| • | providing for a classified board of directors with staggered, three-year terms; we intend to put a proposal to declassify our board of directors at our 2017 Annual Meeting of Stockholders; | |
| • | not providing for cumulative voting in the election of directors; | |
| • | permitting an amendment of our certificate of incorporation only through a super-majority vote of the stockholders; | |
| • | prohibiting stockholder action by written consent; |
| 15 |
| • | require that, to the fullest extent permitted by law and unless we consent to an alternate forum, certain proceedings against or involving us or our directors, officers, or employees be brought exclusively in the Court of Chancery in the State of Delaware; | |
| • | limiting the persons who may call special meetings of stockholders; and | |
| • | requiring advance notification for stockholder director nominations and other proposals. |
These and other provisions in our certificate of incorporation, our bylaws, and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.
If our ability to use our tax operating loss carryforwards and other tax attributes is limited, we may not receive the benefit of those assets.
We have net operating loss carryforwards of approximately $154$160 million as of December 31, 2015,2016, available to offset future taxable income through 2035. These net operating losses date back to December 1999 and will begin expiring in 2019. Our ability to fully utilize these net operating loss carryforwards is dependent upon the generation of future taxable income before the expiration of the carryforward period attributable to these net operating losses. Furthermore, as a result of prior ownership changes under section 382 of the Internal Revenue Code of 1986, as amended, approximately $123 milliona portion of these net operating losses will be subject to certain limitations.
Investment of our cash carries risks.
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in seven financial institutions and perform periodic evaluations of the relative credit standing of these institutions. No assurances can be made that the third-party institutions will retain acceptable credit ratings or investment practices. Investment decisions of third parties and market conditions may adversely affect our cash balances and financial condition. While we believe our investment policy is conservative, there can be no assurance that we will not suffer losses on any of our investments.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.
As a Public Company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. We have evaluated and tested our internal controls in order to allow management to report on our internal controls, as required by Section 404 of the Sarbanes-Oxley Act of 2002. If we are not able to meet the requirements of Section 404 in a timely manner or with adequate compliance, we would be required to disclose material weaknesses if they develop or are uncovered and we may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. Any such action could negatively impact the perception of us in the financial market and our business.
In addition, our internal controls may not prevent or detect all errors and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable assurance that the objectives of the control system will be met. As a smaller reporting company, we were not required to have our independent auditors report on our internal controls for the year ended December 31, 2016.
If securities or industry analysts do not publish research or reports about our business, or if they publish negative reports about our business, our stock price and trading volume could decline.
The trading market for our common stock may be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our shares or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
If we are unableWe do not expect to satisfydeclare any dividends in the continued listing requirements of The NASDAQ Stock Market, our common stock could be delisted and the price and liquidityforeseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may be adversely affected.
Ourneed to rely on sales of their common stock is currently listedafter price appreciation, which may never occur, as the only way to realize any future gains on The NASDAQ Global Market. To maintain the listing oftheir investment. Investors seeking cash dividends should not purchase our common stock, we are required to meet certain listing requirements, including, among others, a requirement to maintain a minimum closing bid price of $1.00 per share. If our common stock trades below the $1.00 minimum closing bid price requirement for 30 consecutive business days or if we do not meet other listing requirements, we may be notified by NASDAQ of non-compliance. Our common stock recently closed below $1.00 per share on February 25, 2016 and has been closing at or below $1.00 per share since that date and through the filing of this report. If the price per share of our common stock were to fall below NASDAQ listing standards, our common stock may be delisted. If we are notified by NASDAQ of non-compliance with the $1.00 minimum closing bid price requirement, we would regain compliance if our common stock trades above $1.00 per share for ten consecutive business days during the 180 days following notice of non-compliance. We may also be permitted to transfer our listing to the Nasdaq Capital Market, which would provide us an additional 180 days to regain compliance with the minimum closing bid price requirement. If our common stock is delisted, market liquidity for our common stock could be severely affected and our stockholders’ ability to sell their shares of our common stock could be limited. In addition, our common stock could be subject to “penny stock” rules which impose additional disclosure requirements on broker-dealers and could further negatively impact our market liquidity for our common stock and our stockholders’ ability to sell their shares of our common stock. Accordingly, a delisting of our common stock from NASDAQ would negatively affect the value of our common stock. Delisting could also have other negative results, including, but not limited to, the loss of institutional investor interest.
| 16 |
Item 1B. Unresolved Staff Comments.
None.
Our company headquarters is located at 14 Wall Street, 15th Floor, New York, NY 10005, with other U.S. offices in Fort Atkinson, Wisconsin, for our RateWatch business, and Petaluma, California and Washington D.C., where The Deal has offices. Outside the U.S., we have offices in London, England and Chennai, India where our BoardEx business operates. We lease each of these facilities and do not own any real property and we lease all of our facilities. Our principal administrative, sales, marketing, and editorialproperty. We believe these facilities currently reside in a facility encompassing approximately 35,000 square feet of office space on one floor in an office building at 14 Wall Street in New York, New York. Bankers Financial Products Corporation (d/b/a RateWatch) occupies approximately 16,000 square feet of office space in Fort Atkinson, Wisconsin. The Deal, LLC occupies approximately 2,211 square feet of office space in Petaluma, California and approximately 350 square feet of office space in Washington, D.C. The Deal’s U.K. subsidiary, Management Diagnostic Limited (“MDL”), occupies approximately 8,202 square feet of office space in London, England, and MDL’s subsidiary, BoardEx India Private Limited, occupies approximately 22,480 square feet of office space in Chennai, India. We also remain responsibleare adequate for a sublease of approximately 21,500 square feet of office space in an office building at 20 Broad Street in New York, New York, which we in turn have sublet to another tenant.their intended use.
The Company is party to legal proceedings arising in the ordinary course of business or otherwise, none of which is deemed material.
Item 4. Mine Safety DisclosuresDisclosures.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
We have been a Nasdaq-listed company since May 11, 1999 and our Common Stock currently is quoted on the Nasdaq Global Market under the symbol TST. There is no public trading market for our Series B Preferred Stock. The following table sets forth, for the periods indicated, the high and low closing sales prices per share of the Common Stock as reported on the Nasdaq Global Market.
| Low | High | Low | High | |||||||||||||
| 2014 | ||||||||||||||||
| First quarter | $ | 2.20 | $ | 2.94 | ||||||||||||
| Second quarter | $ | 2.30 | $ | 2.68 | ||||||||||||
| Third quarter | $ | 2.12 | $ | 2.55 | ||||||||||||
| Fourth quarter | $ | 2.10 | $ | 2.46 | ||||||||||||
| 2015 | ||||||||||||||||
| First quarter | $ | 1.75 | $ | 2.30 | $ | 1.75 | $ | 2.30 | ||||||||
| Second quarter | $ | 1.72 | $ | 1.97 | $ | 1.72 | $ | 1.97 | ||||||||
| Third quarter | $ | 1.59 | $ | 1.92 | $ | 1.59 | $ | 1.92 | ||||||||
| Fourth quarter | $ | 1.44 | $ | 1.73 | $ | 1.44 | $ | 1.73 | ||||||||
| 2016 | ||||||||||||||||
| First quarter | $ | 0.86 | $ | 1.49 | ||||||||||||
| Second quarter | $ | 1.05 | $ | 1.25 | ||||||||||||
| Third quarter | $ | 1.10 | $ | 1.24 | ||||||||||||
| Fourth quarter | $ | 0.84 | $ | 1.14 | ||||||||||||
On March 3, 2016,15, 2017, the last reported sale price for our Common Stock was $0.89$.69 per share.
The graph below compares the cumulative total stockholder return on the Company’s Common Stock from December 31, 2010 through December 31, 2015 with the cumulative total return on the Nasdaq Composite Index and the Research Data Group (RDG) Internet Composite Index. The performance graph is based upon closing prices on December 31st of each year other than 2011, which is based on the closing price on December 30, 2011, the last trading day before December 31, 2011. The comparison assumes $100 was invested on December 31, 2010 in the Company’s Common Stock and in each of the foregoing indices and assumes reinvestment of dividends. The returns shown are based upon historical results and are not intended to suggest future performance.
| ASSUMES $100 INVESTED ON DECEMBER 31, 2010 AND REINVESTMENT OF ALL DIVIDENDS | ||||||||||||||||||||||||
| December 31, | ||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |||||||||||||||||||
| TheStreet, Inc. | 100.00 | 65.55 | 67.10 | 90.80 | 99.59 | 66.35 | ||||||||||||||||||
| NASDAQ Composite | 100.00 | 100.53 | 116.92 | 166.19 | 188.78 | 199.95 | ||||||||||||||||||
| RDG Internet Composite | 100.00 | 102.11 | 122.23 | 199.42 | 195.42 | 267.25 | ||||||||||||||||||
Holders
The number ofOn March 15, 2017, there were 179 holders of record of our Common Stock on March 3, 2016 was 181 which does not includeStock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners ofbut who held our Common Stock whose shares are held in the names of various dealers, clearing agencies, banks,nominee or “street name” accounts through brokers and other fiduciaries.nominees.
Dividends
During the year ended December 31, 2016, we did not declare or pay any cash dividends on our Common Stock or Series B Preferred Stock. For each of the four quarters in the yearsyear ended December 31, 2015, and 2014, the Company paid a quarterly cash dividend of $0.025 per share onof its Common Stock and its Series B Preferred Stock on a converted common share basis. For the yearsyear ended December 31, 2015, and 2014, the dividend payments totaled approximately $3.9 millionmillion.
We do not expect to declare and $3.9 million, respectively.pay dividends in the foreseeable future. The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors. When determining whether to declare a dividend in the future, our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders, and such other factors as our board of directors may deem relevant. The Certificate of Designations for the Series B Preferred Stock currently prohibits the Company from paying cash dividends in excess of $0.10 per share per annum without the prior approval of the holder of the Series B Preferred Stock. The Company does not intend to pay a cash dividend for the first quarter of 2016 and will continue to evaluate the uses of its cash in 2016 in connection with planned investments in the business.
Issuer Purchases of Equity Securities
The CompanyWe did not repurchase any shares of itsour Common Stock during the year ended December 31, 20152016.
Recent Sales of Unregistered Securities
We did not sell any unregistered securities during the year ended December 31, 2016.
Equity Compensation Plan Information
Under the terms of the 1998 Stock Incentive Plan (the “1998 Plan”), 8,900,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, restricted stock, deferred stock, restricted stock units, or any combination thereof. Under the terms of the 2007 Plan, 7,750,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards. The 2007 Plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. Awards may be granted to such directors, employees and consultants of the Company as the affirmative voteCompensation Committee of the holdersBoard of a majorityDirectors shall select in its discretion or delegate management to select. Only employees of the outstandingCompany are eligible to receive incentive stock options. Awards generally vest over a three- to five-year period and stock options generally have terms of five to seven years. The following table sets forth certain information, as of December 31, 2016, concerning shares of Series B PreferredCommon Stock voting separately as a single class, is currently necessary in orderauthorized for us to repurchase any of our Common Stock. Absentissuance under the consent of the holders of our Series B Preferred Stock, the Company will be unable to conduct share repurchases. For additional information, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Treasury Stock” and Item 1A “Risk Factors — The terms of our Series B Preferred Stock include a substantial liquidation preference, as well as significant control rights.”2007 Plan.
| Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,643,366 | $ | 1.21 | 1,269,753 | * | |||||||
| Equity compensation plans not approved by security holders** | 3,975,360 | $ | 1.45 | - | ||||||||
| * | Aggregate number of shares available for grant under the 2007 Plan, which grants may be in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards in the discretion of the Board of Directors, with respect to non-employee director grants, or the Compensation Committee, with respect to all other grants. The 2007 Plan also authorizes cash performance awards. |
| ** | Includes inducement option grants made pursuant to NASDAQ Listing Rule 5635(c). |
Item 6. Selected Financial Data.
The following selected financial data is qualified by reference to, and should be read in conjunction with, our audited consolidated financial statements and the notes to those statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere herein. The selected statement of operations data presented below for the years ended December 31, 2015, 20142016 and 2013,2015, and the balance sheet data as of December 31, 20152016 and 2014,2015, are derived from our audited consolidated financial statements included elsewhere herein. The selected statement of operations data presented below for the years ended December 31, 20122014, 2013 and 20112012 and the balance sheet data as of December 31, 2014, 2013 2012 and 20112012 have been derived from our audited consolidated financial statements, which are not included herein. Our historical results are not necessarily indicative of our future results.
| For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| For the Year Ended December 31, | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | (In thousands, except per share data) | |||||||||||||||||||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||
| Statement of Operations Data: (1) | ||||||||||||||||||||||||||||||||||||||||
| Net revenue: | ||||||||||||||||||||||||||||||||||||||||
| Subscription services | $ | 55,206 | $ | 48,036 | $ | 43,549 | $ | 37,149 | $ | 38,901 | ||||||||||||||||||||||||||||||
| Media | 12,450 | 13,017 | 10,901 | 13,572 | 18,859 | |||||||||||||||||||||||||||||||||||
| Total net revenue | 67,656 | 61,053 | 54,450 | 50,721 | 57,760 | |||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||
| Business to business | $ | 29,324 | $ | 28,992 | $ | 20,843 | $ | 18,867 | $ | 11,554 | ||||||||||||||||||||||||||||||
| Business to consumer | 34,176 | 38,664 | 40,210 | 35,583 | 39,167 | |||||||||||||||||||||||||||||||||||
| Total revenue | 63,500 | 67,656 | 61,053 | 54,450 | 50,721 | |||||||||||||||||||||||||||||||||||
| Operating expense: | ||||||||||||||||||||||||||||||||||||||||
| Cost of services | 33,616 | 31,731 | 27,432 | 24,886 | 26,499 | 32,441 | 33,616 | 31,731 | 27,432 | 24,886 | ||||||||||||||||||||||||||||||
| Sales and marketing | 16,191 | 15,600 | 14,453 | 13,396 | 16,682 | 15,697 | 16,191 | 15,600 | 14,453 | 13,396 | ||||||||||||||||||||||||||||||
| General and administrative | 15,000 | 13,947 | 12,219 | 13,638 | 15,811 | 16,157 | 15,000 | 13,947 | 12,219 | 13,638 | ||||||||||||||||||||||||||||||
| Depreciation and amortization | 4,309 | 3,179 | 3,769 | 5,512 | 5,757 | 5,682 | 4,309 | 3,179 | 3,769 | 5,512 | ||||||||||||||||||||||||||||||
| Impairment of Goodwill | 11,583 | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Change in Fair Value of Contingent Consideration | (1,808 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Restructuring and other charges | (1,221 | ) | — | 386 | 6,590 | 1,826 | 960 | (1,221 | ) | — | 386 | 6,590 | ||||||||||||||||||||||||||||
| Loss (gain) on disposition of assets | — | — | 187 | (233 | ) | — | — | — | — | 187 | (233 | ) | ||||||||||||||||||||||||||||
| Total operating expense | 67,895 | 64,457 | 58,446 | 63,789 | 66,575 | 80,712 | 67,895 | 64,457 | 58,446 | 63,789 | ||||||||||||||||||||||||||||||
| Operating loss | (239 | ) | (3,404 | ) | (3,996 | ) | (13,068 | ) | (8,815 | ) | (17,212 | ) | (239 | ) | (3,404 | ) | (3,996 | ) | (13,068 | ) | ||||||||||||||||||||
| Net interest (expense) income | (123 | ) | 89 | 210 | 353 | 668 | (34 | ) | (123 | ) | 89 | 210 | 353 | |||||||||||||||||||||||||||
| Loss on sales of marketable securities | — | — | — | — | (35 | ) | ||||||||||||||||||||||||||||||||||
| Loss from continuing operations before income taxes | (362 | ) | (3,315 | ) | (3,786 | ) | (12,715 | ) | (8,182 | ) | ||||||||||||||||||||||||||||||
| Net loss before income taxes | (17,246 | ) | (362 | ) | (3,315 | ) | (3,786 | ) | (12,715 | ) | ||||||||||||||||||||||||||||||
| Provision for income taxes | 1,181 | 475 | — | — | — | 269 | 1,181 | 475 | — | — | ||||||||||||||||||||||||||||||
| Loss from continuing operations | (1,543 | ) | (3,790 | ) | (3,786 | ) | (12,715 | ) | (8,182 | ) | ||||||||||||||||||||||||||||||
| Discontinued operations: | ||||||||||||||||||||||||||||||||||||||||
| Loss on disposal of discontinued operations | — | — | — | — | (2 | ) | ||||||||||||||||||||||||||||||||||
| Loss from discontinued operations | — | — | — | — | (2 | ) | ||||||||||||||||||||||||||||||||||
| Net loss | (1,543 | ) | (3,790 | ) | (3,786 | ) | (12,715 | ) | (8,184 | ) | (17,515 | ) | (1,543 | ) | (3,790 | ) | (3,786 | ) | (12,715 | ) | ||||||||||||||||||||
| Preferred stock cash dividends | 386 | 386 | — | 193 | 386 | — | 386 | 386 | — | 193 | ||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (1,929 | ) | $ | (4,176 | ) | $ | (3,786 | ) | $ | (12,908 | ) | $ | (8,570 | ) | $ | (17,515 | ) | $ | (1,929 | ) | $ | (4,176 | ) | $ | (3,786 | ) | $ | (12,908 | ) | ||||||||||
| Cash dividends paid on common shares | $ | 3,539 | $ | 3,477 | $ | — | $ | 1,636 | $ | 3,447 | ||||||||||||||||||||||||||||||
| Cash dividends declared and paid on common shares | $ | — | $ | 3,539 | $ | 3,477 | $ | — | $ | 1,636 | ||||||||||||||||||||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.11 | ) | $ | (0.39 | ) | $ | (0.27 | ) | $ | (0.50 | ) | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.11 | ) | $ | (0.39 | ) | ||||||||||
| Weighted average basic and diluted shares outstanding | 34,839 | 34,371 | 33,725 | 32,710 | 31,954 | 35,236 | 34,839 | 34,371 | 33,725 | 32,710 | ||||||||||||||||||||||||||||||
| Cash dividends declared and paid per common share | $ | 0.10 | $ | 0.10 | $ | — | $ | 0.05 | $ | 0.10 | $ | — | $ | 0.10 | $ | 0.10 | $ | — | $ | 0.05 | ||||||||||||||||||||
| December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
| Balance Sheet Data (1): | ||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, current and noncurrent marketable securities, current and noncurrent restricted cash | $ | 30,697 | $ | 37,329 | $ | 59,842 | $ | 60,541 | $ | 75,315 | $ | 23,421 | $ | 30,697 | $ | 37,329 | $ | 59,842 | $ | 60,541 | ||||||||||||||||||||
| Working capital | 2,074 | 5,326 | 31,208 | 18,829 | 46,013 | (2,836 | ) | 2,074 | 5,326 | 31,208 | 18,829 | |||||||||||||||||||||||||||||
| Total assets | 102,892 | 111,932 | 108,894 | 111,535 | 121,413 | 78,463 | 102,892 | 111,932 | 108,894 | 111,535 | ||||||||||||||||||||||||||||||
| Long-term obligations, less current maturities | 7,267 | 7,639 | 4,959 | 4,629 | 4,857 | 5,311 | 7,267 | 7,639 | 4,959 | 4,629 | ||||||||||||||||||||||||||||||
| Total stockholders’ equity | 61,994 | 67,870 | 74,163 | 75,458 | 88,144 | 42,049 | 61,994 | 67,870 | 74,163 | 75,458 | ||||||||||||||||||||||||||||||
| (1) |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Please refer to the Special Note Regarding Forward-Looking Statements appearing in Part I, Item 1 of this Report.
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto.
Overviewincluded elsewhere in this filing. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. These statements involve risks and uncertainties and our actual results could differ materially from those discussed below. You should carefully read “Special Note Regarding Forward-Looking Statements” above for a discussion of the uncertainties, risks and assumptions associated with these statements. See also the "Risk Factors" disclosure in Item 1A above for additional discussion of such risks.
Overview
TheStreet, Inc., together with its wholly owned subsidiaries (“TheStreet”, “we”, “us” or the “Company”),is a leading digital financial media company focused on the financialnews and mergersinformation provider. Our business-to-business (“B2B”) and acquisitions environment. The Company’s collection of digital services provides users, subscribers and advertisers with a variety ofbusiness-to-consumer (“B2C”) content and tools through a range of online, social media, tabletproducts provide individual and mobile channels.Our mission is to provideinstitutional investors, and advisors with actionable ideas from the world of investing, finance and business, and dealmakers with sophisticated analysisactionable information from the worlds of finance and business.
Our business strategy for 2017 is centered on accelerating our growth by successfully implementing initiatives that were put in place in 2016.
2016 Highlights
| · | Recruited and hired a new and experienced management team; |
| · | including our President and Chief Executive Officer, David Callaway; |
| · | established one unified newsroom across all business units; |
| · | identified and optimized synergies between our products in order to add scale to our data, technology and commercial capabilities; |
| 20 |
| · | continued to expand our content distribution channels to broaden our customer base and enhance the user experience; |
| · | identified new and growing revenue streams and provided support and resources necessary to maximize them (events, native advertising and custom content);and |
| · | increased the Board of Directors toseven members, with five independent directors. |
Primary Source of Revenues
Most of our revenues are derived from subscription fees charged to our institutional and retail customers. This revenue is primarily a function of the mergersnumber of customers that subscribe to our services and acquisitions environmentis generally driven by our ability to distribute quality news and data to our customers across multiple technology channels. For the year ended December 31, 2016, subscription revenue accounted for 78% of our total revenue compared to 80% of our total revenue in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth.With2015.
We also generate revenue from advertising primarily on our flagship website,TheStreet.com. Advertising revenue is primarily a robust suite of digital services, TheStreet offers the tools and insights needed to make informed decisions about earning, investing, saving and spending money. Since its inception in 1996, TheStreet believes it has distinguished itself from other financial media companies with its journalistic excellence, unbiased approach and interactive multimedia coveragefunction of the financial markets, economy, industry trends, investmentvolume of traffic on our website and financial planning.mobile aps which is driven by the quality and theme of our content. For the year ended December 31, 2016, advertising revenue accounted for 16% of our total revenue compared to 15% in 2015.
SubscriptionB2BServices
Subscription servicesOur B2B business derives revenue is comprised of subscriptions, licenses and fees forprimarily from subscription products which provide access to securities investment information, stock market commentary, rate services, director and officer profiles, relationship capital management services, bank rate data and transactional information pertaining to the mergers and acquisitions environment. Our B2B business also generates revenue from sponsored events/conferences and other changes in the corporate control environment. Subscription services contributed 82% of our total revenue in 2015, as compared to 79% in 2014 and 80% in 2013. The increase is primarily the result of the acquisition of MDL in October 2014.
We believe we were one of the first companies to successfully create a large scale, consumer-focused, digital subscription services content business. We believe we have been able to successfully build our subscription services business because we have established a track record for over 20 years of providing high quality, independent investing ideas that have produced financial value for our readers. We believe our track record provides us with a competitive advantage and we will seek to enhance the value of our leading brand and our ability to monetize that value.information services.
In addition to our consumer-focused subscription products, which includeRealMoney,RealMoney Pro, Action Alerts PLUS,TheStreet Quant Ratings,andStocks Under $10, our subscription services business also includes information and transactional services revenue from RateWatch and The Deal.
RateWatchmaintains a constantly-updated database of deposit, loan and fee rate data from over 100,000 financial institutions. This historical and real-time rate data is licensed to financial institutions, government agencies, educational researchers and commercial organizations. Data is provided in formats ranging from standard rate templates to large raw data files for use with third party analytical tools. The RateWatch product line also includes banking-related product and fee comparisons, financial strength reporting, educational webinars, mystery shopping and consumer and financial institution surveys.
In September 2012, the Company acquired The Deal and transformed its business into a digital subscription platform that delivers sophisticated coveragenews and analysis on changes in corporate control including mergersmerges and acquisitions, private equity, corporate activism and restructuring. In April 2013, the Company acquiredThe DealFlow Report, The Life Settlements Reportand the PrivateRaise database from DealFlow Media, Inc. to further broaden the information and services available to institutional investors. These newsletters and database, and the employees providing their content, have been incorporated into The Deal.
