, 2018
|
|
|
3,716,816
|
|
|
$
|
1.30
|
|
|
$
|
1,995
|
|
|
|
4.69
|
|
Awards outstanding, vested and expected to vest at March 31, 2018
|
|
|
3,696,057
|
|
|
$
|
1.30
|
|
|
$
|
1,981
|
|
|
|
4.69
|
|
Awards exercisable at March 31, 2018
|
|
|
2,289,915
|
|
|
$
|
1.38
|
|
|
$
|
1,090
|
|
|
|
4.33
|
|
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
|
|
|
1,125,000
|
|
|
|
|
|
|
|
|
|
Restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(9,174
|
)
|
|
|
|
|
|
|
|
|
Restricted stock units forfeited
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Awards outstanding at March 31, 2018
|
|
|
1,562,494
|
|
|
$
|
2,797
|
|
|
|
3.29
|
|
Awards expected to vest at March 31, 2018
|
|
|
1,550,744
|
|
|
$
|
2,776
|
|
|
|
2.55
|
|
A
summary of the status of the Company’s unvested stock-based payment awards as of March 31, 2018 and changes in the three
months then ended, is as follows:
Unvested
Awards
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Shares underlying awards unvested at December 31, 2017
|
|
|
2,131,135
|
|
|
$
|
0.48
|
|
Shares underlying options granted
|
|
|
3,333
|
|
|
$
|
0.49
|
|
Shares underlying restricted stock units granted
|
|
|
1,125,000
|
|
|
$
|
1.47
|
|
Shares underlying options vested
|
|
|
(260,065
|
)
|
|
$
|
0.37
|
|
Shares underlying restricted stock units settled by delivery of Common Stock upon vesting
|
|
|
(9,174
|
)
|
|
$
|
1.20
|
|
Shares underlying options forfeited
|
|
|
(834
|
)
|
|
$
|
0.38
|
|
Shares underlying restricted stock units cancelled
|
|
|
—
|
|
|
$
|
—
|
|
Shares underlying awards unvested at March 31, 2018
|
|
|
2,989,395
|
|
|
$
|
0.86
|
|
For
the three months ended March 31, 2018 and 2017, the total fair value of stock-based awards vested was approximately $109 thousand
and $323 thousand, respectively. For the three months ended March 31, 2018 and 2017, the total intrinsic value of options exercised
was $0 and $0, respectively (there were no options exercised during either period). For the three months ended March 31, 2018
and 2017, approximately 3 thousand and 45 thousand stock options, respectively, were granted, and no stock options were exercised
in either period yielding $0 of cash proceeds to the Company. Additionally, for the three months ended March 31, 2018 and 2017,
approximately 1.1 million and 200 thousand restricted stock units, respectively, were granted, and approximately 9 thousand and
207 thousand shares, respectively, were issued under restricted stock unit grants. For the three months ended March 31, 2018 and
2017, the total intrinsic value of restricted stock units that vested was approximately $13 thousand and $176 thousand, respectively.
As of March 31, 2018 and 2017, the total intrinsic value of awards outstanding was approximately $4.8 million and $510 thousand,
respectively. As of March 31, 2018, there was approximately $2.1 million of unrecognized stock-based compensation expense remaining
to be recognized over a weighted-average period of 2.83 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. 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 securities, market conditions and other factors. The repurchase 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 first quarter ended March 31, 2018, and since the new 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. Through March 31, 2018, the
Company had withheld an aggregate of 2,047,906 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.
|
9.
|
NET
LOSS PER SHARE OF COMMON STOCK
|
Basic
net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss
per share is computed using the weighted average number of common shares and potential common shares outstanding during the period,
so long as the inclusion of potential common shares does not result in a lower net loss per share. Potential common shares consist
of restricted stock units (using the treasury stock method) and the incremental common shares issuable upon the exercise of stock
options (using the treasury stock method). For the three months ended March 31, 2018 and 2017, approximately 4.7 million and 666
thousand unvested restricted stock units and vested and unvested stock options, respectively, were excluded from the calculation,
as their effect would result in a lower net loss per share.
The
following table reconciles the numerator and denominator for the calculation.
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(681,710
|
)
|
|
$
|
(1,127,440
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average basic and diluted shares outstanding
|
|
|
49,184,692
|
|
|
|
35,558,371
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted net loss attributable to common stockholders
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Income
tax expense for the three months ended March 31, 2018 was approximately $155 thousand and reflects an effective tax rate of -29%,
as compared to approximately $186 thousand for the three months ended March 31, 2017 reflecting an effective tax rate of approximately
-20%. Income tax expense for the three months ended March 31, 2018 primarily relates to the recognition of $109 thousand 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 an approximate $46 thousand credit of income tax in certain jurisdictions
where there are no net operating losses available to offset taxable income. Income tax expense for the three months ended March
31, 2017 primarily relates to the recognition of $148 thousand 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
approximately $38 thousand of income tax 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 $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 (“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 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.
The
Company has no uncertain tax positions pursuant to ASC 740-10 for the year ended December 31, 2017.
|
11.
|
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 March 31, 2018 and 2017, the Company’s
cash, cash equivalents and restricted cash primarily consisted of checking accounts and money market funds.
For
the three months ended March 31, 2018 and 2017, no individual client accounted for 10% or more of consolidated revenue. As of
March 31, 2018, one individual client accounted for more than 10% of our gross accounts receivable balance. As of March 31, 2017,
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.
|
12.
|
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:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Deferred rent
|
|
$
|
1,410,821
|
|
|
$
|
1,374,385
|
|
Deferred revenue
|
|
|
1,187,023
|
|
|
|
687,632
|
|
Other
|
|
|
2,092
|
|
|
|
2,092
|
|
Total other liabilities
|
|
$
|
2,599,936
|
|
|
$
|
2,064,109
|
|
|
14.
|
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.
Results were as follows:
|
|
For the Three Months Ended March 31,
|
|
Revenue:
|
|
2018
|
|
|
2017
|
|
- The Deal / BoardEx
|
|
$
|
5,903,942
|
|
|
$
|
5,513,657
|
|
- RateWatch
|
|
|
2,133,682
|
|
|
|
1,873,582
|
|
Total business to business
|
|
|
8,037,624
|
|
|
|
7,387,239
|
|
- Business to consumer
|
|
|
6,671,203
|
|
|
|
7,893,198
|
|
Total
|
|
$
|
14,708,827
|
|
|
$
|
15,280,437
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
- The Deal / BoardEx
|
|
$
|
(564,590
|
)
|
|
$
|
(643,949
|
)
|
- RateWatch
|
|
|
513,712
|
|
|
|
182,006
|
|
Total business to business
|
|
|
(50,878
|
)
|
|
|
(461,943
|
)
|
- Business to consumer
|
|
|
(494,473
|
)
|
|
|
(486,964
|
)
|
Total
|
|
$
|
(545,351
|
)
|
|
$
|
(948,907
|
)
|
Due
to the nature of the Company’s operations, a majority of its assets are utilized across all segments. In addition, segment
assets are not reported to, or used by, the Chief Operating Decision Maker to allocate resources or assess performance of the
Company’s segments. Accordingly, the Company has not disclosed asset information by segment.
Geographic
Data
During
the three months ended March 31, 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.