Additionally, in October 2014, the Company acquired Management Diagnostics Limited (“MDL”), a privately held company headquartered in London, England to expand the Company’s international operations and further the Company’s transition from primarily serving retail investors to also becoming an indispensable data and business intelligence source for institutional clients. Founded in 1999, MDLBoardEx is the owner of BoardEx, an institutional relationship capital management database and platform. Clients,platform which holds in-depth profiles of almost one million of the world's most important business leaders. Our third B2B business product, RateWatch, publishes bank rate market information including investment banks, consultancies, executive search firms, law firmscompetitive deposit, loan and academia, use BoardEx to leverage their relationships and facilitate business and corporate development initiatives. MDL’s products and services, and the employees providing these products and services have been incorporated into The Deal.fee rate data.
Our subscription services revenue also includes revenue generated from syndication and licensing of data from TheStreet Ratings (“Ratings”), which tracks the risk-adjusted performance of more than 20,000 mutual funds and exchange-traded funds (ETFs) and more than 4,000 stocks.
Media
Media revenue is comprised of fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, event and other miscellaneous revenue. Media contributed 18% of our total revenue in 2015, as compared to 21% in 2014 and 20% in 2013. The decrease is primarily the result of the acquisition of MDL in October 2014, which added to the Company’s subscription services revenue.
Our advertising-supported properties, which includeTheStreet,MainStreet, Stockpickr andReal Money, attract one of the largest and most affluent audiences of any digital publisher in our content vertical.TheStreet, with its enviable track record as a leading and distinctive digital voice in the financial category, is regarded as a must-buy for most of our core online brokerage advertisers and a highly effective means for other financial services companies and non-endemic advertisers to communicate with our engaged, affluent audience. Our direct sales team sells the full capabilities of TheStreet and its affiliated properties via sponsorships, custom programs, video, mobile, newsletters, audience targeting, native advertising, social amplification and distribution as well as programmatic direct and real time bidding.
Our media revenue also includes revenue generated from syndication and licensing of data as well as other miscellaneous, non-subscription related sources.
Results of Operations
Comparison of Fiscal Years Ended December 31, 2015 and 2014
Revenue
| For the Year Ended December 31, | ||||||||||||||||||||
| Revenue: | 2015 | Percent of Total | 2014 | Percent of Total Revenue | Percent Change | |||||||||||||||
| Subscription services | $ | 55,205,507 | 82 | % | $ | 48,035,953 | 79 | % | 15 | % | ||||||||||
| Media | 12,450,393 | 18 | % | 13,017,265 | 21 | % | -4 | % | ||||||||||||
| Total revenue | $ | 67,655,900 | 100 | % | $ | 61,053,218 | 100 | % | 11 | % | ||||||||||
Subscription services. Subscription services revenue is comprised of subscriptions, licenses and fees for access to securities investment information, stock market commentary, rate services, director and officer profiles, relationship capital management services, and transactional information pertaining to mergers and acquisitions and other changes in the corporate control environment. Revenue is recognized ratably over the contract period.
Subscription services revenue forFor the year ended December 31, 2015 increased2016, our B2B businesses generated approximately 46% of our total revenue compared to approximately 43% in 2015.
B2C
Our B2C business primarily generates revenue from premium subscription products and advertising.
Our B2C business is led by approximately $7.2 million, or 15%our namesake website, TheStreet.com, when compared toand 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.
For the year ended December 31, 2014. The increase was the result2016, our B2C business generated approximately 54% of approximately $8.1 million of additionalour total revenue related to the operations of Management Diagnostics Limited (“MDL”), which was acquired on October 31, 2014 and therefore contributed only two months of revenue in the prior year period. Excluding the impact of MDL in both periods, revenue for the year ended December 31, 2015 decreased by approximately $934 thousand, or 2%, when compared to the year ended December 31, 2014. The decrease was primarily related to a 2% decreaseapproximately 57% in the weighted-average number of subscriptions, while the average revenue recognized per subscription remained flat over the periods.2015.
MediaPrimary Expenses. Media revenue is comprised of fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, event and other miscellaneous revenue.
Media revenue for the year ended December 31, 2015 decreased by approximately $567 thousand, or 4%, when compared to the year ended December 31, 2014. The decrease in advertising revenue was expected since the Company reduced available inventory for advertising as we focus on enhancing user experience on our free sites to grow the number of subscribers to our subscription based products.
Operating Expense
| For the Year Ended December 31, | ||||||||||||||||||||
| 2015 | Percent of Total Revenue | 2014 | Percent of Total Revenue | Percent Change | ||||||||||||||||
| Operating expense: | ||||||||||||||||||||
| Cost of services | $ | 33,615,867 | 50 | % | $ | 31,730,740 | 52 | % | 6 | % | ||||||||||
| Sales and marketing | 16,190,749 | 24 | % | 15,600,129 | 26 | % | 4 | % | ||||||||||||
| General and administrative | 15,000,439 | 22 | % | 13,946,681 | 23 | % | 8 | % | ||||||||||||
| Depreciation and amortization | 4,309,094 | 6 | % | 3,179,377 | 5 | % | 36 | % | ||||||||||||
| Restructuring and other charges | (1,221,224 | ) | -2 | % | — | — | N/A | |||||||||||||
| Total operating expense | $ | 67,894,925 | $ | 64,456,927 | 5 | % | ||||||||||||||
Cost of services.Services— Cost of services expense consists primarily of compensation, benefits, outside contributor costs related to the creation of our content, licensed data and the technology required to publish our content.
Cost of services expense increased by approximately $1.9 million, or 6%, over the period. The increase was the result of approximately $2.8 million of additional cost related to the operations of MDL, which was acquired on October 31, 2014 and therefore contributed only two months of expense in the prior year period. Excluding the impact of MDL in both periods, cost of services expense for the year ended December 31, 2015 decreased by approximately $934 thousand, or 3%, when compared to the year ended December 31, 2014. The decrease was primarily the result of lower compensation and related expense, fees paid to outside contributors and recruiting fees, the aggregate of which decreased by approximately $1.6 million. These cost decreases were partially offset by higher third-party data, consulting, hosting and internet related costs, the aggregate of which increased by approximately $801 thousand.
Sales and marketing.marketing — Sales and marketing expense consists primarily of compensation expense for the direct sales force, marketing services, and customer service departments, advertising and promotion expenses and credit card processing fees.
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Sales
Advertising and Marketing — Advertising and marketing expense increased by approximately $591 thousand, or 4%, over the period. The increase was the resultconsists primarily of approximately $1.1 million of additional cost related to the operations of MDL, which was acquired on October 31, 2014electronic media, print and therefore contributed only two months of expense in the prior year period. Excluding the impact of MDL in both periods, salesother advertising costs, as well as costs associated with our brand campaign and marketing expense for the year ended December 31, 2015 decreased by approximately $553 thousand, or 4%, when compared to the year ended December 31, 2014. The decrease was primarily the result of lower advertising, promotion and public relations costs, the aggregate of which decreased by approximately $896 thousand. These cost decreases were partially offset by higher compensation and related expense (primarily commission payments and related payroll taxes), which increased by approximately $346 thousand.product promotion.
General and administrativeAdministrative. — General and administrative expense consists primarily of compensation for general management, finance, technology, legal and administrative personnel, occupancy costs, professional fees, insurance and other office expenses.
Results of Operations
The following tables present our results of operations for the fiscal years ended December 31, 2016 and 2015. The period-to-period comparisons of results are not necessarily indicative of results for future periods.
Revenue
| For the Year Ended December 31, | ||||||||||||||||||||
| Revenue: | 2016 | Percent of Total Revenue | 2015 | Percent of Total Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | 22,130,695 | 35 | % | $ | 21,716,721 | 32 | % | 2 | % | ||||||||||
| RateWatch | 7,192,706 | 11 | % | 7,275,399 | 11 | % | -1 | % | ||||||||||||
| Total business to business | 29,323,401 | 46 | % | 28,992,120 | 43 | % | 1 | % | ||||||||||||
| Business to consumer | 34,176,130 | 54 | % | 38,663,780 | 57 | % | -12 | % | ||||||||||||
| Total revenue | $ | 63,499,531 | 100 | % | $ | 67,655,900 | 100 | % | -6 | % | ||||||||||
Total business to business revenue increased by approximately $331 thousand, or 1%, in 2016 compared to 2015.
Revenue attributable to The Deal / BoardEx segment increased by approximately $414 thousand, or 2%, in 2016 as compared to 2015. This increase in revenue was primarily the result of an increase in the number of events held by The Deal in 2016, which generated revenue of approximately $1.1 million, an increase of $600 thousand compared to the events held by the Deal in 2015. The Company plans on further expansion of its event business during 2017. Advertising revenue decreased by approximately $155 thousand in 2016 as compared to 2015. Subscription revenue from both our The Deal and BoardEx products experienced a de minimis increase in 2016 as compared to 2015, however, subscription revenue attributable to BoardEx in 2016 was offset by the impact of foreign currency.
Revenue from our RateWatch subsidiary decreased by approximately $83 thousand, or 1%, in 2016 as compared to 2015. RateWatch subscription revenue decreased by approximately $345 thousand, or 5%, attributable to a 5% decrease in the weighted-average number of subscriptions. This decline was partially offset by a $263 thousand, or 30% increase in one-time reports sold by RateWatch.
Business to consumer revenue decreased by approximately $4.5 million, or 12%, in 2016 as compared to 2015.This decrease was primarily related to an approximate $4.2 million, or 16%, decline in revenue related to premium subscription products resulting from a 14% decrease in the weighted-average number of subscriptions combined with a 2% decrease in the average revenue recognized per subscription. Additionally, we experienced a decline in co-registration revenue of approximately $326 thousand. Advertising revenue generated by our business to consumer segment increased $29 thousand to $10.1 million in 2016.
Operating Expenses
Cost of Services
| For the Year Ended December 31, | ||||||||||||||||||||
| Cost of services: | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | 11,168,977 | 50 | % | $ | 11,418,639 | 53 | % | -2 | % | ||||||||||
| RateWatch | 1,992,218 | 28 | % | 2,088,506 | 29 | % | -5 | % | ||||||||||||
| Total business to business | 13,161,195 | 45 | % | 13,507,145 | 47 | % | -3 | % | ||||||||||||
| Business to consumer | 19,279,403 | 56 | % | 20,108,722 | 52 | % | -4 | % | ||||||||||||
| Total cost of services | $ | 32,440,598 | 51 | % | $ | 33,615,867 | 50 | % | -3 | % | ||||||||||
Cost of services expense attributable to The Deal / BoardEx decreased by approximately $250 thousand, or 2%, in 2016 as compared to 2015. This decrease was primarily the result of reduced consulting, hosting, internet access and recruiting costs, the aggregate of which decreased by approximately $429 thousand. Also contributing to the decline was a reduction in corporate expense allocations totaling approximately $475 thousand primarily the result of lower compensation related and consulting costs. These cost decreases were partially offset by higher compensation and related costs due to the expansion of our data facility in India, event related costs resulting from the expansion of our conference business and outside contributor costs, the aggregate of which increased by $684 thousand.
Cost of service expense attributable to RateWatch decreased by $96 thousand, or 5%, in 2016 as compared to 2015. The decrease was primarily the result of reduced compensation and related and recruiting costs, the aggregate of which decreased by $57 thousand.
Cost of service expense attributable to our business to consumer business decreased by $829 thousand, or 4%, in 2016 as compared to 2015. The decrease was primarily the result of reduced outside contributor costs and revenue share payments made to certain distribution partners, the aggregate of which decreased by $735 thousand. Also contributing to the decline was a reduction in corporate expense allocations totaling approximately $752 thousand resulting from lower compensation related and consulting costs. These decreases were partially offset by increased compensation and related costs totaling approximately $608 thousand resulting from increased headcount.
Sales and marketing
| For the Year Ended December 31, | ||||||||||||||||||||
| Sales and marketing: | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | 5,695,790 | 26 | % | $ | 5,128,918 | 24 | % | 11 | % | ||||||||||
| RateWatch | 1,330,216 | 18 | % | 1,360,826 | 19 | % | -2 | % | ||||||||||||
| Total business to business | 7,026,006 | 24 | % | 6,489,744 | 22 | % | 8 | % | ||||||||||||
| Business to consumer | 8,671,059 | 25 | % | 9,701,005 | 25 | % | -11 | % | ||||||||||||
| Total sales and marketing | $ | 15,697,065 | 25 | % | $ | 16,190,749 | 24 | % | -3 | % | ||||||||||
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Sales and marketing expense attributable to The Deal / BoardEx increased by approximately $567 thousand, or 11%, in 2016 as compared to 2015. The increase was primarily the result of higher compensation and related costs totaling approximately $672 thousand related to increased headcount. This increase was partially offset by reduced consulting fees, which decreased by approximately $146 thousand.
Sales and marketing expense attributable to our RateWatch business decreased by approximately $31 thousand, or 2%, in 2016 as compared to 2015. The decrease was primarily the result of reduced compensation and related costs totaling approximately $49 thousand primarily related to bonus and commission payments.
Sales and marketing expense attributable to our business to consumer business unit decreased by approximately $1.0 million, or 11%, in 2016 as compared to 2015. The decrease was primarily the result of reduced compensation and related costs resulting from decreased headcount, and lower advertising serving, advertising and promotion and credit card processing costs, the aggregate of which decreased by approximately $1.4 million. These cost savings were partially offset by consulting fees which increased by approximately $218 thousand.
General and administrative.
| For the Year Ended December 31, | ||||||||||||||||||||
| General and administrative: | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | 7,245,184 | 33 | % | $ | 7,037,010 | 32 | % | 3 | % | ||||||||||
| RateWatch | 2,605,281 | 36 | % | 2,583,201 | 36 | % | 1 | % | ||||||||||||
| Total business to business | 9,850,465 | 34 | % | 9,620,211 | 33 | % | 2 | % | ||||||||||||
| Business to consumer | 6,306,686 | 18 | % | 5,380,228 | 14 | % | 17 | % | ||||||||||||
| Total general and administrative | $ | 16,157,151 | 25 | % | $ | 15,000,439 | 22 | % | 8 | % | ||||||||||
General and administrative expense attributable to The Deal / BoardEx business increased by approximately $208 thousand, or 3%, in 2016 as compared to 2015. The increase was primarily the result of an increase of approximately $172 thousand of recruiting fees. Also contributing to the cost increase were higher corporate expense allocations totaling approximately $683 thousand resulting from a provision recorded for state and municipal sales tax not collected on sales to our customers or remitted to various states and municipalities, combined with increased professional fees. These cost increases were partially offset by lower expenses resulting from more favorable exchange rates due to the strengthening US Dollar, reduced professional, bad debt and internet access fees, the aggregate of which decreased by approximately $598 thousand.
General and administrative expense attributable to our RateWatch business increased by approximately $22 thousand, or 1%, in 2016 as compared to 2015. The increase was primarily the result of moving costs as they relocated to a new facility, as well as higher internet access and recruiting costs, the aggregate of which increased by approximately $118 thousand. These cost increases were partially offset by a reduction in property tax payments, which decreased by approximately $28 thousand. Also contributing to the decline was a reduction in corporate allocations totaling approximately $61 thousand.
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General and administrative expense attributable to our business to consumer business increased by approximately $1.1 million, or 8%, over the period. The increase was the result of approximately $1.6 million of additional cost related to the operations of MDL, which was acquired on October 31, 2014 and therefore contributed only two months of expense in the prior year period. Excluding the impact of MDL in both periods, general and administrative expense for the year ended December 31, 2015 decreased by approximately $515$926 thousand, or 4%17%, whenin 2016 as compared to the year ended December 31, 2014.2015. The decreaseincrease was primarily the result of the absence of costs in the current year related to the MDL acquisition andan expanded business analytics group designed to a conference that the Company hosted, both of which were incurredprovide management with information needed to improve business results, together with an increase in the prior year period, lower compensation andoccupancy related expense (primarily reduced bonus payments), as well as reduced contributions to TheStreet Foundation, the aggregate of which decreased by approximately $1.3 million. These cost decreases were offset by higher professional, recruiting and tax expense,costs, the aggregate of which increased by approximately $781$281 thousand. Also contributing to the increase was an increase in corporate allocations totaling approximately $804 thousand resulting from a provision recorded for state and municipal sales tax not collected on sales to our customers or remitted to various states and municipalities, combined with increased professional fees.
Depreciation and amortization.
| For the Year Ended December 31, | ||||||||||||||||||||
| Depreciation and amortization: | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | 3,046,018 | 14 | % | $ | 2,698,004 | 12 | % | 13 | % | ||||||||||
| RateWatch | 1,568,915 | 22 | % | 1,114,698 | 15 | % | 41 | % | ||||||||||||
| Total business to business | 4,614,933 | 16 | % | 3,812,702 | 13 | % | 21 | % | ||||||||||||
| Business to consumer | 1,066,630 | 3 | % | 496,392 | 1 | % | 115 | % | ||||||||||||
| Total depreciation and amortization | $ | 5,681,563 | 9 | % | $ | 4,309,094 | 6 | % | 32 | % | ||||||||||
Depreciation and amortization expense increased by approximately $1.1$1.4 million, or 36%32%, over the period. The increase was the result of approximately $952 thousand of additional cost related to the operations of MDL, which was acquired on October 31, 2014 and therefore contributed only two months of expense in the prior year period. Excluding the impact of MDL in both periods, depreciation and amortization expense for the year ended December 31, 2015 increased by approximately $178 thousand, or 6%, when2016 as compared to the year ended December 31, 2014.2015. The increase was primarily the result of catch up amortization expense of approximately $1.5 million related to capitalized software and website development projects.
Impairment of goodwill
| For the Year Ended December 31, | ||||||||||||||||||||
| Impairment of goodwill | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | 11,583,000 | 52 | % | $ | - | 0 | % | N/A | |||||||||||
| RateWatch | - | 0 | % | - | 0 | % | N/A | |||||||||||||
| Total business to business | 11,583,000 | 40 | % | - | 0 | % | N/A | |||||||||||||
| Business to consumer | - | 0 | % | - | 0 | % | N/A | |||||||||||||
| Total Impairment of Goodwill | $ | 11,583,000 | 18 | % | $ | - | 0 | % | N/A | |||||||||||
During the year ended December 31, 2015, the business was managed as a reductionsingle segment where subscription and advertising products were sold throughout the Company, financial results were reviewed on a consolidated basis and separate and discrete financial information was not available. During 2016, the Company reassessed the identification of operating segments due to changes in key personnel, including the Chief Operating Decision Maker, and during the fourth quarter of 2016 began to provide separate and discrete segment financial information. As a result of our impairment testing, we recorded an impairment charge of approximately $11.6 million to The Deal / BoardEx reporting unit.
Change in fair value of contingent consideration.
| Change in fair value of contingent consideration: | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | (1,807,945 | ) | -8 | % | $ | - | N/A | N/A | |||||||||||
| RateWatch | - | N/A | - | N/A | N/A | |||||||||||||||
| Total business to business | (1,807,945 | ) | -6 | % | - | N/A | N/A | |||||||||||||
| Business to consumer | - | N/A | - | N/A | N/A | |||||||||||||||
| Total change in fair value of contingent consideration: | $ | (1,807,945 | ) | -3 | % | $ | - | N/A | N/A | |||||||||||
During the three months ended December 31, 2016, the Company reduced its estimate of the acquisition contingent earn-out payable to the estimated useful lifeformer owners of certain fixed assets acquired from The DealManagement Diagnostics Limited (BoardEx) based upon revised 2017 revenue estimates, a resulting in restructuring and a capitalized Website development project.other charges credit of approximately $1.8 million.
Restructuring and other charges.
| Restructuring and other charges: | 2016 | Percent of Segment Revenue | 2015 | Percent of Segment Revenue | Percent Change | |||||||||||||||
| The Deal / BoardEx | $ | (86,025 | ) | -0 | % | $ | (1,221,224 | ) | -6 | % | -93 | % | ||||||||
| RateWatch | 180,515 | 3 | % | - | N/A | N/A | ||||||||||||||
| Total business to business | 94,490 | 0 | % | (1,221,224 | ) | -4 | % | -108 | % | |||||||||||
| Business to consumer | 865,196 | 3 | % | - | N/A | N/A | ||||||||||||||
| Total restructuring and other charges | $ | 959,686 | 2 | % | $ | (1,221,224 | ) | -2 | % | -179 | % | |||||||||
In August 2015, the Companywe received a one year notice of termination under which the landlord elected to terminate The Deal’s office space lease. As a result, the Company iswe were no longer obligated to fulfill the original full lease term. As such, the Companyterm and we recorded an adjustment to its 2012 Restructuringrestructuring reserve totaling approximately $1.2 million, resulting in a restructuring and other charges credit on the Company’s Consolidated Statements of Operations. The Company is also entitled to receivemillion. Additionally, we received a lease termination feecredit of approximately $583 thousand from the landlord when the office space is vacated. Thewas vacated in August 2016.
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During the three months ended March 31, 2016, the Company did not incur anyannounced the resignation of the Company’s President and Chief Executive Officer, who was also a member of the Company’s Board of Directors. In connection with this resignation, the Company paid severance, continued to and will continue to provide medical coverage for 18 months after the termination date, and incurred recruiting fees, resulting in restructuring and other charges duringof approximately $1.5 million. Additionally, in August 2016 the year ended December 31, 2014.Company received the lease termination fee from the landlord when The Deal’s office space was vacated resulting in a reduction to restructuring and other charges of approximately $583 thousand.
Net Interest IncomeExpense
| For the Year Ended December 31, | ||||||||||||
| 2015 | 2014 | Percent Change | ||||||||||
| Net interest (expense) income | $ | (122,637 | ) | $ | 88,993 | -238 | % | |||||
| For the Year Ended December 31, | ||||||||||||
| 2016 | 2015 | Percent Change | ||||||||||
| Net interest expense | $ | 34,121 | $ | 122,637 | -72 | % | ||||||
Net interest expense decreased by approximately $89 thousand, or 72%, in 2016 as compared to 2015. The change in net interest (expense) income was the result of higher interest income resulting from increased interest rates combined with reduced interest expense related to the accretion of certain accrued expenses that were recorded in connection with prior acquisitions and lower interest income due to reduced marketable security and cash balances.acquisitions.
Provision for Income Taxes
| For the Year Ended December 31, | ||||||||||||
| 2016 | 2015 | Percent Change | ||||||||||
| Provision for income taxes | $ | 269,007 | $ | 1,181,341 | -77 | % | ||||||
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Income tax expense for the year ended December 31, 2015 totaled2016 was approximately $269 thousand, as compared to approximately $1.2 million as compared to income tax expense for the year ended December 31, 2014 totaling approximately $475 thousand,2015, and reflects an effective tax rate of -327%-2% and -14%-327%, respectively. Income tax expense for the years ended December 31, 20152016 and 20142015 primarily relates to the recognition of approximately$130 thousand and $1.2 million, and $441 thousand, respectively, of a deferred tax liability related toassociated with goodwill that is amortized for income tax deductible but not amortizedconstitutes an indefinite lived intangible asset for financial reporting purposes, as well as the recognition of approximately $4$139 thousand and $34$4 thousand, respectively, of income tax expense related to the operations of MDL in certain jurisdictions where there are no net operating losses available to offset taxable income.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders for the year ended December 31, 20152016 totaled approximately $1.9$17.5 million, or $0.06$0.50 per basic and diluted share, as compared to net loss attributable to common stockholders for the year ended December 31, 20142015 totaling approximately $4.2$1.9 million, or $0.12$0.06 per basic and diluted share.
Comparison of Fiscal Years EndedLiquidity and Capital Resources
Our current assets at December 31, 20142016 consisted primarily of cash and 2013cash equivalents and accounts receivable. We do not hold inventory. Our current liabilities at December 31, 2016 consisted primarily of deferred revenue, accrued expenses and accounts payable. At December 31, 2016, our current assets were approximately $28.3 million, 9% less than our current liabilities. With respect to many of our annual business to consumer newsletter subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.
RevenueWe generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for acquisition and operating purposes. As of December 31, 2016, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $23.4 million, representing 30% of total assets. Our cash, cash equivalents and restricted cash primarily consisted of checking accounts and money market funds. Our marketable securities consisted of two municipal auction rate securities issued by the District of Columbia with a fair value of approximately $1.6 million that mature in the year 2038. Our total cash-related position is as follows:
| December 31, 2016 | December 31, 2015 | |||||||
| Cash and cash equivalents | $ | 21,371,122 | $ | 28,445,416 | ||||
| Noncurrent marketable securities | 1,550,000 | 1,590,000 | ||||||
| Current and noncurrent restricted cash | 500,000 | 661,250 | ||||||
| Total cash and cash equivalents, noncurrent marketable securities and current and noncurrent restricted cash | $ | 23,421,122 | $ | 30,696,666 | ||||
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in seven financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions.
| For the Year Ended December 31, | ||||||||||||||||||||
| Revenue: | 2014 | Percent of Total Revenue | 2013 | Percent of Total Revenue | Percent Change | |||||||||||||||
| Subscription services | $ | 48,035,953 | 79 | % | $ | 43,549,359 | 80 | % | 10 | % | ||||||||||
| Media | 13,017,265 | 21 | % | 10,901,052 | 20 | % | 19 | % | ||||||||||||
| Total revenue | $ | 61,053,218 | 100 | % | $ | 54,450,411 | 100 | % | 12 | % | ||||||||||
Subscription services.Subscription services revenueNet cash used in operating activities totaled approximately $2.8 million for the year ended December 31, 2014 increased by approximately $4.5 million, or 10%, when2016, as compared to the year ended December 31, 2013. The increase was the result ofnet cash provided by operating activities totaling approximately $1.6 million of additional revenue related to the operations of MDL since its acquisition. Excluding MDL, revenue$891 thousand for the year ended December 31, 2015. The reduction in net operating cash was primarily the result of an increase in our net loss combined with the change in the fair value of contingent consideration related to our 2014 increasedacquisition of BoardEx, and the change in the balance of deferred revenue. These declines were partially offset by approximately $2.9 million, or 7%, whenthe change in the balances of other liabilities, accrued expenses and other receivables, and an increase in noncash expenses in 2016 as compared to 2015.
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Net cash used in investing activities totaled approximately $3.5 million for the year ended December 31, 2013. The increase was primarily related2016, as compared to a 14% increasenet cash used in investing activities totaling approximately $670 thousand for the weighted-average number of subscriptions, partially offset by a 6% decrease in the average revenue recognized per subscription.year ended December 31, 2015. The increase in the weighted average number of subscriptions was due to new subscribers to the Company’s newsletter products, primarily from the introduction of several new newsletterscash used in the second half of 2013. The decrease in the average revenue recognized per subscription during the periodinvesting activities was primarily the result of the mixmaturity of products sold anda marketable security during the introduction of several newsletter products at lower prices.three months ended March 31, 2015.
Media. Media revenueNet cash used in financing activities totaled approximately $167 thousand for the year ended December 31, 2014 increased by2016, as compared to cash used in financing activities totaling approximately $2.1$4.1 million or 19%, when compared tofor the year ended December 31, 2013.2015. The increasedecrease in net cash used in financing activities was primarily the result of additional ad units and increased pricing on certain units which resulted from higher demand from repeat and non-repeat advertisers. Media revenue includes approximately $8the suspension of cash dividend payments by the Company.
We currently have a total of $500 thousand of barter revenuecash that serves as collateral for an outstanding letter of credit, which cash is classified as restricted. The letter of credit serves as a security deposit for office space in New York City.
We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $5.2 million through December 31, 2017, in respect of the contractual obligations set forth below under “Commitments and Contingencies.”
As of December 31, 2016 we had approximately $160 million of federal and state net operating loss carryforwards. We maintain a full valuation allowance against our deferred tax assets as management concluded that it was more likely than not that we would not realize the benefit of our deferred tax assets by generating sufficient taxable income in future years. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.
In accordance with Section 382 of the Internal Revenue Code, the ability to utilize our net operating loss carryforwards could be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject to limitation.
Treasury Stock
In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million of the Company’s Common Stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock repurchase program, or the Program, under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us), unless after such purchase we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference. During the year ended December 31, 2014, as compared2016 and 2015, the Company did not purchase any shares of Common Stock under the Program. Since inception of the Program, the Company has purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million.
In addition, pursuant to approximately $94 thousandthe terms of barter revenuethe Company’s 2007 Plan, and certain procedures approved by the Compensation Committee of the Board of Directors, in connection with the year endedexercise 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 December 31, 2013.2016, the Company had withheld an aggregate of 1,850,665 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.
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Operating ExpenseCommitments and Contingencies
| For the Year Ended December 31, | ||||||||||||||||||||
| 2014 | Percent of Total Revenue | 2013 | Percent of Total Revenue | Percent Change | ||||||||||||||||
| Operating expense: | �� | |||||||||||||||||||
| Cost of services | $ | 31,730,740 | 52 | % | $ | 27,431,566 | 50 | % | 16 | % | ||||||||||
| Sales and marketing | 15,600,129 | 26 | % | 14,453,465 | 27 | % | 8 | % | ||||||||||||
| General and administrative | 13,946,681 | 23 | % | 12,218,964 | 22 | % | 14 | % | ||||||||||||
| Depreciation and amortization | 3,179,377 | 5 | % | 3,768,536 | 7 | % | -16 | % | ||||||||||||
| Restructuring and other charges | — | — | 385,610 | 1 | % | -100 | % | |||||||||||||
| Loss (gain) on disposition of assets | — | — | 187,434 | 0 | % | -100 | % | |||||||||||||
| Total operating expense | $ | 64,456,927 | $ | 58,445,575 | 10 | % | ||||||||||||||
Cost of services.Cost of services expense increased by approximately $4.3 million, or 16%, over the period. The increase was the resultWe are committed to cash expenditures in an aggregate amount of approximately $862 thousand of additional cost$5.2 million through December 31, 2017, primarily related to operating leases for office space, which expire at various dates through January, 2026. Certain leases contain escalation clauses relating to increases in property taxes and maintenance costs. Rent expense was approximately $2.1 million for each of the operations of MDL since its acquisition combined with transaction related costs. Excluding MDL and transaction related costs, cost of services expense for the yearyears ended December 31, 2014 increased by approximately $3.4 million, or 13%, when compared to2016 and 2015. Additionally, we have agreements with certain of our employees and outside contributors, whose future minimum payments are dependent on the year endedfuture fulfillment of their services thereunder. As of December 31, 2013. The increase was primarily the result2016, total future minimum cash payments are as follows:
| Payments Due by Year | ||||||||||||||||||||||||||||
| Contractual obligations: | Total | 2017 | 2018 | 2019 | 2020 | 2021 | After 2021 | |||||||||||||||||||||
| Operating leases | $ | 9,901,098 | $ | 2,548,668 | $ | 2,382,038 | $ | 1,996,904 | $ | 1,987,382 | $ | 186,294 | $ | 799,812 | ||||||||||||||
| Employment agreement | 2,500,000 | 2,500,000 | — | — | — | — | — | |||||||||||||||||||||
| Outside contributors | 137,500 | 137,500 | — | — | — | — | — | |||||||||||||||||||||
| Total contractual cash obligations | $ | 12,538,598 | $ | 5,186,168 | $ | 2,382,038 | $ | 1,996,904 | $ | 1,987,382 | $ | 186,294 | $ | 799,812 | ||||||||||||||
See Note 10 (Commitments and Contingencies) in Notes to Consolidated Financial Statements for a discussion of increased compensation and related expense due to a 5% increase in average headcount (excluding the impact of MDL headcount), fees paid to outside contributors, consulting fees and recruiting costs, the aggregate of which increased by approximately $4.6 million. These cost increases were partially offset by lower revenue share payments made to certain distribution partners, and reduced computer services and supplies costs, the aggregate of which decreased by approximately $971 thousand.contingencies.
Sales and marketing.Sales and marketing expense increased by approximately $1.1 million, or 8%, over the period. The increase was the resultOff-Balance Sheet Arrangements
As of approximately $289 thousand of additional cost related to the operations of MDL since its acquisition combined with transaction related costs. Excluding MDL and transaction related costs, sales and marketing expense for the year ended December 31, 2014 increased by approximately $858 thousand,2016, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or 6%, when comparedare reasonably likely to the year ended December 31, 2013. The increase was the resulthave a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of higher advertisingoperations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and promotion, employee benefit and bonus payments, public relations and advertisement serving costs, the aggregate of which increased by $1.3 million. These cost increases were partially offset by reduced salary costs due to a 2% decrease in average headcount (excluding the impact of MDL headcount), and lower travel and entertainment costs, the aggregate of which decreased by approximately $503 thousand. Sales and marketing expense includes approximately $8 thousand of barter expense in the year ended December 31, 2014, as compared to approximately $94 thousand in the year ended December 31, 2013.Estimates
General and administrative. General and administrative expense increased by approximately $1.7 million, or 14%, over the period. The increase was the result of approximately $1.5 million of additional cost related to the operations of MDL since its acquisition combined with transaction related costs. Excluding MDL and transaction related costs, general and administrative expense for the year ended December 31, 2014 increased by approximately $265 thousand, or 2%, when compared to the year ended December 31, 2013. The increase was primarily the result of higher compensation expense primarily related to bonus payments and increased employee benefit costs, contributions made by the Company to TheStreet Foundation, costs to host an industry conference and bad debt expense, the aggregate of which increased by approximately $1.0 million. These cost increases were partially offset by reduced professional fees, consulting, tax and occupancy related costs, the aggregate of which decreased by approximately $818 thousand.
Depreciation and amortization.Depreciation and amortization expense decreased by approximately $589 thousand, or 16%, over the period. The decrease was primarily the result of an overall reduced level of capital expenditures over the past few years partially offset by increased amortization expense related to the purchases of MDL and assets from DealFlow Media, Inc.
Restructuring and other charges. The Company did not incur any restructuring and other charges during the year ended December 31, 2014. During the year ended December 31, 2013, the Company recognized restructuring and other charges totaling approximately $386 thousand primarily related to noncash stock-based compensation costs in connection with the accelerated vesting of certain restricted stock units for a terminated employee.
Loss (gain) on disposition of assets.The Company did not incur any loss (gain) during the year ended December 31, 2014. During the year ended December 31, 2013, the Company sold certain non-strategic assets resulting in a loss of approximately $187 thousand.
Net Interest Income
| For the Year Ended December 31, | ||||||||||||
| 2014 | 2013 | Percent Change | ||||||||||
| Net interest income | $ | 88,993 | $ | 209,463 | -58 | % | ||||||
The decrease in net interest income was the result of reduced marketable securities balances, decreased cash due to the acquisition of MDL, lower interest rates, and interest expense related to the accretion of certain accrued expenses that were recorded in connection with prior acquisitions.
Net Loss Attributable to Common Stockholders
Net loss attributable to common stockholders for the year ended December 31, 2014 totaled $4.2 million, or $0.12 per basic and diluted share, compared to net loss attributable to common stockholders totaling $3.8 million, or $0.11 per basic and diluted share, for the year ended December 31, 2013.
Critical Accounting Estimates
General
The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, (“GAAP”).or GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, the following:
Revenue Recognition
We generate our revenue primarily from subscription servicesfees charges to our institutional and media.retail customers and advertising revenue primarily from our flagship website, TheStreet.com.
Subscription services revenue is comprised of subscriptions licenses and license fees for access to securities investment information, stock market commentary, rate services, director and officer profiles, relationship capital management services, and transactional information pertaining to mergers and acquisitions and other changes in the corporate control environment. Subscriptions are charged to customers’ credit cards or are directly billed to corporate subscribers, and are generally billed in advance on a monthly, quarterly or annual basis. We calculate net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to payments for subscription fees for which revenue has not been recognized because services have not yet been provided.
Subscription services revenue is subject to estimation and variability due to the fact that, in the normal course of business, subscribers may for various reasons contact us or their credit card companies to request a refund or other adjustment for a previously purchased subscription. With respect to many of our annual newsletter subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. Accordingly, we maintain a provision for estimated future revenue reductions resulting from expected refunds and chargebacks related to subscriptions for which revenue was recognized in a prior period. The calculation of this provision is based upon historical trends and is reevaluated each quarter. The provision was not material for any of the three years ended December 31, 2016 or 2015.
MediaAdvertising revenue is primarily comprised of fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties,on our subscription and institutional services, and other miscellaneous revenue. Mediaflagship website, TheStreet.com. Advertising revenue is recognized as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured.
Capitalized Software and Website Development Costs
We expense all costs incurred in the preliminary project stage for software developed for internal use and capitalize all external direct costs of materials and services consumed in developing or obtaining internal-use computer software in accordance with Accounting Standards Codification, (“ASC”) 350,Intangibles – Goodwill and Other,(“or ASC 350”).350. In addition, for employees who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent directly on the project, we capitalize payroll and payroll-related costs of such employees incurred once the development has reached the applications development stage. For the years ended December 31, 2015, 20142016 and 2013,2015, we capitalized software development costs totaling approximately $486 thousand, $408$613 thousand and $289$486 thousand, respectively. All costs incurred for upgrades, maintenance and enhancements that do not result in additional functionality are expensed.
We also account for our Website development costs under ASC 350, which provides guidance on the accounting for the costs of development of company Websites, dividing the Website development costs into five stages: (1) the planning stage, during which the business and/or project plan is formulated and functionalities, necessary hardware and technology are determined, (2) the Website application and infrastructure development stage, which involves acquiring or developing hardware and software to operate the Website, (3) the graphics development stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during which the information to be presented on the Website, which may be either textual or graphical in nature, is developed, and (5) the operating stage, during which training, administration, maintenance and other costs to operate the existing Website are incurred. The costs incurred in the Website application and infrastructure stage, the graphics development stage and the content development stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the project is completed and placed into service. For the years ended December 31, 2015, 20142016 and 2013,2015, we capitalized Website development costs totaling approximately $1.8 million, $1.2 million and $443 thousand,$1.8 million, respectively.
Capitalized software and Website development costs are amortized using the straight-line method over the estimated useful life of the software or Website, which varies based upon the project. Total amortization expense was approximately $2.0 million and $1.0 million, $428 thousand and $743 thousand, for the years ended December 31, 2015, 20142016 and 2013,2015, respectively.
Goodwill and Indefinite Lived Intangible Assets
Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Under the provisions of ASC 350, goodwill and indefinite lived intangible assets are required to be tested for impairment on an annual basis and between annual tests whenever circumstances arise that indicate a possible impairment might exist. We perform our annual impairment tests of goodwill and indefinite lived intangible assets as of October 1 each year. Impairment exists when the carrying amount of goodwill andor indefinite lived intangible assets of a reporting unit exceed their implied fair value, resulting in an impairment charge for this excess.
During the year ended December 31, 2015, the business was managed as Single segment and single reporting unit where subscription and advertising products were sold throughout the Company, financial results were reviewed on a consolidated basis and separate and discrete financial information was not available. During 2016, the Company reassessed the identification of operating segments due to changes in key personnel, including the Chief Operating Decision Maker, and during the fourth quarter of 2016 began to provide separate and discrete segment financial information. We evaluatecurrently regard our Company to operate in three distinct operating segments: The Deal / BoardEx, RateWatch and Business to Consumer. These operating segments also represent the Company’s reporting units.
The Company tests goodwill for impairment using a quantitative analysis consisting of a two-step impairment test approach at the Company level, as the Company is considered to operate as a single reporting unit.approach. The first step comparesof our quantitative analysis consists of a comparison of the carrying value of each of our reporting units, including goodwill, to the estimated fair value of each of our reporting units using a market approach for the valuation of our Common Stock, based upon actual prices of the Company’s Common Stock, and the income approach for the estimated fair value of the Company’s outstanding Preferred Shares. The Company also performed an income approach to confirm the reasonableness of these results using the discounted cash flow methodology. If step one resulted in the carrying value of the reporting unit exceeding the fair value of such reporting unit, we would then proceed to step two which would require us to calculate the Company with its bookamount of impairment loss, if any, that we would record for such reporting unit. The calculation of the impairment loss in step two would be equivalent to the reporting unit’s carrying value including goodwill. As outlined in ASC 350, ifof goodwill less the implied fair value of such goodwill.
As discussed below, we also used a reporting unit exceeds its carrying amount, goodwilldiscounted cash flow methodology, or DCF. Our use of a DCF methodology includes estimates of future revenue based upon budget projections and growth rates which take into account estimated inflation rates. We also develop estimates for future levels of gross and operating profits and projected capital expenditures. Our methodology also includes the reporting unit is not considered impaireduse of estimated discount rates based upon industry and the second step of the impairment test is unnecessary. Ascompetitor analysis as well as other factors. The estimates that we concludeduse in our DCF methodology involve many assumptions by management that our goodwill was not impaired as of the valuation date, step two was not performed.are based upon future growth projections.
In conducting our 20152016 annual goodwill impairment test with the assistance of our independent appraisal firm, we first used the market approach for the valuation of our common stockCommon Stock and the income approach for our preferred shares.Preferred Shares. We also performed an income approach by using the discounted cash flow (“DCF”) method to confirmthen confirmed the reasonableness of the resultsoutcome of these two tests by performing an income approach using the common stock market approach. Based on these approaches,DCF. As a result we determined that the Company’s business enterprise valueFair Value (common equity plus preferred equity) to be $107.4$66.0 million as of the valuation date. We
Using the market approach, we first calculated the common equity value using the midpoint of the Company’s high and low common stock prices on the valuation date, as shown in the following figure:table:
| Average Stock Price – October 1, 2015 | ||||||||
| Average Stock Price – October 1, 2016 | ||||||||
| Low stock price | $ | 1.60 | $ | 1.10 | ||||
| High stock price | $ | 1.68 | $ | 1.13 | ||||
| Average stock price | $ | 1.64 | $ | 1.115 | ||||
We multiplied the average stock price of $1.64$1.115 by the 34,856,369 common shares35,254,962 Common Shares outstanding, indicating a common equity value of $57.2$39.3 million on a non-controlling basis. In order to determine the value of the common equity on a controlling basis, a control premium was applied. We searchedreviewed the FactSet MergerStat/BVR Control Premium Study for all transactions involving U.S. companies during the past 12 months, and for transactions involving U.S. companies with the same SIC code as the Company over various time periods. TheAlthough the data indicated a wide range of controlmarket participant acquisition premiums, and we selected 20 percent20% as an appropriate controlmarket participant acquisition premium. Applying a controlthis premium of 20 percent20% resulted in a value of the common equity on a controlling basis of $68.6$47.2 million.
In additionWe then used the income approach to Common Stock, wevalue our Preferred Shares, which have preferred stock with a liquidation value of $55.0 million. With the assistance of our third party valuation firm, we used the income approach to computeWe computed the fair value of the Preferred Stock to be $38.8 million which we added to the fair value of the Common Stock. The resulting enterprise value of $107.4 million represents the value of the Company on a controlling basis. This value was greater than the carrying value of $70.2 million, indicating our goodwill was not impaired as of the October 1, 2015 valuation date.
$23.7 million. The fair value of our outstanding preferred sharesPreferred Shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to our preferred stock,Preferred Stock, we also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event (as defined in the Certificate of Designation of Series B Preferred Stock). Additionally, the holders of the preferred sharesPreferred Shares are entitled to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and, provided certain preferred share ownership levels are maintained, are entitled to representation on our board of directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including Common Stock (with certain exceptions), and any increases in the per-share amount of dividends payable to the holders of the Common Stock.
We then added the $23.7 million fair value of the Preferred Stock with the $47.2 million value of the Common Stock which resulted in an Fair Value of $70.9 million on a controlling basis.
The Company then performed an income approach using the DCF to confirm the reasonableness of the $70.9 million Fair Value, which resulted in an indicated value of $60.8 million.
We then concluded the Fair Value analysis for the Company on an aggregated basis by taking the average of the $70.9 million Fair Value derived from the first test and the $60.8 million value derived from the second test, resulting in an Fair Value for the Company of $66.0 million. Once we determined the Fair Value of the Company, the Fair Value of each of the three reporting units was based on the proportion of each reporting unit’s indicated Fair Value to the indicated Fair Value of the Company.
As the Company switched from one to three reporting units during the fourth quarter of 2016, we allocated the Company’s $41.4 million of goodwill to the three reporting units in proportion to the reporting units’ relative business Fair Values as of October 1, 2016 resulting in goodwill for The Deal / BoardEx, RateWatch and Business to Consumer reporting units totaling approximately $14.1 million, $5.8 million and $21.5 million, respectively.
Based on our analysis, we concluded that The Deal / BoardEx reporting unit goodwill was impaired as of the valuation date, while the RateWatch and Business to Consumer reporting units’ were not impaired by approximately 16% and 33%, respectively.
| 31 |
During the fourth quarter of 2016, the Company’s stock price declined from an average price of $1.115 on the valuation date to $0.855 as of December 31, 2016. This triggering event resulted in the Company performing a second impairment review as of December 31, 2016. We calculated the common equity value using the midpoint of the Company’s high and low common stock prices on December 31, 2016, as shown in the following table:
| Average Stock Price – December 31, 2016 | ||||
| Low stock price | $ | 0.83 | ||
| High stock price | $ | 0.88 | ||
| Average stock price | $ | 0.855 | ||
We multiplied the average stock price of $0.855 by the 35,421,217 common shares outstanding, indicating a common equity value of $30.3 million on a non-controlling basis. We then applied the same premium of 20% resulting in a value of the common equity on a controlling basis of $36.3 million, and the same fair value of the Preferred Stock of $23.7 million resulting in an Fair Value of $60.0 million on a controlling basis as of December 31, 2016. Once we determined the Fair Value of the Company, the Fair Value of each of the three reporting units was based on the proportion of each reporting unit’s indicated Fair Value to the indicated Fair Value of the Company. Based on this analysis, we concluded that The Deal / BoardEx reporting unit goodwill was impaired as of December 31, 2016, while the RateWatch and Business to Consumer reporting units’ were not impaired by approximately 26% and 21%, respectively.
As a result of our impairment testing, we recorded an impairment charge of approximately $11.6 million for The Deal / BoardEx reporting unit.
In conducting our 20152016 annual indefinite lived intangible asset impairment test, with the assistance of our independent appraisal firm, we determined its fair value using the relief-from-royalty method. This analysis calculated the fair value as the present valueThe application of the relief-from-royalty method requires the estimation of future expenses avoidedincome and the conversion of that income into an estimate of value. Future income related to a trade name is measured in terms of the savings that a company realizes by owning the indefinite lived trade name, rather than havingthereby avoiding royalty payments to licenseuse the trade name in the absence of ownership. To calculate the royalty savings, we estimate (i) future revenue attributable to the RateWatch trade name; (ii) a royalty rate that a hypothetical licensee would be willing to pay for its use.use; and (iii) a discount rate to reduce future after-tax royalty savings to present value. We selected an appropriate royalty rate by reviewing licensingsearching various transaction databases for publicly disclosed transactions forto license similar assets between service businesses, with a focus on companies that operate in industries similar to ours.RateWatch. Based upon the analysis, we concluded that the book value of the indefinite lived trade name was not impaired as of the October 1, 20152016 valuation date.date by approximately 29%.
Determining the fair value of goodwill or other intangible assets with indefinite lives involves the use of significant estimates and assumptions.Theseassumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate market comparables.Wecomparables. We base our fair value estimates on assumptions believed to be reasonable.However,reasonable. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates.
A decrease in the price of our Common Stock, or changes in the estimated value of our preferred shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to our financial position and results of operations.
Additionally, we evaluate the remaining useful lives of intangible assets each year to determine whether events or circumstances continue to support their useful life. There have been no changes in useful lives of intangible assets for each period presented.
| 32 |
Long-Lived Assets
We evaluateThe Company evaluates long-lived assets, including amortizable identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Investments
We believe that conservative investment policies are appropriate and we are not motivated to strive for aggressive spreads above Treasury rates. Preservation of capital is of foremost concern, and by restricting investments to investment grade securities of relatively short maturities, we believe that our capital will be largely protected from severe economic conditions or drastic shifts in interest rates. A high degree of diversification adds further controls over capital risk.
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in seven financial institutions and we perform periodic evaluations of the relative credit standing of these institutions.
As of December 31, 2015,2016, our cash, cash equivalents and restricted cash primarily consisted of checking accounts and money market funds and checking accounts.
funds. As of December 31, 2016 and 2015, marketable securities consist of two municipal auction rate securities (“ARS”) issued by the District of Columbia with a cost basis of approximately $1.9 million and a fair value of approximately $1.6 million. As of December 31, 2014, marketable securities also included an investment grade corporate bond, and the aggregate cost basis of these marketable securities was approximately $3.9 million and the aggregate fair value was approximately $3.6 million. The decrease in marketable securities was due to our non-reinvesting the proceeds as securities matured.$1.6 million, respectively. With the exception of the ARS, Company policy limits the maximum maturity for any investment isto three years. The ARS mature in the year 2038. We accountThe Company accounts for ourits marketable securities in accordance with the provisions of ASC 320-10. We classifyThe 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.loss as they are deemed temporary. Additionally, as of December 31, 2016 and 2015, the Company has a total of approximately $500 thousand and $661 thousand, respectively, of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City.
During 2008, we made an investment in Debtfolio, Inc. (‘(“Debtfolio”), doing business as Geezeo, an online financial management solutions provider for banks and credit unions. The investment totaled approximately $1.9 million for an 18.5% ownership stake. Additionally, we incurred approximately $0.2 million of legal fees in connection with this investment. During the first quarter of 2009, the carrying value of our investment was written down to fair value based upon an estimate of the market value of our equity in light of Debtfolio’s efforts to raise capital at the time from third parties. The impairment charge approximated $1.5 million. During the three months ended June 30, 2010, we determined it was necessary to record a second impairment charge totaling approximately $555 thousand, writing the value of the investment to zero. This was deemed necessary by management based upon its consideration of Debtfolio’s continued negative cash flow from operations, current financial position and lack of current liquidity. In October 2011, Debtfolio repurchased our ownership stake in exchange for a subordinated promissory note in the aggregate principal amount of approximately $555 thousand payable on October 31, 2014. On October 28, 2014, a revised subordinated promissory note with revised repayment terms was agreed to which required cash payments totaling $255 thousand during 2014, and eight quarterly installments of approximately $48 thousand plus 5% simple interest during 2015 and 2016. As of December 31, 2015,2016, all required payments have been received. As of December 31, 2015received and 2014, we maintain a full valuation allowance against this subordinatedthe promissory note due to the uncertainty of eventual collection.has been paid in full.
See Note 54 to Consolidated Financial Statements (Fair Value Measurements) for additional information about the investment of our cash.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718-10,Share Based Payment Transactions(“ASC 718-10”). This requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values.
Stock-based compensation expense recognized for the years ended December 31, 2015, 20142016 and 20132015 was approximately $1.6 million $1.8 million(inclusive if $105 thousand of noncash compensation expense charged to restructuring and $2.1other charges) and $1.6 million, respectively. As of December 31, 2015,2016, there was approximately $1.8$1.9 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 1.91.8 years.
Stock-based compensation expense recognized in our consolidated statements of operations for the years ended December 31, 2015, 20142016 and 20132015 includes compensation expense for all share-based payment awards based upon the estimated grant date fair value. We recognize compensation expense for stock-based payment awards on a straight-line basis over the requisite service period of the award. As stock-based compensation expense recognized in the years ended December 31, 2015, 20142016 and 20132015 is based upon awards ultimately expected to vest, it has been reduced for estimated forfeitures. We estimate forfeitures at the time of grant which are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We estimate the value of stock option awards on the date of grant using the Black-Scholes option-pricing model. This determination is affected by our 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, we used a historical analysis of the volatility of our 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 our stock option awards. The dividend yield assumption was based on the history and expectation of future dividend payouts. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. Our estimate of pre-vesting forfeitures is primarily based on our 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 years ended December 31, 2016 and 2015 2014was $0.37 and 2013 was $0.39, $0.44 and $0.63, respectively, using the Black-Scholes model with the following weighted-average assumptions:
| For the Year Ended December 31, | For the Year Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2016 | 2015 | ||||||||||||||||
| Expected option lives | 3.0 years | 3.6 years | 3.7 years | 4.5 years | 3.0 years | |||||||||||||||
| Expected volatility | 35.45 | % | 35.54 | % | 40.11 | % | 34.87 | % | 35.45 | % | ||||||||||
| Risk-free interest rate | 0.97 | % | 1.11 | % | 0.85 | % | 1.12 | % | 0.97 | % | ||||||||||
| Expected dividends | 4.59 | % | 4.22 | % | 0.00 | % | 0.00 | % | 4.59 | % | ||||||||||
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 weighted-average grant date fair value per share of restricted stock units granted during the years ended December 31, 2016 and 2015 was $1.30 and $2.19, respectively.
For both option and restricted stock unit awards, 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 years ended December 31, 2015, 2014 and 2013 was $2.19, $2.23 and $2.06, respectively.
The impact of stock-based compensation expense has been significant to reported results of operations and per share amounts. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. For each 1% increase in the risk-free interest rate used in the Black-Scholes option-pricing model, the resulting estimated impact to our total operating expense for the year ended December 31, 20152016 would have caused an increase of approximately $20,000. For each 10% increase in the expected volatility used in the Black-Scholes option-pricing model, the resulting estimated impact to our total operating expense for the year ended December 31, 20152016 would have caused an increase of approximately $119,000.$98,000. Because options are expensed over three to fivefour years from the date of grant, the foregoing estimated increases include potential expense for options granted during prior years. In calculating the amount of each variable that is included in the Black-Scholes options-pricing model (i.e., option exercise price, stock price, option term, risk free interest rate, annual dividend rate and volatility), the weighted average of such variable for all grants issued in a given year was used.
If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
Income Taxes
We account for our 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. As of December 31, 20152016 and 2014,2015, we maintain a full valuation allowance against our deferred tax assets due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in the future and our assessment that the realization of the deferred tax assets did not meet the “more likely than not” criterion under ASC 740-10. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.
ASC 740-10 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. As of December 31, 20152016 and 2014,2015, no liability for unrecognized tax benefits was required to be recorded. Interest costs related to unrecognized tax benefits would be classified within “Net interest expense” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative” expense. There is no interest expense or penalty related to tax uncertainties reported in the consolidated statements of operations for the years ended December 31, 2016 or 2015.
Deferred tax assets pertaining to windfall tax benefits on the exercise of share awards and the corresponding credit to additional paid-in capital are recorded if the related tax deduction reduces tax payable. We have elected the “with-and-without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to us.
We file income tax returns in the United States (federal), and in various state and local jurisdictions, as well as in the United Kingdom and India. In most instances, we are no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2013, and are not currently under examination by any federal, state or local jurisdiction. It is not anticipated that unrecognized tax benefits will significantly change in the next twelve months.
Contingencies
Accounting for contingencies, including those matters described in the Commitments and Contingencies section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimate of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. We would record a material loss contingency in our consolidated financial statements if the loss is both probable of occurring and reasonably estimated. We regularly review contingencies and as new information becomes available may, in the future, adjust our associated liabilities.
Credit Risk of Customers and Business Concentrations
OurThe Company’s customers are primarily concentrated in the United States and Europe, and we carry accounts receivable balances. We performThe Company performs ongoing credit evaluations, generally dodoes not require collateral, and establishestablishes 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.
For the years ended December 31, 2015, 20142016 and 2013,2015, no single customer accounted for 10% or more of consolidated revenue. As of December 31, 20152016 and 2014,2015, no single customer accounted for more than 10% of our gross accounts receivable balance.
Liquidity and Capital Resources
Our current assets at December 31, 2015 consisted primarily of cash and cash equivalents and accounts receivable. We do not hold inventory. Our current liabilities at December 31, 2015 consisted primarily of deferred revenue, accrued expenses and accounts payable. At December 31, 2015, our current assets were approximately $35.7 million, 6 percent greater than our current liabilities. With respect to many of our annual newsletter subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.
We generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for acquisition and operating purposes. As of December 31, 2015, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $30.7 million, representing 30% of total assets. Our cash, cash equivalents and restricted cash primarily consisted of money market funds and checking accounts. Our marketable securities consisted of two municipal auction rate securities issued by the District of Columbia with a fair value of approximately $1.6 million that mature in the year 2038. Our total cash-related position is as follows:
| December 31, 2015 | December 31, 2014 | |||||||
| Cash and cash equivalents | $ | 28,445,416 | $ | 32,459,009 | ||||
| Current and noncurrent marketable securities | 1,590,000 | 3,569,240 | ||||||
| Current and noncurrent restricted cash | 661,250 | 1,301,000 | ||||||
| Total cash and cash equivalents, current and noncurrent marketable securities and current and noncurrent restricted cash | $ | 30,696,666 | $ | 37,329,249 | ||||
Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in seven financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions.
Net cash provided by operating activities totaled approximately $891 thousand for the year ended December 31, 2015, as compared to net cash provided by operating activities totaling approximately $3.6 million for the year ended December 31, 2014. The reduction in net cash provided by operating activities was primarily the result of changes in the balances of accrued expenses, other liabilities, deferred revenue, other receivables, other current liabilities, prepaid expenses and other current assets and accounts receivable over the periods. These declines were partially offset by the reduction in the Company’s net loss and increased noncash expenses over the periods.
Net cash used in investing activities totaled approximately $670 thousand for the year ended December 31, 2015, as compared to net cash used in investing activities totaling approximately $12.4 million for the year ended December 31, 2014. The reduction in net cash used in investing activities was primarily the result of the acquisition of Management Diagnostics Limited in the prior year period and a reduction in restricted cash, partially offset by fewer maturities of marketable securities and increased capital expenditures.
Net cash used in financing activities totaled approximately $4.1 million for the year ended December 31, 2015, essentially flat when compared to the year ended December 31, 2014. Year-over-year changes included a decrease in the shares withheld on RSU vesting to pay for withholding taxes offset by a reduction in the proceeds received from the exercise of stock options.
We currently have a total of approximately $661 thousand of cash that serves as collateral for outstanding letters of credit, which cash is classified as restricted. The letters of credit serve as security deposits for office space in New York City.
We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $5.2 million through December 31, 2016, in respect of the contractual obligations set forth below under “Commitments and Contingencies.”
As of December 31, 2015 we had approximately $154 million of federal and state net operating loss carryforwards. We maintain a full valuation allowance against our deferred tax assets as management concluded that it was more likely than not that we would not realize the benefit of our deferred tax assets by generating sufficient taxable income in future years. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.
In accordance with Section 382 of the Internal Revenue Code, the ability to utilize our net operating loss carryforwards could be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject to limitation.
Treasury Stock
In December 2000, our Board of Directors authorized the repurchase of up to $10 million of our Common Stock, from time to time, in private purchases or in the open market. In February 2004, our Board of Directors approved the resumption of the stock repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary in order for us to repurchase our Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us), unless after such purchase we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference. During the years ended December 31, 2015 and 2014, we did not purchase any shares of Common Stock under the Program. Since inception of the Program, we have purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million.
In addition, pursuant to the terms of our 2007 Performance Incentive Plan (the “2007 Plan”), and certain procedures adopted by the Compensation Committee of our Board of Directors, in connection with the exercise of stock options by certain of our employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, we may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through December 31, 2015, we had withheld an aggregate of 1,670,623 shares which have been recorded as treasury stock.
We also received an aggregate of 208,270 shares as partial settlement of the working capital and debt adjustment from the acquisition of Corsis Technology Group II LLC, and 3,338 shares as partial settlement of the working capital adjustment from the acquisition of Kikucall, Inc. These shares have also been recorded as treasury stock.
Commitments and Contingencies
We are committed to cash expenditures in an aggregate amount of approximately $5.2 million through December 31, 2016, primarily related to operating leases for office space, which expire at various dates through January, 2026. Certain leases contain escalation clauses relating to increases in property taxes and maintenance costs. Rent expense was approximately $2.1 million, $1.8 million and $1.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. Additionally, we have agreements with certain of our outside contributors, whose future minimum payments are dependent on the future fulfillment of their services thereunder. As of December 31, 2015, total future minimum cash payments are as follows:
| Payments Due by Year | ||||||||||||||||||||||||||||
| Contractual obligations: | Total | 2016 | 2017 | 2018 | 2019 | 2020 | After 2020 | |||||||||||||||||||||
| Operating leases | $ | 12,073,785 | $ | 2,566,802 | $ | 2,419,444 | $ | 2,117,147 | $ | 1,996,904 | $ | 1,987,382 | $ | 986,106 | ||||||||||||||
| Employment agreement | 5,000,000 | 2,500,000 | 2,500,000 | — | — | — | — | |||||||||||||||||||||
| Outside contributors | 137,500 | 137,500 | — | — | — | — | — | |||||||||||||||||||||
| Total contractual cash obligations | $ | 17,211,285 | $ | 5,204,302 | $ | 4,919,444 | $ | 2,117,147 | $ | 1,996,904 | $ | 1,987,382 | $ | 986,106 | ||||||||||||||
Future minimum cash payments for the year ended December 31, 2016 related to operating leases have been reduced by approximately $488 thousand related to payments to be received related to the sublease of office space.
See Note 11 (Commitments and Contingencies) in Notes to Consolidated Financial Statements for a discussion of contingencies.
NewRecent Accounting Pronouncements
See Note 1 in Notes to Consolidated Financial Statements for newrecent accounting pronouncements impacting the Company.Company, which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We believe that our market risk exposures are immaterial as we do not have instruments for trading purposes, and reasonable possible near-term changes in market rates or prices will not result in material near-term losses in earnings, material changes in fair values or cash flows for all instruments.
We maintain all of our cash, cash equivalents and restricted cash in sevenfederally insured financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions. However, no assurances can be given that the third party institutions will retain acceptable credit ratings or investment practices.
Following our acquisition of MDL,BoardEx, we have greater exposure to fluctuations in foreign currency exchange rates, in particular with respect to the British pound. Accordingly, our results of operations and cash flows are subject to fluctuations due to changes in exchange rates. Fluctuations in currency exchange rates could result in translation gains and losses when we consolidate our results and harm our business. Because we conduct a growing portion of our business outside the U.S. but report our results in U.S. dollars, we face exposure to adverse movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. For example, if the U.S. dollar strengthens relative to the British pound, our non-U.S. revenue and operating results would be adversely affected when translated into U.S. dollars. Conversely, a decline in the U.S. dollar relative to the British pound would increase our non-U.S. revenue and operating results when translated into U.S. dollars. We do not engage in currency hedging or have any positions in derivative instruments to hedge our currency risk.
The effect of a 10% adverse change in exchange rates would have resulted in an approximate $972$990 thousand reduction to 20152016 revenue, with an offsetting reduction to 20152016 operating expenses of $544$680 thousand, and a decrease in the value of the Company’s assets and liabilities of approximately $447 thousand$2.5 million and $529$487 thousand, respectively.
| 36 |
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statementsThe information required by this item are includedis incorporated by reference to the consolidated financial statements and accompanying notes set forth in Item 15 of this Report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
| (a) | Disclosure Controls and Procedures. |
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, (“or Exchange Act”)Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our interim chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, with the participation of our interim chief executive officer (our principal executive officer) and chief financial officer (our principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 131-15(e) and 15d-15(e)) as of December 31, 2015.2016. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of December 31, 2015.2016.
| (b) | Management’s Annual Report on Internal Control over Financial Reporting. |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Internal control over financial reporting may not prevent or detect misstatements due to its inherent limitations. Management's projections of any evaluation of the effectiveness of internal control over financial reporting as to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 20152016 and in making this assessment used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework) in accordance with the standards of the Public Company Accounting Oversight Board (United States). Based on the foregoing evaluation, our management concluded that, as of December 31, 2015,2016, our internal control over financial reporting was effective.
This Annual Report does not include a report of our independent registered public accounting firm regarding our internal control over financial reporting because we are a smaller reporting company and not subject to that requirement.
| (c) | Changes in Internal Control Over Financial Reporting |
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 20152016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been independently audited by BDO USA, LLP, an independent registered public accounting firm, and their attestation is included herein.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TheStreet, Inc.
New York, New York
We have audited TheStreet, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). TheStreet, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, TheStreet, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015 and our report dated March 9, 2016 expressed an unqualified opinion.
/s/ BDO USA, LLP
New York, New York
March 9, 2016
NoneNone.
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement for our 20162017 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report, (the “Proxy Statement”).or the Proxy Statement.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Other than the information provided below, theThe information required by this Item is incorporated herein by reference to the Proxy Statement.
Equity Compensation Plan Information
Under the terms of the 1998 Stock Incentive Plan (the “1998 Plan”), 8,900,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, restricted stock, deferred stock, restricted stock units, or any combination thereof. Under the terms of the 2007 Plan, 7,750,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards. The 2007 Plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall select in its discretion or delegate management to select. Only employees of the Company are eligible to receive incentive stock options. Awards generally vest over a three- to five-year period and stock options generally have terms of five years. The following table sets forth certain information, as of December 31, 2015, concerning shares of Common Stock authorized for issuance under the 2007 Plan.
| Number of securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,572,571 | $ | 1.35 | 1,818,675 | * | |||||||
| Equity compensation plans not approved by security holders** | 1,625,360 | $ | 1.77 | - | ||||||||
| |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the Proxy Statement.
Item 15. Exhibits, Financial Statement Schedules.
| (a) | 1. | Consolidated Financial Statements: |
| See TheStreet, Inc. Index to Consolidated Financial Statements on page F-1. | ||
| 2. | Consolidated Financial Statement Schedules: | |
| See TheStreet, Inc. Index to Consolidated Financial Statements on page F-1. | ||
| 3. | Exhibits: |
Incorporated by reference to the Exhibit Index immediately preceding the exhibits attached to this Annual Report on Form 10-K.
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TheStreet, Inc. | |||
| Date: March | By: | /s/ | |
| Name: | |||
| Title: |
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and appoints Lawrence S. Kramer and Eric Lundberg, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ | Chief Executive Officer | |||
Director (principal executive officer) | March | |||
| (David Callaway) | ||||
| /s/ Eric Lundberg | Chief Financial Officer (principal financial and accounting officer) | March 20, 2017 | ||
| (Eric Lundberg) | | |||
| /s/ | March | |||
| ( | | |||
| /s/ James J. Cramer | Director | March | ||
| (James J. Cramer) | ||||
| /s/ Bowers W. Espy | Director | March | ||
| (Bowers W. | ||||
| /s/ Sarah Fay | Director | March | ||
| (Sarah Fay) | ||||
| /s/ Stephen R. Zacharias | Director | March | ||
| (Stephen R. Zacharias) | ||||
| /s/ Betsy Morgan | Director | March 20, 2017 | ||
| (Betsy Morgan) |
THESTREET, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
| F-1 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TheStreet, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of TheStreet, Inc. as of December 31, 20152016 and 20142015 and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the threetwo years in the period ended December 31, 2015.2016. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TheStreet, Inc. at December 31, 20152016 and 2014,2015, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2015,2016, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), TheStreet, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 9, 2016 expressed an unqualified opinion thereon.
| /s/ BDO USA, LLP | |
| New York, New York | |
| March |
F-2
| F-2 |
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||||||||||
| 2015 | 2014 | 2016 | 2015 | |||||||||||||
| assets | ||||||||||||||||
| Current Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 28,445,416 | $ | 32,459,009 | $ | 21,371,122 | $ | 28,445,416 | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $357,417 as of December 31, 2015 and $318,141 as of December 31, 2014 | 5,102,464 | 5,103,899 | ||||||||||||||
| Marketable securities | - | 2,009,240 | ||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $316,204 as of December 31, 2016 and $357,417 as of December 31, 2015 | 5,119,959 | 5,102,464 | ||||||||||||||
| Other receivables | 790,148 | 549,933 | 358,266 | 790,148 | ||||||||||||
| Prepaid expenses and other current assets | 1,205,708 | 987,693 | 1,416,956 | 1,205,708 | ||||||||||||
| Restricted cash | 161,250 | 639,750 | - | 161,250 | ||||||||||||
| Total current assets | 35,704,986 | 41,749,524 | 28,266,303 | 35,704,986 | ||||||||||||
| Property and equipment, net of accumulated depreciation and amortization of $4,804,411 as of December 31, 2015 and $4,003,538 as of December 31, 2014 | 2,773,737 | 2,926,825 | ||||||||||||||
| Noncurrent Assets: | ||||||||||||||||
| Property and equipment, net of accumulated depreciation and amortization of $5,682,286 as of December 31, 2016 and $4,804,411 as of December 31, 2015 | 3,550,007 | 2,773,737 | ||||||||||||||
| Marketable securities | 1,590,000 | 1,560,000 | 1,550,000 | 1,590,000 | ||||||||||||
| Other assets | 329,885 | 77,052 | 285,843 | 329,885 | ||||||||||||
| Goodwill | 43,318,670 | 44,810,467 | 29,183,141 | 43,318,670 | ||||||||||||
| Other intangibles, net of accumulated amortization of $15,674,328 as of December 31, 2015 and $12,896,782 as of December 31, 2014 | 18,674,376 | 20,147,209 | ||||||||||||||
| Other intangibles, net of accumulated amortization of $20,134,178 as of December 31, 2016 and $15,674,328 as of December 31, 2015 | 15,127,818 | 18,674,376 | ||||||||||||||
| Restricted cash | 500,000 | 661,250 | 500,000 | 500,000 | ||||||||||||
| Total assets | $ | 102,891,654 | $ | 111,932,327 | $ | 78,463,112 | $ | 102,891,654 | ||||||||
| liabilities and stockholders’ equity | ||||||||||||||||
| Current Liabilities: | ||||||||||||||||
| Accounts payable | $ | 2,494,341 | $ | 2,474,737 | $ | 2,526,034 | $ | 2,494,341 | ||||||||
| Accrued expenses | 5,161,981 | 6,279,082 | 5,115,558 | 5,161,981 | ||||||||||||
| Deferred revenue | 24,738,780 | 26,427,816 | 22,476,962 | 24,738,780 | ||||||||||||
| Other current liabilities | 1,235,551 | 1,241,508 | 983,799 | 1,235,551 | ||||||||||||
| Total current liabilities | 33,630,653 | 36,423,143 | 31,102,353 | 33,630,653 | ||||||||||||
| Noncurrent Liabilities: | ||||||||||||||||
| Deferred tax liability | 1,906,295 | 728,899 | 2,036,487 | 1,906,295 | ||||||||||||
| Other liabilities | 5,360,467 | 6,910,175 | 3,274,816 | 5,360,467 | ||||||||||||
| Total liabilities | 40,897,415 | 44,062,217 | 36,413,656 | 40,897,415 | ||||||||||||
| Stockholders’ Equity | ||||||||||||||||
| Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of December 31, 2015 and December 31, 2014; the aggregate liquidation preference as of December 31, 2015 and December 31, 2014 totals $55,000,000 | 55 | 55 | ||||||||||||||
| Common stock; $0.01 par value; 100,000,000 shares authorized; 42,458,779 shares issued and 35,123,132 shares outstanding as of December 31, 2015, and 41,967,369 shares issued and 34,727,641 shares outstanding as of December 31, 2014 | 424,588 | 419,674 | ||||||||||||||
| Stockholders’ Equity: | ||||||||||||||||
| Convertible preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of December 31, 2016 and December 31, 2015; the aggregate liquidation preference as of December 31, 2016 and December 31, 2015 totals $55,000,000 | 55 | 55 | ||||||||||||||
| Common stock; $0.01 par value; 100,000,000 shares authorized; 42,936,906 shares issued and 35,421,217 shares outstanding as of December 31, 2016, and 42,458,779 shares issued and 35,123,132 shares outstanding as of December 31, 2015 | 429,369 | 424,588 | ||||||||||||||
| Additional paid-in capital | 269,524,415 | 271,943,049 | 271,143,445 | 269,524,415 | ||||||||||||
| Accumulated other comprehensive loss | (1,999,026 | ) | (227,476 | ) | (5,898,305 | ) | (1,999,026 | ) | ||||||||
| Treasury stock at cost 7,335,647 shares as of December 31, 2015 and 7,239,728 shares as of December 31, 2014 | (13,056,541 | ) | (12,908,943 | ) | ||||||||||||
| Treasury stock at cost 7,515,689 shares as of December 31, 2016 and 7,335,647 shares as of December 31, 2015 | (13,211,141 | ) | (13,056,541 | ) | ||||||||||||
| Accumulated deficit | (192,899,252 | ) | (191,356,249 | ) | (210,413,967 | ) | (192,899,252 | ) | ||||||||
| Total stockholders’ equity | 61,994,239 | 67,870,110 | 42,049,456 | 61,994,239 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 102,891,654 | $ | 111,932,327 | $ | 78,463,112 | $ | 102,891,654 | ||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
F-3
| F-3 |
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended December 31, | ||||||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Net revenue: | ||||||||||||
| Subscription services | $ | 55,205,507 | $ | 48,035,953 | $ | 43,549,359 | ||||||
| Media | 12,450,393 | 13,017,265 | 10,901,052 | |||||||||
| Total net revenue | 67,655,900 | 61,053,218 | 54,450,411 | |||||||||
| Operating expense: | ||||||||||||
| Cost of services (exclusive of depreciation and amortization shown separately below) | 33,615,867 | 31,730,740 | 27,431,566 | |||||||||
| Sales and marketing | 16,190,749 | 15,600,129 | 14,453,465 | |||||||||
| General and administrative | 15,000,439 | 13,946,681 | 12,218,964 | |||||||||
| Depreciation and amortization | 4,309,094 | 3,179,377 | 3,768,536 | |||||||||
| Restructuring and other charges | (1,221,224 | ) | — | 385,610 | ||||||||
| Loss on disposition of assets | — | — | 187,434 | |||||||||
| Total operating expense | 67,894,925 | 64,456,927 | 58,445,575 | |||||||||
| Operating loss | (239,025 | ) | (3,403,709 | ) | (3,995,164 | ) | ||||||
| Net interest (expense) income | (122,637 | ) | 88,993 | 209,463 | ||||||||
| Net loss before income taxes | (361,662 | ) | (3,314,716 | ) | (3,785,701 | ) | ||||||
| Provision for income taxes | 1,181,341 | 475,161 | — | |||||||||
| Net loss | (1,543,003 | ) | (3,789,877 | ) | (3,785,701 | ) | ||||||
| Preferred stock cash dividends | 385,696 | 385,696 | — | |||||||||
| Net loss attributable to common stockholders | $ | (1,928,699 | ) | $ | (4,175,573 | ) | $ | (3,785,701 | ) | |||
| Basic and diluted net loss per share: | ||||||||||||
| Net loss attributable to common stockholders | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.11 | ) | |||
| Cash dividends declared and paid per common share | $ | 0.10 | $ | 0.10 | $ | — | ||||||
| Weighted average basic and diluted shares outstanding | 34,839,233 | 34,370,843 | 33,725,317 | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the Years Ended December 31, | ||||||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Net loss | $ | (1,543,003 | ) | $ | (3,789,877 | ) | $ | (3,785,701 | ) | |||
| Foreign currency translation (loss) gain | (1,797,794 | ) | 58,768 | — | ||||||||
| Unrealized gain (loss) on marketable securities | 26,244 | (108,061 | ) | (49,189 | ) | |||||||
| Comprehensive loss | $ | (3,314,553 | ) | $ | (3,839,170 | ) | $ | (3,834,890 | ) | |||
| For the Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Revenue: | ||||||||
| Business to business | $ | 29,323,401 | $ | 28,992,120 | ||||
| Business to consumer | 34,176,130 | 38,663,780 | ||||||
| Total revenue | 63,499,531 | 67,655,900 | ||||||
| Operating expense: | ||||||||
| Cost of services (exclusive of depreciation and amortization shown separately below) | 32,440,598 | 33,615,867 | ||||||
| Sales and marketing | 15,697,065 | 16,190,749 | ||||||
| General and administrative | 16,157,151 | 15,000,439 | ||||||
| Depreciation and amortization | 5,681,563 | 4,309,094 | ||||||
| Impairment of Goodwill | 11,583,000 | — | ||||||
| Change in fair value of contingent consideration | (1,807,945 | ) | — | |||||
| Restructuring and other charges | 959,686 | (1,221,224 | ) | |||||
| Total operating expense | 80,711,118 | 67,894,925 | ||||||
| Operating loss | (17,211,587 | ) | (239,025 | ) | ||||
| Net interest expense | (34,121 | ) | (122,637 | ) | ||||
| Net loss before income taxes | (17,245,708 | ) | (361,662 | ) | ||||
| Provision for income taxes | 269,007 | 1,181,341 | ||||||
| Net loss | (17,514,715 | ) | (1,543,003 | ) | ||||
| Preferred stock cash dividends | — | 385,696 | ||||||
| Net loss attributable to common stockholders | $ | (17,514,715 | ) | $ | (1,928,699 | ) | ||
| Basic and diluted net loss per share attributable to common stockholders | $ | (0.50 | ) | $ | (0.06 | ) | ||
| Cash dividends declared and paid per common share | $ | — | $ | 0.10 | ||||
| Weighted average basic and diluted shares outstanding | 35,236,113 | 34,839,233 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
F-5
| F-4 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the Years Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Net loss | $ | (17,514,715 | ) | $ | (1,543,003 | ) | ||
| Foreign currency translation loss | (3,859,279 | ) | (1,797,794 | ) | ||||
| Unrealized (loss) gain on marketable securities | (40,000 | ) | 26,244 | |||||
| Comprehensive loss | $ | (21,413,994 | ) | $ | (3,314,553 | ) | ||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-5 |
THESTREET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015, 2014,2016 AND 20132015
| Common Stock | Series B Preferred Stock | Accumulated Other | Treasury Stock | Common Stock | Series B Preferred Stock | Accumulated Other | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Additional Paid in Capital | Comprehensive Loss | Shares | Cost | Accumulated Deficit | Total Stockholders' Equity | Shares | Par Value | Shares | Par Value | Additional Paid in Capital | Comprehensive Loss | Shares | Cost | Accumulated Deficit | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2012 | 39,855,468 | 398,555 | 5,500 | 55 | 270,943,151 | (128,994 | ) | (6,827,716 | ) | (11,974,261 | ) | (183,780,671 | ) | 75,457,835 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | - | - | - | - | - | (49,189 | ) | - | - | - | (49,189 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 793,949 | 7,939 | - | - | 66,427 | - | (186,191 | ) | (390,199 | ) | - | (315,833 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock for acquisition | 408,829 | 4,088 | - | - | 776,775 | - | - | - | - | 780,863 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based consideration for services | - | - | - | - | 2,075,183 | - | - | - | - | 2,075,183 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (3,785,701 | ) | (3,785,701 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2013 | 41,058,246 | 410,582 | 5,500 | 55 | 273,861,536 | (178,183 | ) | (7,013,907 | ) | (12,364,460 | ) | (187,566,372 | ) | 74,163,158 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities | - | - | - | - | - | (108,061 | ) | - | - | - | (108,061 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | 58,768 | - | - | - | 58,768 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 909,123 | 9,092 | - | - | 293,885 | - | (225,821 | ) | (544,483 | ) | - | (241,506 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based consideration for services | - | - | - | - | 1,774,761 | - | - | - | - | 1,774,761 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock cash dividends | - | - | - | - | (3,601,437 | ) | - | - | - | - | (3,601,437 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock cash dividends | - | - | - | - | (385,696 | ) | - | - | - | - | (385,696 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (3,789,877 | ) | (3,789,877 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2014 | 41,967,369 | 419,674 | 5,500 | 55 | 271,943,049 | (227,476 | ) | (7,239,728 | ) | (12,908,943 | ) | (191,356,249 | ) | 67,870,110 | 41,967,369 | $ | 419,674 | 5,500 | $ | 55 | $ | 271,943,049 | $ | (227,476 | ) | (7,239,728 | ) | $ | (12,908,943 | ) | $ | (191,356,249 | ) | $ | 67,870,110 | |||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | - | - | - | - | - | 26,244 | - | - | - | 26,244 | - | - | - | - | - | 26,244 | - | - | - | 26,244 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | - | (1,797,794 | ) | - | - | - | (1,797,794 | ) | - | - | - | - | - | (1,797,794 | ) | - | - | - | (1,797,794 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 491,410 | 4,914 | - | - | (4,075 | ) | - | (95,919 | ) | (147,598 | ) | - | (146,759 | ) | 491,410 | 4,914 | - | - | (4,075 | ) | - | (95,919 | ) | (147,598 | ) | - | (146,759 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based consideration for services | - | - | - | - | 1,570,142 | - | - | - | - | 1,570,142 | - | - | - | - | 1,570,142 | - | - | - | - | 1,570,142 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock cash dividends | - | - | - | - | (3,599,005 | ) | - | - | - | - | (3,599,005 | ) | - | - | - | - | (3,599,005 | ) | - | - | - | - | (3,599,005 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock cash dividends | - | - | - | - | (385,696 | ) | - | - | - | - | (385,696 | ) | - | - | - | - | (385,696 | ) | - | - | - | - | (385,696 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (1,543,003 | ) | (1,543,003 | ) | - | - | - | - | - | - | - | - | (1,543,003 | ) | (1,543,003 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2015 | 42,458,779 | $ | 424,588 | 5,500 | $ | 55 | $ | 269,524,415 | $ | (1,999,026 | ) | (7,335,647 | ) | $ | (13,056,541 | ) | $ | (192,899,252 | ) | $ | 61,994,239 | 42,458,779 | 424,588 | 5,500 | 55 | 269,524,415 | (1,999,026 | ) | (7,335,647 | ) | (13,056,541 | ) | (192,899,252 | ) | 61,994,239 | |||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities | - | - | - | - | - | (40,000 | ) | - | - | - | (40,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | - | (3,859,279 | ) | - | - | - | (3,859,279 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and issuance of equity grants | 478,127 | 4,781 | - | - | (4,781 | ) | - | (180,042 | ) | (154,600 | ) | - | (154,600 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based consideration for services | - | - | - | - | 1,623,811 | - | - | - | - | 1,623,811 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (17,514,715 | ) | (17,514,715 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2016 | 42,936,906 | $ | 429,369 | 5,500 | $ | 55 | $ | 271,143,445 | $ | (5,898,305 | ) | (7,515,689 | ) | $ | (13,211,141 | ) | $ | (210,413,967 | ) | $ | 42,049,456 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
F-6
| F-6 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended December 31, | ||||||||||||
| 2015 | 2014 | 2013 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net loss | $ | (1,543,003 | ) | $ | (3,789,877 | ) | $ | (3,785,701 | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
| Stock-based compensation expense | 1,570,142 | 1,774,761 | 1,681,988 | |||||||||
| Provision for doubtful accounts | 280,383 | 189,992 | 22,859 | |||||||||
| Depreciation and amortization | 4,309,094 | 3,179,377 | 3,768,536 | |||||||||
| Deferred tax | 1,177,396 | 440,899 | — | |||||||||
| Restructuring and other charges | — | — | 393,195 | |||||||||
| Deferred rent | (120,400 | ) | (325,147 | ) | (322,533 | ) | ||||||
| Loss (gain) on disposition of assets | — | — | 187,434 | |||||||||
| Noncash barter activity | — | — | 20,000 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (304,156 | ) | 189,008 | 1,509,138 | ||||||||
| Other receivables | (242,563 | ) | 573,028 | 951,116 | ||||||||
| Prepaid expenses and other current assets | (223,375 | ) | 268,677 | 296,012 | ||||||||
| Other assets | (66,556 | ) | 14,138 | (6,675 | ) | |||||||
| Accounts payable | 22,452 | 73,567 | (1,463,684 | ) | ||||||||
| Accrued expenses | (1,146,629 | ) | 979,331 | (1,384,257 | ) | |||||||
| Deferred revenue | (1,109,538 | ) | (144,069 | ) | 517,882 | |||||||
| Other current liabilities | (311,049 | ) | 212,149 | 114,950 | ||||||||
| Other liabilities | (1,401,639 | ) | (83,749 | ) | (21,908 | ) | ||||||
| Net cash provided by operating activities | 890,559 | 3,552,085 | 2,478,352 | |||||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Sale and maturity of marketable securities | 2,005,484 | 9,420,434 | 22,247,394 | |||||||||
| Purchase of assets from DealFlow Media, Inc. | — | — | (1,764,716 | ) | ||||||||
| Purchase of Management Diagnostics Limited | 50,494 | (19,922,072 | ) | — | ||||||||
| Capital expenditures | (3,365,509 | ) | (1,931,173 | ) | (1,118,679 | ) | ||||||
| Restricted cash | 639,750 | — | — | |||||||||
| Proceeds from the disposition of assets | — | — | 71,881 | |||||||||
| Net cash (used in) provided by investing activities | (669,781 | ) | (12,432,811 | ) | 19,435,880 | |||||||
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2016 | 2015 | ||||||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||||||
| Net loss | $ | (17,514,715 | ) | $ | (1,543,003 | ) | ||||||||||||||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||||||||
| Stock-based compensation expense | 1,518,698 | 1,570,142 | ||||||||||||||||||
| Provision for doubtful accounts | 54,625 | 280,383 | ||||||||||||||||||
| Depreciation and amortization | 5,681,563 | 4,309,094 | ||||||||||||||||||
| Impairment of Goodwill | 11,583,000 | — | ||||||||||||||||||
| Deferred tax | 130,192 | 1,177,396 | ||||||||||||||||||
| Change in fair value of contingent consideration | (1,807,945 | ) | — | |||||||||||||||||
| Restructuring and other charges | 105,113 | — | ||||||||||||||||||
| Deferred rent | (678,064 | ) | (120,400 | ) | ||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Accounts receivable | (226,980 | ) | (304,156 | ) | ||||||||||||||||
| Other receivables | 421,843 | (242,563 | ) | |||||||||||||||||
| Prepaid expenses and other current assets | (231,310 | ) | (223,375 | ) | ||||||||||||||||
| Other assets | 26,271 | (66,556 | ) | |||||||||||||||||
| Accounts payable | 41,541 | 22,452 | ||||||||||||||||||
| Accrued expenses | 67,540 | (1,146,629 | ) | |||||||||||||||||
| Deferred revenue | (1,916,494 | ) | (1,109,538 | ) | ||||||||||||||||
| Other current liabilities | (138,187 | ) | (311,049 | ) | ||||||||||||||||
| Other liabilities | 125,264 | (1,401,639 | ) | |||||||||||||||||
| Net cash (used in) provided by operating activities | (2,758,045 | ) | 890,559 | |||||||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||||||||
| Sale and maturity of marketable securities | - | 2,005,484 | ||||||||||||||||||
| Purchase of Management Diagnostics Limited | - | 50,494 | ||||||||||||||||||
| Capital expenditures | (3,676,051 | ) | (3,365,509 | ) | ||||||||||||||||
| Restricted cash | 161,250 | 639,750 | ||||||||||||||||||
| Net cash used in investing activities | (3,514,801 | ) | (669,781 | ) | ||||||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||
| Cash dividends paid on common stock | (3,539,477 | ) | (3,476,893 | ) | — | (12,762 | ) | (3,539,477 | ) | |||||||||||
| Cash dividends paid on preferred stock | (385,696 | ) | (385,696 | ) | — | - | (385,696 | ) | ||||||||||||
| Proceeds from the exercise of stock options | 839 | 302,977 | 74,366 | - | 839 | |||||||||||||||
| Shares withheld on RSU vesting to pay for withholding taxes | (147,598 | ) | (544,483 | ) | (390,199 | ) | (154,600 | ) | (147,598 | ) | ||||||||||
| Net cash used in financing activities | (4,071,932 | ) | (4,104,095 | ) | (315,833 | ) | (167,362 | ) | (4,071,932 | ) | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (162,439 | ) | 71 | — | (634,086 | ) | (162,439 | ) | ||||||||||||
| Net (decrease) increase in cash and cash equivalents | (4,013,593 | ) | (12,984,750 | ) | 21,598,399 | |||||||||||||||
| Net decrease in cash and cash equivalents | (7,074,294 | ) | (4,013,593 | ) | ||||||||||||||||
| Cash and cash equivalents, beginning of period | 32,459,009 | 45,443,759 | 23,845,360 | 28,445,416 | 32,459,009 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 28,445,416 | $ | 32,459,009 | $ | 45,443,759 | $ | 21,371,122 | $ | 28,445,416 | ||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||||||||
| Cash payments made for taxes | $ | 223,110 | $ | — | $ | — | $ | 159,477 | $ | 223,110 | ||||||||||
| Noncash investing and financing activities: | ||||||||||||||||||||
| Stock issued for business combination | $ | — | $ | — | $ | 780,863 | ||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
| F-7 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20152016
(1) Organization, Nature of Business and Summary of Operations and Significant Accounting Policies
Organization and Nature of Business
TheStreet, Inc. together with its wholly owned subsidiaries (“TheStreet”, “we”, “us” or the “Company”), isis a leading digital financial media company focusednews 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 the financial andchanges in corporate control including mergers and acquisitions, environment. The Company’s collectionprivate equity, corporate activism and restructuring. BoardEx is an institutional relationship capital management database and platform which holds in-depth profiles of digital services provides users, subscribersalmost 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 advertisers with a variety offee 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 tools through a range of online, social media, tablethouses our premium subscription products, such as RealMoney, RealMoney Pro and mobile channels.Our mission is to provide investors and advisors with actionable ideas from the world of investing, finance and business, and dealmakers with sophisticated analysisActions Alerts PLUS, that target varying segments of the mergersretail investing public. Our B2C business primarily generates revenue from subscription products and acquisitions environment, in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth.With a robust suite of digital services, TheStreet offers the tools and insights needed to make informed decisions about earning, investing, saving and spending money. Since its inception in 1996, TheStreet believes it has distinguished itself from other financial media companies with its journalistic excellence, unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial planning.
Substantially all of the Company’s revenue in 2015, 2014 and 2013 was generated from customers in the United States and Europe. During 2015, 2014 and 2013, substantially all of the Company’s long-lived assets were located in the United States and Europe.advertising revenue.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, the following:
| · | useful lives of intangible assets, |
| · | useful lives of |
| · | the carrying value of goodwill, intangible assets and marketable securities, |
| · | allowances for doubtful accounts and deferred tax assets, |
| · | accrued expense estimates, |
| · | reserves for estimated tax liabilities, |
| · | certain estimates and assumptions used in the calculation of the fair value of equity compensation issued to employees, |
| · | restructuring charges, and |
| · | the calculation of a contingent earn-out payment from the acquisition of Management Diagnostics Limited. |
F-9
| F-8 |
Consolidation
The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of TheStreet, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company generates itsWe report revenue primarily from subscription servicesin two categories: business to business and media.
Subscription servicesbusiness to consumer. Business to business revenue is primarily comprised of subscriptions licenses and fees forthat provide access to securities investment information, stock market commentary, rate services, director and officer profiles, relationship capital management services, bank rate data and transactional information pertaining to the mergers and acquisitions environment as well as events/conferences, information services and other changes in the corporate control environment. miscellaneous revenue. Business to consumer revenue is primarily comprised of subscriptions that provide access to securities investment information and stock market commentary, advertising and sponsorships and other miscellaneous revenue.
Subscriptions are charged to customers’ credit cards or are directly billed to corporate subscribers, and are generally billed in advance on a monthly, quarterly or annual basis. The Company calculates net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to payments for subscription fees for which revenue has not been recognized because services have not yet been provided.
Subscription services revenue is subject to estimation and variability due to the fact that, in the normal course of business, subscribers may for various reasons contact us or their credit card companies to request a refund or other adjustment for a previously purchased subscription. With respect to many of our annual newsletter subscriptionbusiness to consumer products, we offer the ability to receive a refund during the first 30 days but none thereafter. Accordingly, we maintain a provision for estimated future revenue reductions resulting from expected refunds and chargebacks related to subscriptions for which revenue was recognized in a prior period. The calculation of this provision is based upon historical trends and is reevaluated each quarter. The provision was not material for any of the three years ended December 31, 2016 and 2015.
MediaAdvertising revenue is comprised of fees charged for the placement of advertising and sponsorships, primarily within TheStreet and our affiliated properties, our subscription and institutional services, and other miscellaneous revenue. Media TheStreet.com, for which revenue is recognized as the advertising or sponsorship is displayed, provided that collection of the resulting receivable is reasonably assured.
Cash, Cash Equivalents and Restricted Cash
The Company considers all short-term investment-grade securities with original maturities of three months or less from the date of purchase to be cash equivalents. As of December 31, 2015,2016, the Company has a total of approximately $661$500 thousand of cash that serves as collateral for an outstanding lettersletter of credit, which cash is classified as restricted. The lettersletter of credit serveserves as a security depositsdeposit for the Company’s office space in New York City.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three years and of furniture and fixtures is five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the respective lease term or the estimated useful life of the asset. If the useful lives of the assets differ materially from the estimates contained herein, additional costs could be incurred, which could have an adverse impact on our expenses.
| F-9 |
Capitalized Software and Website Development Costs
The Company expenses all costs incurred in the preliminary project stage for software developed for internal use and capitalizes all external direct costs of materials and services consumed in developing or obtaining internal-use computer software in accordance with Accounting Standards Codification (“ASC”) 350,Intangibles – Goodwill and Other(“ASC 350”).In addition, for employees who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent directly on the project, the Company capitalizes payroll and payroll-related costs of such employees incurred once the development has reached the applications development stage. For the years ended December 31, 2015, 20142016 and 2013,2015, the Company capitalized software development costs totaling approximately $486 thousand, $408$613 thousand and $289$486 thousand, respectively. All costs incurred for upgrades, maintenance and enhancements that do not result in additional functionality are expensed.
The Company also accounts for its Website development costs under ASC 350, which provides guidance on the accounting for the costs of development of company Websites, dividing the Website development costs into five stages: (1) the planning stage, during which the business and/or project plan is formulated and functionalities, necessary hardware and technology are determined, (2) the Website application and infrastructure development stage, which involves acquiring or developing hardware and software to operate the Website, (3) the graphics development stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during which the information to be presented on the Website, which may be either textual or graphical in nature, is developed, and (5) the operating stage, during which training, administration, maintenance and other costs to operate the existing Website are incurred. The costs incurred in the Website application and infrastructure stage, the graphics development stage and the content development stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the project is completed and placed into service. For the years ended December 31, 2015, 20142016 and 2013,2015, the Company capitalized Website development costs totaling approximately $1.8 million, $1.2 million and $443 thousand,$1.8 million, respectively.
Capitalized software and Website development costs are amortized using the straight-line method over the estimated useful life of the software or Website, which varies based upon the project. Total amortization expense was approximately $1.8 million and $1.0 million, $428 thousand and $743 thousand, for the years ended December 31, 2015, 20142016 and 2013,2015, respectively.
Goodwill and Indefinite Lived Intangible Assets
Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Under the provisions of ASC 350, goodwill and indefinite lived intangible assets are required to be tested for impairment on an annual basis and between annual tests whenever circumstances arise that indicate a possible impairment might exist. We perform our annual impairment tests of goodwill and indefinite lived intangible assets as of October 1 each year. Impairment exists when the carrying amount of goodwill andor indefinite lived intangible assets of a reporting unit exceed their implied fair value, resulting in an impairment charge for this excess.
During the year ended December 31, 2015, the business was managed as a single segment where subscription and advertising products were sold throughout the Company, financial results were reviewed on a consolidated basis and separate and discrete financial information was not available. During 2016, the Company reassessed the identification of operating segments due to changes in key personnel, including the Chief Operating Decision Maker, and during the fourth quarter of 2016 began to provide separate and discrete segment financial information. We currently regard our Company to operate in three distinct operating segments: The Deal / BoardEx, RateWatch and Business to Consumer. These operating segments also represent the Company’s reporting units. Prior periods have been adjusted to reflect the change in operating segments.
The Company evaluatestests goodwill for impairment using a quantitative analysis consisting of a two-step impairment test approach at the Company level, as the Company is considered to operate as a single reporting unit. In theapproach. The first step of our quantitative analysis consists of a comparison of the carrying value of each of our reporting units, including goodwill, to the estimated fair value of each of our reporting units using a market approach for the valuation of our Common Stock, based upon actual prices of the Company’s Common Stock, and the income approach for the estimated fair value of the Company’s outstanding Preferred Shares. The Company also performed an income approach to confirm the reasonableness of these result by using the discounted cash flow methodology. If step one resulted in the carrying value of the reporting unit exceeding the fair value of such reporting unit, we would then proceed to step two which would require us to calculate the Company is comparedamount of impairment loss, if any, that we would record for such reporting unit. The calculation of the impairment loss in step two would be equivalent to its book value, including goodwill and indefinite-lived intangible assets. If the fairreporting unit’s carrying value of the Company isgoodwill less than the book value, a second step is performed that compares the implied fair value of such goodwill.
| F-10 |
Our use of a discounted cash flow methodology includes estimates of future revenue based upon budget projections and growth rates which take into account estimated inflation rates. We also develop estimates for future levels of gross and operating profits and projected capital expenditures. Our methodology also includes the Company's goodwilluse of estimated discount rates based upon industry and indefinite lived intangible assets to the book value of the goodwill and indefinite lived intangible assets.competitor analysis as well as other factors. The fair value for the goodwill and indefinite lived intangible assets is determinedestimates that we use in our discounted cash flow methodology involve many assumptions by management that are based on the difference between the fair value of the Company and the net fair values of identifiable assets and liabilities. If the fair value of the goodwill and indefinite lived intangible assets is less than the book value, the difference is recognized as impairment.upon future growth projections.
ASU 2011-08,Testing for Goodwill Impairment(“ASU 2011-08”) permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. During 2015,2016, the Company elected not to apply the qualitative assessment under this guidance and continued to apply the quantitative assessment in its evaluating of goodwill for impairment.
In testing forBased upon the annual impairment test performed as of October 1, 2016, we concluded that The Deal / BoardEx reporting unit goodwill was impaired while the fair valueRateWatch and Business to Consumer reporting units’ were not impaired by approximately 16% and 33%, respectively. During the fourth quarter of 2016, the Company’s stock price declined from an average price of $1.115 on the valuation date to $0.855 as of December 31, 2016. This triggering event resulted in the Company performing a second impairment review as of December 31, 2016. Based on this analysis, we also concluded that The Deal / BoardEx reporting unit goodwill was estimated usingimpaired as of December 31, 2016, while the RateWatch and Business to Consumer reporting units’ were not impaired by approximately 26% and 21%, respectively.
As a market approach for the valuationresult of our common stock, based upon actual pricesimpairment testing, we recorded an impairment charge of the Company’s Common Stock, and the income approach for the estimated fair value of the Company’s outstanding Preferred Shares.approximately $11.6 million to The Company also performed an income approach to confirm the reasonableness of the common stock market approach by using the discounted cash flow method. Based upon annual impairment tests performed in 2015 and 2014, no impairment was indicated as the Company’s fair value, inclusive of a control premium, exceeded its book value by approximately 53% and 62%, respectively. Deal / BoardEx reporting unit.
The fair value of the Company’s outstanding Preferred Shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to the Company’s Preferred Stock, the Company also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event. Additionally, the holders of the Preferred Shares are entitled to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and, provided certain preferred share ownership levels are maintained, are entitled to representation on the Company’s board of directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including Common Stock (with certain exceptions) and any increases in the per-share amount of dividends payable to the holders of the Common Stock. A decrease in the price of the Company’s Common Stock, or changes in the estimated value of the Company’s Preferred Shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations.
In conducting our 2016 annual indefinite lived intangible asset impairment test with the assistance of our independent appraisal firm, we determined its fair value using the relief-from-royalty method. The application of the relief-from-royalty method requires the estimation of future income and the conversion of that income into an estimate of value. Future income related to a trade name is measured in terms of the savings that a company realizes by owning the indefinite lived trade name, thereby avoiding royalty payments to use the trade name in the absence of ownership. To calculate the royalty savings, we estimate (i) future revenue attributable to the RateWatch trade name; (ii) a royalty rate that a hypothetical licensee would be willing to pay for its use; and (iii) a discount rate to reduce future after-tax royalty savings to present value. We selected an appropriate royalty rate by searching various transaction databases for publicly disclosed transactions to license similar assets between service businesses, with a focus on companies that operate in industries similar to RateWatch. Based upon the analysis, we concluded that the book value of the indefinite lived trade name was not impaired as of the October 1, 2016 valuation date as the fair value exceeded its book value by approximately 29%.
Based upon the annual impairment test performed in 2015, the Company concluded that the book value of its indefinite lived trade name was not impaired as the fair value exceeded its book value by approximately 129%.
Intesting for impairment of the Company’sindefinite lived intangible asset, the Company determined the fair value using the relief-from-royalty method. This analysis calculated the fair value as the present value of the future expenses avoided by owning the indefinite lived trade name rather than having to license its use. The Company selected an appropriate royalty rate by reviewing licensing transactions for similar trade names and by considering the profitability associated with its operations. Based upon annual impairment tests performed in 2015 and 2014, the Company concluded that the book value of its indefinite lived trade name was not impaired as the fair value exceeded its book value by approximately 129% and 165%, respectively.
Additionally, the Company evaluates the remaining useful lives of intangible assets each year to determine whether events or circumstances continue to support their useful life. There have been no changes in useful lives of intangible assets for each period presented.
During the year ended December 31, 2014, the Company performed its annual impairment test of goodwill and indefinite-lived intangible assets as of September 30. For the year ended December 31, 2015, the Company changed the date of its annual impairment test of goodwill and indefinite-lived intangible assets to October 1 in order to allow for a more comprehensive review. The change in the testing date does not represent a material change in the method of applying the accounting policy and such change does not have an effect on the financial statements.
Long-Lived Assets
The Company evaluates long-lived assets, including amortizable identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
| F-11 |
Management does not believe that there was any impairment of long-lived assets as of December 31, 20152016 and 2014.2015.
Income Taxes
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. As of December 31, 20152016 and 2014,2015, we maintain a full valuation allowance against our deferred tax assets due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in the future and our assessment that the realization of the deferred tax assets did not meet the “more likely than not” criterion under ASC 740-10. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.
ASC 740-10 also prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. As of December 31, 20152016 and 2014,2015, no liability for unrecognized tax benefits was required to be recorded. Interest costs related to unrecognized tax benefits would be classified within “Net interest income”expense” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative” expenses.expense. There is no interest expense or penalty related to tax uncertainties reported in the consolidated statements of operations for the years ended December 31, 2015, 20142016 or 2013.2015.
Deferred tax assets pertaining to windfall tax benefits on the exercise of share awards and the corresponding credit to additional paid-in capital are recorded if the related tax deduction reduces tax payable. The Company has elected the “with-and-without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to the Company.
The Company files income tax returns in the United States (federal), and in various state and local jurisdictions, as well as in the United Kingdom and India. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2012,2013, and is not currently under examination by any federal, state or local jurisdiction. It is not anticipated that unrecognized tax benefits will significantly change in the next twelve months.
Fair Value of Financial Instruments
The carrying amounts of accounts and other receivables, accounts payable, accrued expenses and deferred revenue approximate fair value due to the short-term maturities of these instruments.
Business Concentrations and Credit Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains all of its cash, cash equivalents and restricted cash in seven financial institutions, and performs periodic evaluations of the relative credit standing of these institutions. As of December 31, 2015,2016, the Company’s cash, cash equivalents and restricted stockcash primarily consisted of checking accounts and money market funds and checking accounts.funds.
| F-12 |
For the years ended December 31, 2015, 20142016 and 2013,2015, no single customer accounted for 10% or more of consolidated revenue. As of December 31, 20152016 and 2014,2015, no single customer 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.
Other Comprehensive Loss
Comprehensive loss is a measure which includes both net loss and other comprehensive loss. Other comprehensive loss results from items deferred from recognition into the statement of operations. Accumulated other comprehensive loss is separately presented on the consolidated statement of comprehensive loss and on both the Company's consolidated balance sheet and as part of the consolidated statement of stockholders’ equity. Other comprehensive loss consists of unrealized gains and losses on marketable securities classified as available for sale as well as foreign currency translation adjustments from subsidiaries where the local currency is the functional currency.
F-14
Foreign Currency
The functional currency of the Company’s international subsidiaries is the local currency. The financial statements of these subsidiaries are translated into U.S. dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and monthly average rates of exchange for the period for revenue and expense. Translation gains (losses) are recorded in accumulated other comprehensive loss as a component of stockholders’ equity. Gains and losses resulting from currency transactions are included in earnings.
Net Loss Per Share of Common Stock
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential common shares does not result in a lower net loss per share. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock (using the if-converted method). For the years ended December 31, 2016 and 2015, 2014approximately 708 thousand and 2013, approximately 3.1 million, 5.2 million and 4.2 million, respectively, of unvested restricted stock units, vested and unvested options to purchase Common Stock, were excluded from the calculation, as their effect would result in a lower net loss per share.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December 31, 2015, 20142016 and 2013,2015, advertising expense totaled approximately $2.6 million, $3.0$2.5 million and $2.9$2.6 million, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718-10,Share Based Payment Transactions(“ASC 718-10”). This requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values.
Stock-based compensation expense recognized for the years ended December 31, 2015, 20142016 and 20132015 was approximately $1.6 million $1.8 million(inclusive if $105 thousand of noncash compensation expense charged to restructuring and $2.1other charges) and $1.6 million, respectively. As of December 31, 2015,2016, there was approximately $1.8$1.9 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 1.91.8 years.
| F-13 |
Stock-based compensation expense recognized in the Company’s consolidated statements of operations for the years ended December 31, 2015, 20142016 and 20132015 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 recognized in the years ended December 31, 2015, 20142016 and 20132015 is based upon awards ultimately expected to vest, it has been reduced for estimated forfeitures. The Company estimates forfeitures at the time of grant which are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company estimates the value of stock option awards on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividends. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value stock option awards at their grant date. In determining the volatility assumption, the Company used a historical analysis of the volatility of the Company’s share price for the preceding period equal to the expected option lives. The expected option lives, which represent the period of time that options granted are expected to be outstanding, were estimated based upon the “simplified” method for “plain-vanilla” options. The risk-free interest rate assumption was based upon observed interest rates appropriate for the term of the Company’s stock option awards. The dividend yield assumption was based on the history and expectation of future dividend payouts. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. The Company’s estimate of pre-vesting forfeitures is primarily based on historical experience and is adjusted to reflect actual forfeitures as the options vest. The weighted-average grant date fair value per share of stock option awards granted during the years ended December 31, 2016 and 2015 2014was $0.37 and 2013 was $0.39, $0.44 and $0.63, respectively, using the Black-Scholes model with the following weighted-average assumptions:
| For the Year Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2016 | 2015 | ||||||||||||||||
| Expected option lives | 3.0 years | 3.6 years | 3.7 years | 4.5 years | 3.0 years | |||||||||||||||
| Expected volatility | 35.45 | % | 35.54 | % | 40.11 | % | 34.87 | % | 35.45 | % | ||||||||||
| Risk-free interest rate | 0.97 | % | 1.11 | % | 0.85 | % | 1.12 | % | 0.97 | % | ||||||||||
| Expected dividends | 4.59 | % | 4.22 | % | 0.00 | % | 0.00 | % | 4.59 | % | ||||||||||
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 years ended December 31, 2016 and 2015 2014was $1.30 and 2013 was $2.19, $2.23 and $2.06, respectively.
The Company utilizes the alternative transition method for calculating the tax effects of stock-based compensation. Under the alternative transition method the Company established the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation and then determinesdetermined the subsequent impact on the APIC pool and cash flows of the tax effects of employee stock-based compensation awards that are outstanding.
| F-14 |
2007 Performance Incentive Plan
In 2007, the Company adopted the 2007 Plan, whereby executive officers, directors, employees and consultants may be eligible to receive cash or equity-based performance awards based on set performance criteria.
In 2015, 20142016 and 2013,2015, the Compensation Committee granted short-term cash performance awards, payable to certain officers, upon the Company’s achievement of specified performance goals for such year.year as defined by the Compensation Committee. The target short-term cash bonus opportunities for officers reflected a percentage of the officer’s base salary. The short-term cash incentives were based upon achievement of certain financial targets, as defined by the Compensation Committee. Potential payout was zero if a threshold percentage of the target was not achieved and a sliding scale thereafter, subject to a cap, starting at a figure less than 100% if the threshold was achieved but the target was not met and ending at a figure above 100% if the target was exceeded. Short-term incentives of approximately $670 thousand, $918$486 thousand and $599$670 thousand were deemed earned with respect to the years ended December 31, 2016 and 2015, 2014 and 2013, respectively.
Services Agreement
On November 13, 2012, the Company entered into a Services Agreement (the “Agreement”) in which a third-party granted TheStreet an exclusive right to sell and serve advertisement and e-commerce on certain of its personal finance Websites. The agreement terminated on May 31, 2013. TheStreet supported the Websites by providing personal finance content, various promotion and advertisements on TheStreet’s Websites, and marketing and accounting support. Under the Agreement, the Company reimbursed this third party for certain expenses, subject to specified limits. Both parties shared in the profits generated by the partnership, after TheStreet recouped the aggregate amount paid to the third party in addition to certain sales, marketing, editorial and operational costs incurred by the Company.
In accordance with ASC 808, “Accounting for Collaborative Agreement,” a participant in a collaborative arrangement must report the costs incurred and revenues generated on sales to third parties at gross or net amounts, depending on whether the participant is the principal or the agent in the transaction. Based on the facts and circumstances with regards to the Agreement, the Company determined that it was the Principal in this Agreement for all advertising sold by the Company. With respect to the advertising and e-commerce revenue generated by the third party, the Company treated this as a reimbursement of expenses paid. For the year ended December 31, 2013 the Company recognized $264 thousand in net expense reimbursements reflected in cost of sales on the consolidated statement of operations related to this agreement.
Preferred Stock
The Company applies the guidance in ASC 480,Distinguishing Liabilities from Equity (“ASC 480”) when determining the classification and measurement of its convertible preferred shares. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Accordingly theThe Company classifies conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred shares as a component of stockholders’ equity.
The Company’s Series B Convertible Preferred Stock does not feature any redemption rights within the holders’ control or conditional redemption features not solely within the Company’s control as of December 31, 2015.2016. Accordingly, the Series B Convertible Preferred Stock is presented as a component of stockholders’ equity.
Subsequent Events
The Company has evaluated subsequent events for recognition or disclosure.
F-17
New Accounting Pronouncements
Accounting Pronouncements Adopted
In January 2015, the FASB issued ASU No. 2015-01,Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items(“ASU 2015-01”). ASU 2015-01 eliminates the concept of extraordinary items from GAAP but retains the presentation and disclosure guidance for items that are unusual in nature or occur infrequently and expands the guidance to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 was effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of ASU 2015-01 did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption of ASU 2014-09 is permitted but not before the original effective date (annual periods beginning after December 15, 2016). When effective, ASU 2014-09 prescribes either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impactBased upon our revenue streams of our pendingsubscription and advertising, we do not believe that adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.
In January 2015, the FASB issued ASU 2015-01,Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items(“ASU 2015-01”).ASU 2015-01 eliminates the concept of extraordinary items from GAAP but retains the presentation and disclosure guidance for items that are unusual in nature or occur infrequently and expands the guidance to include items that are both unusual in nature and infrequently occurring.ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015.A reporting entity may apply ASU 2015-01 prospectively. A reporting entity may also apply ASU 2015-01 retrospectively to all periods presented in the financial statements.We believe the adoption of ASU 2015-01 will not have a material effectsignificant impact on our consolidated financial statements.
| F-15 |
In November 2015, the FASB issued Accounting Standards UpdateASU No. 2015-17 Income Taxes (Topic 740) Balance, “Balance Sheet Classification of Deferred Taxes (ASU 2015-17)Taxes” (“ASU 2015-17”). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities and assets to be classified as noncurrent in a classified balance sheet. ASU 2017-17 simplifies the current guidance, which requires entities to separately present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet.Consolidated Balance Sheet. The guidance in ASU 2015-17 is requiredstandard will be effective for financial statements issued for annual reporting periods beginning after December 15, 2016, includingand interim periods within the reporting period. We early adopted the provisionsthose annual periods. Early adoption is permitted for financial statements that have not been previously issued. The ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The impact of this ASU during the fourth quarter of fiscal year 2015 and applied it retrospectively. Adoptionour pending adoption of this standard didis not expected to have a material impact theon our consolidated balance sheet classification of the Company’s deferred tax liability, results of operations, retained earnings, or cash flows in the current or previous interim and annual reporting periods.sheet.
In February 2016, the FASB issued Accounting Standards UpdateASU No. 2016-02,Leases(“ASU 2016-02”). The new standardASU 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. WeAs the Company does not lease any office equipment and our office space leases are currently evaluating the only leases with a term longer than 12 months, we do not believe that adoption of ASU 2016-02 will have a significant impact on our operating results.
In March 2016, the FASB issued ASU No. 2016-09,Improvements to Employee Share-Based Payment Accounting ("ASU No. 2016-09"). ASU 2016-09 simplifies various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements. The amendments include income tax consequences, the accounting for forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The impact of our pending adoption of the new standard is not expected to have a material impact on our consolidated financial statements.
(2)Acquisitions
Management Diagnostics Limited
On October 31, 2014,In June 2016, the Company acquired allFASB issued ASU No. 2016-13,"Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (“ASU 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. ASU 2016-13 is required to be adopted using the modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Based upon the level and makeup of our financial receivables, past loss activity and current known activity regarding our outstanding share capitalreceivables, we do not expect that the adoption of Management Diagnostics Limited (“MDL”),ASU 2016-13 will have a privately held company headquartered in London, England. MDL is the owner of BoardEx, an institutional relationship capital management database and platform. Clients, including investment banks, consultancies and law firms use BoardEx to leverage their relationships and facilitate business and corporate development initiatives. The Company paid cash consideration of approximately $22.1 million at closing, of which $1.5 million was placed in escrow which will be used to secure indemnity obligations for a period of 24 months. Additionally, the Company assumed net liabilities approximating $5.0 million, inclusive of a potential earn-out payable in 2018 basedmaterial impact on 2017 net revenue of BoardEx’s existing products and services. The results of operations of MDL are included in the Company’sour consolidated financial statements for the year ended December 31, 2015 and for the year ended December 31, 2014 from October 31, 2014, the date of the acquisition.statements.
In DecemberAugust 2016, the FASB issued Accounting Standards Update No. 2016-15, Classification of 2015, the Company made an entity classification election under IRC Section 301.7701-1Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 is intended to treat MDL as a disregarded entity for US income tax purposes. Since an election under IRC Section 338(g) was madeadd or clarify guidance on the acquisitionclassification of MDLcertain cash receipts and payments in the statement of cash flows and to treat it as an asset purchaseeliminate the diversity in practice related to such classifications. The guidance in ASU 2016-15 is required for U.S. income tax purposes, the goodwill is amortizable under IRC Section 197 overannual reporting periods beginning after December 15, years on the Company’s U.S. income tax return.
2017, with early adoption permitted. The following table summarizes the consideration paid and the amountsimpact of our pending adoption of the assets acquired and liabilities assumed recognized at the acquisition date.
| Amortization Life | ||||||||
| (in years) | Amount | |||||||
| Accounts receivable, net | $ | 997,161 | ||||||
| Other receivables | 750,434 | |||||||
| Prepaid expenses and other current assets | 91,598 | |||||||
| Property and equipment, net | 153,060 | |||||||
| Other assets | 109,000 | |||||||
| Identifiable intangible assets: | ||||||||
| - Customer relationships | 10 | 3,670,000 | ||||||
| - Database | 10 | 5,130,000 | ||||||
| - Trade name | 6 | 310,000 | ||||||
| Accounts payable | (50,135 | ) | ||||||
| Accrued expenses | (956,156 | ) | ||||||
| Deferred revenue | (4,367,717 | ) | ||||||
| Other current liabilities | (40,516 | ) | ||||||
| Other liabilities | (2,687,838 | ) | ||||||
| Total identifiable net assets | 3,108,891 | |||||||
| Goodwill | 16,813,181 | |||||||
| Cash consideration, net of cash acquired | $ | 19,922,072 | ||||||
Acquisition related costs totaling $1.5 million are included in general and administrative expenses in the Company’s condensednew standard is not expected to have a material impact on our consolidated statement of operationscash flows.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04,Intangibles — Goodwill and Other Simplifying the Test for goodwill Impairment(“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that Instead, under ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the year endedamount by which the carrying amount exceeds the reporting unit’s fair value. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 31, 2014.2019, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company plans to adopt this pronouncement in the first quarter of 2017 and we do not expect that the adoption to have a material impact on our consolidated financial statements.
| F-16 |
The DealFlow Report, The Life Settlements Report and the PrivateRaise database
On April 19, 2013, the Company acquiredThe DealFlow Report, The Life Settlements Reportand the PrivateRaise database (the “DealFlow” acquisition) from DealFlow Media, Inc. These newsletters and database, and the employees providing their content, have been incorporated into The Deal, TheStreet’s institutional platform. The Company paid cash consideration of approximately $2.0 million and issued 408,829 unregistered shares of the Company’s common stock, having a value on the closing date of approximately $781 thousand. Additionally, the Company assumed net liabilities of approximately $726 thousand. The acquisition was not significant and pro forma financial information was not required. The results of operations of DealFlow are included in the consolidated financial statements for the year ended December 31, 2015 and 2014, and for the year ended December 31, 2013 from April 19, 2013, the date of the acquisition.
Proforma Information
Unaudited pro forma consolidated financial information is presented below as if the acquisition of MDL had occurred on January 1, 2013. The historical financial statements of MDL were prepared in accordance with United Kingdom generally accepted accounting principles and have been converted to U.S. generally accepted accounting principles for purposes of the unaudited pro forma consolidated financial information presented below. The results have been adjusted to account for the amortization of acquired intangible assets, to reclassify a defined benefit plan actuarial gain recorded by MDL within the statement of operations to accumulated other comprehensive income in accordance with U.S. generally accepted accounting principles, and deal acquisition costs. The pro forma information presented below does not purport to present what actual results would have been if the acquisition had occurred at January 1, 2013, nor does the information project results for any future period. The unaudited pro forma consolidated financial information should be read in conjunction with the historical financial information of the Company included in this report, as well as the historical financial information included in other reports and documents filed with the Securities and Exchange Commission. The unaudited pro forma consolidated financial information for the years ended December 31, 2014 and 2013 is as follows:
| For the Years Ended December 31, | ||||||||
| 2014 | 2013 | |||||||
| Total Revenue | $ | 69,554,714 | $ | 63,979,231 | ||||
| Net Loss | $ | (1,505,531 | ) | $ | (2,814,915 | ) | ||
| Basic and diluted net loss per share | $ | (0.04 | ) | $ | (0.08 | ) | ||
(3)(2) Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential common shares does not result in a lower net loss per share. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock (using the if-converted method). For the years ended December 31, 2016 and 2015, 2014approximately $708 thousand and 2013, approximately 3.1 million, 5.2 million and 4.2 million unvested restricted stock units, and vested and unvested stock options, to purchase Common Stock, 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 Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2016 | 2015 | ||||||||||||||||
| Basic and diluted net loss per share Numerator: | ||||||||||||||||||||
| Basic and diluted net loss per share | ||||||||||||||||||||
| Numerator: | ||||||||||||||||||||
| Net loss | $ | 1,543,003 | $ | 3,789,877 | $ | 3,785,701 | $ | 17,514,715 | $ | 1,543,003 | ||||||||||
| Preferred stock cash dividends | 385,696 | 385,696 | - | - | 385,696 | |||||||||||||||
| Numerator for basic and diluted earnings per share – Net loss attributable to common stockholders | $ | 1,928,699 | $ | 4,175,573 | $ | 3,785,701 | $ | 17,514,715 | $ | 1,928,699 | ||||||||||
| Denominator: | ||||||||||||||||||||
| Weighted average basic and diluted shares outstanding | 34,839,233 | 34,370,843 | 33,725,317 | 35,236,113 | 34,839,233 | |||||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (0.06 | ) | $ | (0.12 | ) | $ | (0.11 | ) | $ | (0.50 | ) | $ | (0.06 | ) | |||||
(4)(3) 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 and checking accounts.funds. As of December 31, 2016 and 2015, marketable securities consist of two municipal auction rate securities (“ARS”) issued by the District of Columbia with a cost basis of approximately $1.9 million and a fair value of approximately $1.6 million. As of December 31, 2014, marketable securities also included an investment grade corporate bond, and the aggregate fair value of these marketable securities was approximately $3.6 million and the total cost basis was approximately $3.9 million. The decrease in marketable securities was due to the Company not reinvesting the proceeds as securities matured.$1.6 million, respectively. With the exception of the ARS, Company policy limits the maximum maturity for any investment isto 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 December 31, 20152016 and 2014,2015, the Company has a total of approximately $661$500 thousand and $1.3 million,$661 thousand, respectively, of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City.
| As of December 31, | ||||||||
| 2015 | 2014 | |||||||
| Cash and cash equivalents | $ | 28,445,416 | $ | 32,459,009 | ||||
| Current and noncurrent marketable securities | 1,590,000 | 3,569,240 | ||||||
| Current and noncurrent restricted cash | 661,250 | 1,301,000 | ||||||
| Total cash and cash equivalents, current and noncurrent marketable securities and current and noncurrent restricted cash | $ | 30,696,666 | $ | 37,329,249 | ||||
| F-17 |
(5)
| As of December 31, | ||||||||
| 2016 | 2015 | |||||||
| Cash and cash equivalents | $ | 21,371,122 | $ | 28,445,416 | ||||
| Noncurrent marketable securities | 1,550,000 | 1,590,000 | ||||||
| Current and noncurrent restricted cash | 500,000 | 661,250 | ||||||
| Total cash and cash equivalents, noncurrent marketable securities and current and noncurrent restricted cash | $ | 23,421,122 | $ | 30,696,666 | ||||
(4) 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:
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 December 31, 2015 | ||||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | As of December 31, 2016 | ||||||||||||||||||||||||||||
| Description: | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| Cash and cash equivalents (1) | $ | 28,445,416 | $ | 28,445,416 | $ | — | $ | — | $ | 21,371,122 | $ | 21,371,122 | $ | — | $ | — | ||||||||||||||||
| Restricted cash (1) | 661,250 | 661,250 | — | — | 500,000 | 500,000 | — | — | ||||||||||||||||||||||||
| Marketable securities (2) | 1,590,000 | — | — | 1,590,000 | 1,550,000 | — | — | 1,550,000 | ||||||||||||||||||||||||
| Contingent earn-out (3) | 2,590,339 | — | — | 2,590,339 | 907,657 | — | — | 907,657 | ||||||||||||||||||||||||
| Total at fair value | $ | 33,287,005 | $ | 29,106,666 | $ | — | $ | 4,180,339 | $ | 24,328,779 | $ | 21,871,122 | $ | — | $ | 2,457,657 | ||||||||||||||||
| As of December 31, 2014 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Description: | ||||||||||||||||
| Cash and cash equivalents (1) | $ | 32,459,009 | $ | 32,459,009 | $ | — | $ | — | ||||||||
| Restricted cash (1) | 1,301,000 | 1,301,000 | — | — | ||||||||||||
| Marketable securities (2) | 3,569,240 | 2,009,240 | — | 1,560,000 | ||||||||||||
| Contingent earn-out (3) | 2,602,105 | — | — | 2,602,105 | ||||||||||||
| Total at fair value | $ | 39,931,354 | $ | 35,769,249 | $ | — | $ | 4,162,105 | ||||||||
| F-18 |
| As of December 31, 2015 | ||||||||||||||||
| Description: | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Cash and cash equivalents (1) | $ | 28,445,416 | $ | 28,445,416 | $ | — | $ | — | ||||||||
| Restricted cash (1) | 661,250 | 661,250 | — | — | ||||||||||||
| Marketable securities (2) | 1,590,000 | — | — | 1,590,000 | ||||||||||||
| Contingent earn-out (3) | 2,590,339 | — | — | 2,590,339 | ||||||||||||
| Total at fair value | $ | 33,287,005 | $ | 29,106,666 | $ | — | $ | 4,180,339 | ||||||||
(1) Cash and cash equivalents and restricted cash, totaling approximately $29.1$21.9 million and $33.8$29.1 million as of December 31, 20152016 and 2014,2015, respectively, consist primarily of checking accounts and money market funds and checking accounts for which we determine fair value through quoted market prices.
(2) Marketable securities include two municipal ARS issued by the District of Columbia having a fair value totaling approximately $1.6 million and $1.6 million as of December 31, 20152016 and 2014,2015, 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 December 31, 2015,2016, the Company determined there was a decline in the fair value of its ARS investments of $260$300 thousand from its cost basis, which was deemed temporary and was included within accumulated other comprehensive loss. The Company used a discounted cash flow and market approach model to determine the estimated fair value of its investment in ARS. The assumptions used in preparing the discounted cash flow model include estimates for interest rate, timing and amount of cash flows and expected holding period of ARS. At December 31, 2014, marketable securities also consisted of an investment grade corporate bond for which we determined fair value through quoted market prices.
(3) Contingent earn-out represents additional purchase consideration payable to the former shareholders of Management Diagnostics Limited based upon the achievement of specific 2017 audited revenue benchmarks. The probability of achieving each benchmark is based on Management’s assessment of the projected 2017 revenue. The present value of each probability weighted payment was calculated by discounting the probability weighted payment by the corresponding present value factor.
| F-19 |
The following table provides 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 | Marketable Securities | |||||||
| Balance December 31, 2013 | $ | 1,580,000 | ||||||
| Change in fair value of investment | (20,000 | ) | ||||||
| Balance December 31, 2014 | 1,560,000 | $ | 1,560,000 | |||||
| Change in fair value of investment | 30,000 | 30,000 | ||||||
| Balance December 31, 2015 | $ | 1,590,000 | 1,590,000 | |||||
| Change in fair value of investment | (40,000 | ) | ||||||
| Balance December 31, 2016 | $ | 1,550,000 | ||||||
| Contingent Earn-Out | Contingent Earn-Out | |||||||
| Balance December 31, 2013 | $ | - | ||||||
| Addition | 2,602,105 | |||||||
| Balance December 31, 2014 | 2,602,105 | $ | 2,602,105 | |||||
| Purchase accounting adjustment | (144,398 | ) | (144,398 | ) | ||||
| Accretion of net present value | 132,632 | 132,632 | ||||||
| Balance December 31, 2015 | $ | 2,590,339 | 2,590,339 | |||||
| Reduction to estimated earn-out | (1,807,945 | ) | ||||||
| Accretion of net present value | 125,263 | |||||||
| Balance December 31, 2016 | $ | 907,657 | ||||||
(6)(5) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three years and of furniture and fixtures is five years. Leasehold improvements are amortized on a straight-line basis over the shorter of the respective lease term or the estimated useful life of the asset. If the useful lives of the assets differ materially from the estimates contained herein, additional costs could be incurred, which could have an adverse impact on our expenses.
F-23
| F-20 |
Property and equipment as of December 31, 20152016 and 20142015 consists of the following:
| As of December 31, | As of December 31, | |||||||||||||||
| 2015 | 2014 | 2016 | 2015 | |||||||||||||
| Computer equipment and software | $ | 1,823,428 | $ | 1,456,483 | $ | 2,516,189 | $ | 1,823,428 | ||||||||
| Furniture and fixtures and telephone equipment | 2,041,229 | 2,072,289 | 2,080,658 | 2,041,229 | ||||||||||||
| Leasehold improvements | 3,713,491 | 3,401,591 | 4,635,446 | 3,713,491 | ||||||||||||
| 7,578,148 | 6,930,363 | 9,232,293 | 7,578,148 | |||||||||||||
| Less accumulated depreciation and amortization | 4,804,411 | 4,003,538 | 5,682,286 | 4,804,411 | ||||||||||||
| Property and equipment, net | $ | 2,773,737 | $ | 2,926,825 | $ | 3,550,007 | $ | 2,773,737 | ||||||||
Depreciation and amortization expense for the above noted property and equipment was approximately $1.3 million, $912$964 thousand and $1.4$1.3 million for the years ended December 31, 2015, 20142016 and 2013,2015, respectively. The Company does not include depreciation and amortization expense in cost of services, sales and marketing or general and administrative expense.
(7)(6) Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 20152016 and 20142015 were as follows:
| Balance as of December 31, 2013 | $ | 27,997,286 | ||||||
| Acquisition of Management Diagnostics Limited | 16,813,181 | |||||||
| Balance as of December 31, 2014 | 44,810,467 | $ | 44,810,467 | |||||
| Purchase accounting adjustments | (237,772 | ) | (237,772 | ) | ||||
| Exchange rate impact | (1,254,025 | ) | (1,254,025 | ) | ||||
| Balance as of December 31, 2015 | $ | 43,318,670 | 43,318,670 | |||||
| Impairment charge | (11,583,000 | ) | ||||||
| Exchange rate impact | (2,552,529 | ) | ||||||
| Balance as of December 31, 2016 | $ | 29,183,141 | ||||||
During the year ended December 31, 2015, the business was managed as a single segment where subscription and advertising products were sold throughout the Company, financial results were reviewed on a consolidated basis and separate and discrete financial information was not available. During 2016, the Company reassessed the identification of operating segments due to changes in key personnel, including the Chief Operating Decision Maker, and during the fourth quarter of 2016 began to provide separate and discrete segment financial information. We currently regard our Company to operate in three distinct operating segments: The Deal / BoardEx, RateWatch and Business to Consumer. These operating segments also represent the Company’s reporting units.
| The Deal/ BoardEx | RateWatch | Business to Consumer | Total | |||||||||||||
| Balance as of December 31, 2014 | $ | 44,810,467 | ||||||||||||||
| Purchase accounting adjustments | (237,772 | ) | ||||||||||||||
| Exchange rate impact | (1,254,025 | ) | ||||||||||||||
| Balance December 31, 2015 | 43,318,670 | |||||||||||||||
| Exchange rate impact | (1,897,318 | ) | ||||||||||||||
| Balance October 1, 2016 | $ | 14,104,120 | $ | 5,851,050 | $ | 21,466,182 | 41,421,352 | |||||||||
| Exchange rate impact | (655,211 | ) | - | - | (655,211 | ) | ||||||||||
| Impairment charge | (11,583,000 | ) | - | - | (11,583,000 | ) | ||||||||||
| Balance December 31, 2016 | $ | 1,865,909 | $ | 5,851,050 | $ | 21,466,182 | $ | 29,183,141 | ||||||||
| F-21 |
The Company’s goodwill and other intangible assets and related accumulated amortization as of December 31, 20152016 and 20142015 consist of the following:
| As of December 31, | As of December 31, | |||||||||||||||
| 2015 | 2014 | 2016 | 2015 | |||||||||||||
| Total goodwill | $ | 43,318,670 | $ | 44,810,467 | $ | 29,183,141 | $ | 43,318,670 | ||||||||
| Other intangible assets not subject to amortization: | ||||||||||||||||
| Intangible assets not subject to amortization: | ||||||||||||||||
| Trade name | $ | 720,000 | $ | 720,000 | $ | 720,000 | $ | 720,000 | ||||||||
| Total other intangible assets not subject to amortization | 720,000 | 720,000 | ||||||||||||||
| Other intangible assets subject to amortization: | ||||||||||||||||
| Total intangible assets not subject to amortization | 720,000 | 720,000 | ||||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||
| Customer relationships | 14,188,406 | 14,462,136 | 13,622,590 | 14,188,406 | ||||||||||||
| Software models | 1,988,194 | 1,988,194 | 1,988,194 | 1,988,194 | ||||||||||||
| Noncompete agreement | 130,000 | 130,000 | 130,000 | 130,000 | ||||||||||||
| Product databases | 8,863,608 | 8,619,588 | 8,608,166 | 8,863,608 | ||||||||||||
| Trade names | 786,878 | 810,000 | 719,085 | 786,878 | ||||||||||||
| Capitalized website and software development | 7,511,193 | 6,153,648 | 9,313,536 | 7,511,193 | ||||||||||||
| Domain names | 160,425 | 160,425 | 160,425 | 160,425 | ||||||||||||
| Total other intangible assets subject to amortization | 33,628,704 | 32,323,991 | ||||||||||||||
| Total intangible assets subject to amortization | 34,541,996 | 33,628,704 | ||||||||||||||
| Less accumulated amortization | (15,674,328 | ) | (12,896,782 | ) | (20,134,178 | ) | (15,674,328 | ) | ||||||||
| Net other intangible assets subject to amortization | 17,954,376 | 19,427,209 | ||||||||||||||
| Total other intangible assets | $ | 18,674,376 | $ | 20,147,209 | ||||||||||||
| Net intangible assets subject to amortization | 14,407,818 | 17,954,376 | ||||||||||||||
| Total intangible assets | $ | 15,127,818 | $ | 18,674,376 | ||||||||||||
Intangible assets were established through business acquisitions and internally developed capitalized website and software development costs. Definite-lived intangible assets are amortized on a straight-line basis over a weighted-average period of approximately 9.99.8 years for customer relationships, 4.7 years for software models, 3.0 years for noncompete agreements, 9.9 years for product databases and 8.38.7 years for trade names.
| F-22 |
Amortization expense totaled approximately $3.1 million, $2.3$4.7 million and $2.4$3.1 million for the years ended December 31, 2015, 20142016 and 2013,2015, respectively. The estimated amortization expense for the next five years and thereafter is as follows:
| For the Years Ended | For the Years Ended | |||||||||
| December 31, | December 31, | Amount | Amount | |||||||
| 2016 | $ | 3,743,107 | ||||||||
| 2017 | 3,501,122 | |||||||||
| 2018 | 2,698,284 | |||||||||
| 2019 | 1,710,601 | |||||||||
| 2020 | 1,701,990 | |||||||||
| Thereafter | 4,599,272 | |||||||||
| Total | $ | 17,954,376 | ||||||||
| 2017 | $ | 3,811,478 | ||||||||
| 2018 | 2,710,592 | |||||||||
| 2019 | 1,888,557 | |||||||||
| 2020 | 1,677,020 | |||||||||
| 2021 | 1,526,446 | |||||||||
| Thereafter | 2,793,725 | |||||||||
| Total | $ | 14,407,818 | ||||||||
(8)(7) Accrued Expenses
Accrued expenses as of December 31, 20152016 and 20142015 consist of the following:
| As of December 31, | ||||||||
| 2015 | 2014 | |||||||
| Payroll and related costs | $ | 1,941,665 | $ | 2,544,215 | ||||
| Tax related | 728,336 | 666,102 | ||||||
| Professional fees | 591,827 | 890,567 | ||||||
| Business development | 391,854 | 467,876 | ||||||
| Advertising | 208,507 | 334,295 | ||||||
| Other liabilities | 1,299,792 | 1,376,027 | ||||||
| Total accrued expenses | $ | 5,161,981 | $ | 6,279,082 | ||||
| As of December 31, | ||||||||
| 2016 | 2015 | |||||||
| Payroll and related costs | $ | 2,261,401 | $ | 1,941,665 | ||||
| Professional fees | 531,876 | 728,336 | ||||||
| Tax related | 531,609 | 591,827 | ||||||
| Business development | 440,668 | 391,854 | ||||||
| Data related costs | 338,064 | 331,918 | ||||||
| Other liabilities | 1,011,940 | 1,176,381 | ||||||
| Total accrued expenses | $ | 5,115,558 | $ | 5,161,981 | ||||
(9)(8) Income Taxes
The Company accounts for its income taxes in accordance with 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 $154$160 million and $149$154 million of federal and state net operating loss carryforwards (“NOL”) as of December 31, 20152016 and 2014,2015, respectively. The Company has a full valuation allowance against its deferred tax assets as management concluded that it was more likely than not that the Company would not realize the benefit of its deferred tax assets by generating sufficient taxable income in future years. The Company expects to continue to provide a full valuation allowance until, or unless, it can sustain a level of profitability that demonstrates its ability to utilize these assets. The ability of the Company to utilize its NOL in full to reduce future taxable income may become subject to various limitations under Section 382 of the Internal Revenue Code of 1986 (“IRC”). The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the purchase and sale of stock by 5% shareholders and the offering of stock by the Company during any three-year period resulting in an aggregate change of more than 50% of the beneficial ownership of the Company. In the event of an ownership change, Section 382 imposes an annual limitation on the amount of these carryforwards that can reduce future taxable income.
| F-23 |
Subject to potential Section 382 limitations, as discussed below, the federal losses are available to offset future taxable income through 20352036 and expire from 2019 through 2035.2036. Since the Company does business in various states and each state has its own rules with respect to the number of years losses may be carried forward, the state net operating loss carryforwards expire from 2016 through 2035.2036. The net operating loss carryforwards as of December 31, 20152016 and 20142015 include approximately $16 million and $16 million, respectively, related to windfall tax benefits for which a benefit would be recorded to additional paid in capital when realized.
In accordance with Section 382 Upon adoption of the Internal Revenue code, the abilityASU 2016-09, all tax effects related to utilize the Company’s net operating loss carryforwards couldshare based payments will be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may berecognized through earnings subject to limitation.valuation allowance considerations so we expect that any potential tax benefits from the adoption of ASU 2016-09 would increase our deferred tax asset which would be offset by a valuation allowance.
The Company is subject to federal, state and local corporate income taxes. The components of the provision for income taxes reflected on the consolidated statements of operations are set forth below:
| For the Years Ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| (in thousands) | 2016 | 2015 | ||||||||||||||||||
| Current taxes: | ||||||||||||||||||||
| U.S. federal | $ | - | $ | 8 | $ | - | $ | - | $ | - | ||||||||||
| State and local | - | 8 | - | - | 0 | |||||||||||||||
| Foreign | 4 | 18 | - | 139 | 4 | |||||||||||||||
| Total current tax expense | $ | 4 | $ | 34 | $ | - | ||||||||||||||
| Total current tax benefit | $ | 139 | $ | 4 | ||||||||||||||||
| Deferred taxes: | ||||||||||||||||||||
| U.S. federal | $ | 809 | $ | 382 | $ | - | $ | 38 | $ | 809 | ||||||||||
| State and local | 368 | 59 | - | 92 | 368 | |||||||||||||||
| Foreign | - | - | - | - | - | |||||||||||||||
| Total deferred tax expense | $ | 1,177 | $ | 441 | $ | - | $ | 130 | $ | 1,177 | ||||||||||
| Total tax expense | $ | 1,181 | $ | 475 | $ | - | $ | 269 | $ | 1,181 | ||||||||||
A reconciliation of the statutory U.S. federal income tax rate to the Company's effective income tax rate is set forth below:
| For the Years Ended December 31, | For the Years Ended December 31, | |||||||||||||||||||
| 2015 | 2014 | 2013 | 2016 | 2015 | ||||||||||||||||
| U.S. statutory federal income tax rate | 34.0 | % | 34.0 | % | 34.0 | % | 34.0 | % | 34.0 | % | ||||||||||
| State income taxes, net of federal tax benefit | (67.2 | ) | 1.1 | 6.3 | 10.2 | % | -67.2 | % | ||||||||||||
| Effect of permanent differences | (35.7 | ) | (9.7 | ) | (2.9 | ) | -0.4 | % | -35.7 | % | ||||||||||
| R&D credit | 26.7 | 0.0 | 0.0 | |||||||||||||||||
| R&D Credit | 0.1 | % | 26.7 | % | ||||||||||||||||
| Foreign Tax Rate Differential | -6.3 | % | -2.9 | % | ||||||||||||||||
| Change to valuation allowance | (281.5 | ) | (37.4 | ) | (37.4 | ) | -39.0 | % | -281.6 | % | ||||||||||
| Foreign rate tax differential | (2.9 | ) | (2.3 | ) | - | |||||||||||||||
| Other | -0.2 | % | - | |||||||||||||||||
| Effective income tax rate | (326.6 | )% | (14.3 | )% | 0.0 | % | -1.6 | % | -326.6 | % | ||||||||||
| F-24 |
The Company has not provided for U.S. federal income and foreign withholding taxes on approximately $1.7 million of undistributed earnings from a non-U.S. subsidiary as of December 31, 2016 because such earnings are intended to be reinvested indefinitely outside of the United States. If these earnings were distributed, foreign tax credits may become available under current law to reduce the resulting U.S. income tax liability. However, it is not practicable to determine the amount of the tax and credits. The foreign earnings that the Company may repatriate to the United States in any year is limited to the amount of current year foreign earnings and are not made out of historic undistributed accumulated earnings. The amount of current year foreign earnings that are available for repatriation is determined after consideration of all foreign cash requirements including working capital needs, potential requirements for litigation and regulatory matters, and merger and acquisition activities, among others.
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company's net deferred tax assets and liabilities are set forth below:
| F-25 |
| As of December 31, | ||||||||
| 2015 | 2014 | |||||||
| (in thousands) | ||||||||
| Deferred tax assets: | ||||||||
| Operating loss carryforward | $ | 70,426 | $ | 63,553 | ||||
| Windfall tax benefit carryforward | (5,332 | ) | (5,332 | ) | ||||
| Capital loss carryforward | 229 | 28 | ||||||
| Intangible assets | (329 | ) | 628 | |||||
| Accrued expenses | 1,158 | 1,753 | ||||||
| Depreciation | 884 | 953 | ||||||
| Other | 1,820 | 1,894 | ||||||
| Total deferred tax assets | 68,856 | 63,477 | ||||||
| Deferred tax liabilities: | ||||||||
| Goodwill | (1,612 | ) | (455 | ) | ||||
| Trademarks | (294 | ) | (274 | ) | ||||
| Total deferred tax liabilities | (1,906 | ) | (729 | ) | ||||
| Less: valuation allowance | (68,856 | ) | (63,477 | ) | ||||
| Net deferred tax liability | $ | (1,906 | ) | $ | (729 | ) | ||
| As of December 31, | ||||||||
| (in thousands) | 2016 | 2015 | ||||||
| Deferred tax assets: | ||||||||
| Operating loss carryforward | $ | 71,334 | $ | 70,426 | ||||
| Windfall tax benefit carryforward | (5,332 | ) | (5,332 | ) | ||||
| Capital loss carryforward | 152 | 229 | ||||||
| Goodwill | 3,089 | - | ||||||
| Intangible assets | 2,339 | (329 | ) | |||||
| Accrued expenses | 1,112 | 1,158 | ||||||
| Depreciation | 551 | 884 | ||||||
| Other | 1,935 | 1,820 | ||||||
| Total deferred tax assets | 75,180 | 68,856 | ||||||
| Goodwill | (1,735 | ) | (1,612 | ) | ||||
| Trademarks | (301 | ) | (294 | ) | ||||
| Total deferred tax liabilities | (2,036 | ) | (1,906 | ) | ||||
| Less: valuation allowance | (75,180 | ) | (68,856 | ) | ||||
| Net deferred tax liability | $ | (2,036 | ) | $ | (1,906 | ) | ||
The Company has no uncertain tax positions pursuant to ASC 740-10 for the years ended December 31, 2015, 20142016 and 2013.2015.
(10)(9) Stockholders’ Equity
Convertible Preferred Stock
Securities Purchase Agreement
On November 15, 2007, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with TCV VI, L.P., a Delaware limited partnership, and TCV Member Fund, L.P., a Delaware limited partnership (collectively, the “Purchasers”).
Pursuant to the Purchase Agreement, the Company sold the Purchasers an aggregate of 5,500 shares of its newly-created Series B convertible preferred stock, par value $0.01 per share (“Series B Preferred Stock”), that are immediately convertible into an aggregate of 3,856,942 shares of its Common Stock at a conversion price of $14.26 per share, and warrants (the “Warrants”) to purchase an aggregate of 1,157,083 shares of Common Stock for $15.69 per share. The consideration paid for the Series B Preferred Stock and the Warrants was $55 million. As of December 31, 2015,2016, no Series B Preferred Stock has been converted and the warrantsWarrants have expired without any shares having been purchased. The Series B Preferred Stock has not been registered and the Company has not registered the shares of Common Stock issuable upon the conversion of the Series B Preferred Stock.
| F-26 |
Investor Rights Agreement
On November 15, 2007, the Company also entered into an Investor Rights Agreement with the Purchasers (the “Investor Rights Agreement”) pursuant to which, among other things, the Company agreed to grant the Purchasers certain registration rights including the right to require the Company to file a registration statement within 30 days to register the Common Stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants and to use its reasonable best efforts to cause the registration to be declared effective within 90 days after the date the registration is filed. To date, no such request has been made.
Certificate of Designation
Pursuant to a Certificate of Designation for the Series B Preferred Stock (the “Certificate of Designation”) filed by the Company with the Secretary of State of the State of Delaware on November 15, 2007: (i) the Series B Preferred Stock has a purchase price per share equal to $10,000 (the “Original Issue Price”); (ii) in the event of any Liquidation Event (as defined in the Certificate of Designation), the holders of shares of Series B Preferred Stock are entitled to receive, prior to any distribution to the holders of the Common Stock, an amount per share equal to the Original Issue Price, plus any declared and unpaid dividends; (iii) the holders of the Series B Preferred Stock have the right to vote on any matter submitted to a vote of the stockholders of the Company and are entitled to vote that number of votes equal to the aggregate number of shares of Common Stock issuable upon the conversion of such holders’ shares of Series B Preferred Stock; (iv) for so long as 40% of the shares of Series B Preferred Stock remain outstanding, the holders of a majority of such shares will have the right to elect one person to the Company’s board of directors; (v) the Series B Preferred Stock automatically converts into an aggregate of 3,856,942 shares of Common Stock in the event that the Common Stock trades on a trading market at or above a closing price equal to $28.52 per share for 90 consecutive trading days and any demand registration previously requested by the holders of the Series B Preferred Stock has become effective; and (vi) so long as 30% of the shares of the currently-outstanding Series B Preferred Stock remain outstanding, the affirmative vote of the holders of a majority of such shares will be necessary to take any of the following actions: (a) authorize, create or issue any class or classes of our capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock or any securities exercisable or exchangeable for, or convertible into, any now or hereafter authorized capital stock ranking senior to, or on a parity with (as to dividends or upon a liquidation event) the Series B Preferred Stock (including, without limitation, the issuance of any shares of Series B Preferred Stock (other than shares of Series B Preferred Stock issued as a stock dividend or in a stock split)); (b) any increase or decrease in the authorized number of shares of Series B Preferred Stock; (c) any amendment, waiver, alteration or repeal of our certificate of incorporation or bylaws in a way that adversely affects the rights, preferences or privileges of the Series B Preferred Stock; (d) the payment of any dividends (other than dividends paid in the capital stock of the Company or any of its subsidiaries) in excess of $0.10 per share per annum on the Common Stock unless after the payment of such dividends we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) in an amount equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; and (e) the purchase or redemption of: (1) any Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us) unless after such purchase or redemption we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference; or (2) any class or series of now or hereafter of our authorized stock that ranks junior to (upon a liquidation event) the Series B Preferred Stock.
F-28
Treasury Stock
In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million of the Company’s Common Stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its Common Stock (except as described above). During the years ended December 31, 20152016 and 2014,2015, the Company did not purchase any shares of Common Stock under the Program. Since inception of the Program, the Company has purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million.
| F-27 |
In addition, pursuant to the terms of the Company’s 2007 Plan, and certain procedures adopted by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by certain of the Company’s employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, the Company may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through December 31, 2015,2016, the Company had withheld an aggregate of 1,670,6231,850,665 shares which have been recorded as treasury stock. In addition, the Company received an aggregate of 208,270211,608 shares as partial settlement of the working capital and debt adjustmentin treasury stock resulting from the acquisition of Corsis Technology Group II LLC and 3,338 shares as partial settlement of the working capital adjustment from the acquisition of Kikucall, Inc.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. During the yearsyear ended December 31, 2015 and 2014, the Company paid a quarterly cash dividend of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. These dividend payments totaled approximately $3.9 million and $3.9 million, respectively. There were no dividends paid during the year ended December 31, 2013.million.
Stock Options
Under the terms of the 1998 Stock Incentive Plan (the “1998 Plan”), 8,900,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, restricted stock, deferred stock, restricted stock units, or any combination thereof. Under the terms of the 2007 Plan, 7,750,000 shares of Common Stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units or other stock-based awards. The 2007 Plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall select in its discretion or delegate to management to select. Only employees of the Company are eligible to receive grants of incentive stock options. Awards generally vest over a three- to five-year period and stock options generally have terms of five to seven years. As of December 31, 2015,2016, there remained approximately 1.81.3 million shares available for future awards under the 2007 Plan. Stock-basedIn connection with awards under both the 2007 Plan and awards issued outside of the Plan as inducement grants to new hires, the Company recorded approximately $1.6 million (inclusive of approximately $105 thousand included in restructuring and other charges) and $1.6 million, of noncash stock-based compensation expense for the years ended December 31, 2016 and 2015, 2014 and 2013 was approximately $1.6 million, $1.8 million and $2.1 million (inclusive of $393 thousand included in restructuring and other charges), respectively.
A stock option represents the right, once the option has vested and become exercisable, to purchase a share of the Company’s Common Stock at a particular exercise price set at the time of the grant. A restricted stock unit (“RSU”) represents the right to receive one share of the Company’s Common Stock (or, if provided in the award, the fair market value of a share in cash) on the applicable vesting date for such RSU. Until the stock certificate for a share of Common Stock represented by an RSU is delivered, the holder of an RSU does not have any of the rights of a stockholder with respect to the Common Stock. However, the grant of an RSU includes the grant of dividend equivalents with respect to such RSU. The Company records cash dividends for RSUs to be paid in the future at an amount equal to the rate paid on a share of Common Stock for each then-outstanding RSU granted. The accumulated dividend equivalents related to outstanding grants vest on the applicable vesting date for the RSU with respect to which such dividend equivalents were credited, and are paid in cash at the time a stock certificate evidencing the shares represented by such vested RSU is delivered.
| F-28 |
A summary of the activity of the 1998 and 2007 PlansPlan, and awards issued outside of the Plan pertaining to stock option grants is as follows:
| Shares Underlying Awards | Weighted Average Exercise Price | Aggregate Intrinsic Value ($000) | Weighted Average Remaining Contractual Life (In Years) | Shares Underlying Awards | Weighted Average Exercise Price | Aggregate Intrinsic Value ($000) | Weighted Average Remaining Contractual Life (In Years) | |||||||||||||||||||||||||
| Awards outstanding, December 31, 2014 | 4,246,041 | $ | 1.90 | |||||||||||||||||||||||||||||
| Awards outstanding, December 31, 2015 | 3,391,607 | $ | 1.87 | |||||||||||||||||||||||||||||
| Options granted | 40,576 | $ | 2.23 | 3,144,358 | $ | 1.21 | ||||||||||||||||||||||||||
| Options exercised | (603 | ) | $ | 1.39 | - | $ | - | |||||||||||||||||||||||||
| Options cancelled | (367,657 | ) | $ | 1.90 | ||||||||||||||||||||||||||||
| Options forfeited | (182,189 | ) | $ | 1.92 | ||||||||||||||||||||||||||||
| Options expired | (526,750 | ) | $ | 2.12 | (453,045 | ) | $ | 1.92 | ||||||||||||||||||||||||
| Awards outstanding, December 31, 2015 | 3,391,607 | $ | 1.87 | $ | 35 | 2.73 | ||||||||||||||||||||||||||
| Awards vested and expected to vest at December 31, 2015 | 3,345,054 | $ | 1.87 | $ | 35 | 2.73 | ||||||||||||||||||||||||||
| Awards exercisable at December 31, 2015 | 2,724,166 | $ | 1.84 | $ | 29 | 2.71 | ||||||||||||||||||||||||||
| Awards outstanding, December 31, 2016 | 5,900,731 | $ | 1.52 | $ | 0 | 3.85 | ||||||||||||||||||||||||||
| Awards vested and expected to vest at December 31, 2016 | 5,822,851 | $ | 1.52 | $ | 0 | 3.82 | ||||||||||||||||||||||||||
| Awards exercisable at December 31, 2016 | 2,682,299 | $ | 1.84 | $ | 0 | 1.03 | ||||||||||||||||||||||||||
A summary of the activity of the 1998 and 2007 PlansPlan pertaining to grants of restricted stock units is as follows:
| Shares Underlying Awards | Aggregate Intrinsic Value ($000) | Weighted Average Remaining Contractual Life (In Years) | Shares Underlying Awards | Aggregate Intrinsic Value ($000) | Weighted Average Remaining Contractual Life (In Years) | |||||||||||||||||||
| Awards outstanding, December 31, 2014 | 1,205,343 | |||||||||||||||||||||||
| Awards outstanding, December 31, 2015 | 806,324 | |||||||||||||||||||||||
| Restricted stock units granted | 104,289 | 557,586 | ||||||||||||||||||||||
| Restricted stock units settled by delivery of Common Stock upon vesting | (490,807 | ) | (478,127 | ) | ||||||||||||||||||||
| Restricted stock units cancelled | (12,501 | ) | ||||||||||||||||||||||
| Awards outstanding, December 31, 2015 | 806,324 | $ | 1,209 | 1.98 | ||||||||||||||||||||
| Awards vested and expected to vest at December 31, 2015 | 793,199 | $ | 1,190 | 1.73 | ||||||||||||||||||||
| Restricted stock units forfeited | (167,788 | ) | ||||||||||||||||||||||
| Awards outstanding, December 31, 2016 | 717,995 | $ | 610 | 1.21 | ||||||||||||||||||||
| Awards vested and expected to vest at December 31, 2016 | 709,495 | $ | 603 | 0.99 | ||||||||||||||||||||
| F-29 |
A summary of the status of the Company’s unvested share-based payment awards as of December 31, 20152016 and changes in the year then ended is as follows:
| Unvested Awards | Awards | Weighted Average Grant Date Fair Value | Awards | Weighted Average Grant Date Fair Value | ||||||||||||
| Shares underlying awards unvested at December 31, 2014 | 3,181,037 | $ | 1.16 | |||||||||||||
| Shares underlying awards unvested at December 31, 2015 | 1,473,765 | $ | 1.44 | |||||||||||||
| Shares underlying options granted | 40,576 | $ | 0.39 | 3,144,358 | $ | 0.37 | ||||||||||
| Shares underlying restricted stock units granted | 104,289 | $ | 2.19 | 557,586 | $ | 1.30 | ||||||||||
| Shares underlying options vested | (981,172 | ) | $ | 0.52 | (411,178 | ) | $ | 0.51 | ||||||||
| Shares underlying restricted stock units issued | (490,807 | ) | $ | 2.18 | ||||||||||||
| Shares underlying unvested options cancelled | (367,657 | ) | $ | 0.58 | ||||||||||||
| Shares underlying unvested restricted stock units cancelled | (12,501 | ) | $ | 1.70 | ||||||||||||
| Shares underlying awards unvested at December 31, 2015 | 1,473,765 | $ | 1.44 | |||||||||||||
| Shares underlying restricted stock units settled by delivery of Common Stock upon vesting | (478,127 | ) | $ | 2.16 | ||||||||||||
| Shares underlying unvested options forfeited | (182,189 | ) | $ | 0.50 | ||||||||||||
| Shares underlying unvested restricted stock units forfeited | (167,788 | ) | $ | 1.25 | ||||||||||||
| Shares underlying awards unvested at December 31, 2016 | 3,936,427 | $ | 0.62 | |||||||||||||
For the years ended December 31, 2016 and 2015, 2014approximately 3.1 million and 2013, approximately 41 thousand 276 thousand, and 1.6 million stock options, respectively, were granted to employees of the Company, and 603, 186 thousandzero and 43 thousand603 options were exercised during the years ended December 31, 2015, 20142016 and 2013,2015, respectively, yielding $838, $303 thousand$0 and $74 thousand,$838, respectively, of cash proceeds to the Company. For the years ended December 31, 2016 and 2015, 2014approximately 558 thousand and 2013, approximately 104 thousand 471 thousand and 1.3 million restricted stock units, respectively, were granted to employees of the Company, and 491 thousand, 723478 thousand and 751491 thousand, respectively, were issued under restricted stock unit grants. For the years ended December 31, 2015, 20142016 and 2013,2015, the total fair value of share-based awards vested was approximately $1.3 million, $2.4 million$696 thousand and $2.1$1.3 million, respectively. For the years ended December 31, 2015, 20142016 and 2013,2015, the total intrinsic value of options exercised was approximately $373, $154 thousand$0 and $16 thousand,$373, respectively. For the years ended December 31, 2015, 20142016 and 2013,2015, the total intrinsic value of restricted stock units that vested was approximately $484 thousand and $840 thousand, $1.7 million and $1.4 million, respectively. As of December 31, 2015,2016, there was approximately $1.8$1.9 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 1.91.8 years.
F-31
(11)(10) Commitments and Contingencies
Operating Leases and Employment Agreements
The Company is committed under operating leases, principally for office space, which expire at various dates through January 2026. Certain leases contain escalation clauses relating to increases in property taxes and maintenance costs. Rent expense was approximately $2.1 million $1.8 million and $1.5$2.1 million for the years ended December 31, 2015, 20142016 and 2013,2015, respectively. Additionally, the Company has agreements with certain of its employees and outside contributors, whose future minimum payments are dependent on the future fulfillment of their services thereunder. As of December 31, 2015,2016, total future minimum cash payments are as follows:
| Payments Due by Year | Payments Due by Year | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contractual obligations: | Total | 2016 | 2017 | 2018 | 2019 | 2020 | After 2020 | Total | 2017 | 2018 | 2019 | 2020 | 2021 | After 2021 | ||||||||||||||||||||||||||||||||||||||||||
| Operating leases | $ | 12,073,785 | $ | 2,566,802 | $ | 2,419,444 | $ | 2,117,147 | $ | 1,996,904 | $ | 1,987,382 | $ | 986,106 | $ | 9,901,098 | $ | 2,548,668 | $ | 2,382,038 | $ | 1,996,904 | $ | 1,987,382 | $ | 186,294 | $ | 799,812 | ||||||||||||||||||||||||||||
| Employment agreement | 5,000,000 | 2,500,000 | 2,500,000 | — | — | — | — | 2,500,000 | 2,500,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Outside contributors | 137,500 | 137,500 | — | — | — | — | — | 137,500 | 137,500 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total contractual cash obligations | $ | 17,211,285 | $ | 5,204,302 | $ | 4,919,444 | $ | 2,117,147 | $ | 1,996,904 | $ | 1,987,382 | $ | 986,106 | $ | 12,538,598 | $ | 5,186,168 | $ | 2,382,038 | $ | 1,996,904 | $ | 1,987,382 | $ | 186,294 | $ | 799,812 | ||||||||||||||||||||||||||||
| F-30 |
Future minimum cash payments for the year ending December 31, 2016 related to operating leases has been reduced by approximately $488 thousand related to payments to be received related to the sublease of office space.
Legal Proceedings
The Company is party to legal proceedings arising in the ordinary course of business or otherwise, none of which is deemed material.
(12)(11) Long Term Investment
During 2008, the Company made an investment in Debtfolio, Inc. (“Debtfolio”), doing business as Geezeo, an online financial management solutions provider for banks and credit unions. The investment totaled approximately $1.9 million for an 18.5% ownership stake. Additionally, the Company incurred approximately $0.2 million of legal fees in connection with this investment. During the first quarter of 2009, the carrying value of the Company’s investment was written down to fair value based upon an estimate of the market value of the Company’s equity in light of Debtfolio’s efforts to raise capital at the time from third parties. The impairment charge approximated $1.5 million. During the three months ended June 30, 2010, the Company determined it was necessary to record a second impairment charge totaling approximately $555 thousand, writing the value of the investment to zero. This was deemed necessary by management based upon their consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity. In October 2011, Debtfolio, Inc. repurchased the Company’s ownership stake in exchange for a subordinated promissory note in the aggregate principal amount of $555 thousand payable on October 31, 2014. On October 28, 2014, a revised subordinated promissory note with revised repayment terms was agreed to which required cash payments totaling $255 thousand during 2014, and eight quarterly installments of approximately $48 thousand plus 5% simple interest during 2015 and 2016. As of December 31, 2015,2016, all required payments have been received. As of December 31, 2015 and 2014, we maintain a full valuation allowance against this subordinated promissory note due to the uncertainty of eventual collection.
F-32
(13)(12) Restructuring and Other Charges
During the year ended December 31, 2013, the Company recognized restructuring and other charges totaling approximately $386 thousand primarily related to noncash stock-based compensation costs in connection with the accelerated vesting of certain restricted stock units for a terminated employee (the “2013 Restructuring”).
The following table displays the activity of the 2013 Restructuring reserve account during the year ended December 31, 2013:
| Restructuring and other charges | $ | 385,610 | ||
| Noncash deductions | (393,195 | ) | ||
| Adjustment to prior estimate | 7,585 | |||
| Ending balance | $ | - |
During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in accessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. The actions were taken after a review of the Company’s cost structure with the goal of better aligning the cost structure with the Company’s revenue base. These restructuring efforts resulted in restructuring and other charges from continuing operations of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company’s acquisition of The Deal LLC (“The Deal”) in September 2012, the Company discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges from continuing operations of approximately $3.5 million during the year ended December 31, 2012. In August 2015, the Company received a one year notice of termination under which the landlord elected to terminate The Deal’s office space lease. As a result, the Company iswas no longer obligated to fulfill the original full lease term. As such,term and the Company recorded an adjustment to its restructuring reserve totaling approximately $1.2 million, resultingwhich resulted in a restructuring and other charges credit on the Company’s Consolidated Statements of Operations. Additionally, the Company received a lease termination credit of approximately $583 thousand from the landlord when the office space was vacated in August 2016. Collectively, these activities are referred to as the “2012 Restructuring”.
| F-31 |
The following table displays the activity of the 2012 Restructuring reserve account from the initial charges during the first quarter of 2012 through December 31, 2015. The remaining balance as of December 31, 2015 relates to the lease for The Deal’s office space which expires in August 2016.
| Workforce Reduction | Asset Write-Off | Termination of Vendor Services | Lease Termination | Total | ||||||||||||||||
| Restructuring charge | $ | 3,307,330 | $ | 954,302 | $ | 531,828 | $ | 2,085,000 | $ | 6,878,460 | ||||||||||
| Noncash charges | (222,215 | ) | (954,302 | ) | (220,178 | ) | - | (1,396,695 | ) | |||||||||||
| Payments | (2,462,425 | ) | - | (148,816 | ) | (190,518 | ) | (2,801,759 | ) | |||||||||||
| Balance December 31, 2012 | 622,690 | - | 162,834 | 1,894,482 | 2,680,006 | |||||||||||||||
| Adjustments to prior estimates | (7,586 | ) | - | 5,446 | 27,130 | 24,990 | ||||||||||||||
| (Payments)/sublease income, net | (615,104 | ) | - | (168,280 | ) | (640,200 | ) | (1,423,584 | ) | |||||||||||
| Balance December 31, 2013 | - | - | - | 1,281,412 | 1,281,412 | |||||||||||||||
| Adjustment to prior estimates | - | - | - | 44,678 | 44,678 | |||||||||||||||
| (Payments)/sublease income, net | - | - | - | 58,646 | 58,646 | |||||||||||||||
| Balance December 31, 2014 | - | - | - | 1,384,736 | 1,384,736 | |||||||||||||||
| Adjustment to prior estimates | - | - | - | (1,196,834 | ) | (1,196,834 | ) | |||||||||||||
| (Payments)/sublease income, net | - | - | - | (88,593 | ) | (88,593 | ) | |||||||||||||
| Balance December 31, 2015 | $ | - | $ | - | $ | - | $ | 99,309 | $ | 99,309 | ||||||||||
In March 2009, the Company announced and implemented a reorganization plan, including an approximate 8% reduction in the Company’s workforce, to align the Company’s resources with its strategic business objectives. Additionally, effective March 21, 2009 the Company’s then chief executive officer tendered his resignation, effective May 8, 2009 the Company’s then chief financial officer tendered his resignation, and in December 2009 the Company sold its Promotions.com subsidiary and entered into negotiations to sublease certain office space maintained by Promotions.com. As a result of these activities, the Company incurred restructuring and other charges from continuing operations of approximately $3.5 millionconclusion during the year ended December 31, 2009 (the “2009 Restructuring”). During the year ended December 31, 2012, the Company recorded a reduction to previously estimated charges resulting in a net credit of approximately $289 thousand.2016.
| Workforce Reduction | Asset Write- Off | Termination of Vendor Services | Lease Termination | Total | ||||||||||||||||
| Restructuring charge | $ | 3,307,330 | $ | 954,302 | $ | 531,828 | $ | 2,085,000 | $ | 6,878,460 | ||||||||||
| Noncash charges | (222,215 | ) | (954,302 | ) | (220,178 | ) | - | (1,396,695 | ) | |||||||||||
| Payments | (2,462,425 | ) | - | (148,816 | ) | (190,518 | ) | (2,801,759 | ) | |||||||||||
| Balance December 31, 2012 | 622,690 | - | 162,834 | 1,894,482 | 2,680,006 | |||||||||||||||
| Adjustments to prior estimates | (7,586 | ) | - | 5,446 | 27,130 | 24,990 | ||||||||||||||
| (Payments)/sublease income, net | (615,104 | ) | - | (168,280 | ) | (640,200 | ) | (1,423,584 | ) | |||||||||||
| Balance December 31, 2013 | - | - | - | 1,281,412 | 1,281,412 | |||||||||||||||
| Adjustment to prior estimates | - | - | - | 44,678 | 44,678 | |||||||||||||||
| (Payments)/sublease income, net | - | - | - | 58,646 | 58,646 | |||||||||||||||
| Balance December 31, 2014 | - | - | - | 1,384,736 | 1,384,736 | |||||||||||||||
| Adjustment to prior estimates | - | - | - | (1,196,834 | ) | (1,196,834 | ) | |||||||||||||
| (Payments)/sublease income, net | - | - | - | (88,593 | ) | (88,593 | ) | |||||||||||||
| Balance December 31, 2015 | - | - | - | 99,309 | 99,309 | |||||||||||||||
| Adjustment to prior estimates | - | - | - | (78,828 | ) | (78,828 | ) | |||||||||||||
| (Payments)/sublease income, net | - | - | - | (20,481 | ) | (20,481 | ) | |||||||||||||
| Balance December 31, 2016 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
The following table displaysshows, by reportable segment, the activityamounts expensed and paid for our 2012 Restructuring and the remaining accrued balance of restructuring costs as of December 31, 2016:
| The Deal / BoardEx | RateWatch | Business to Consumer | Total | |||||||||||||
| Restructuring charge | $ | 3,459,836 | $ | 218,129 | $ | 3,200,495 | $ | 6,878,460 | ||||||||
| Noncash charges | - | (38,707 | ) | (1,357,988 | ) | (1,396,695 | ) | |||||||||
| Payments | (1,295,452 | ) | (105,867 | ) | (1,400,440 | ) | (2,801,759 | ) | ||||||||
| Balance December 31, 2012 | 2,164,384 | 73,554 | 442,068 | 2,680,006 | ||||||||||||
| Adjustments to prior estimates | 27,130 | (1,436 | ) | (704 | ) | 24,990 | ||||||||||
| Payments | (910,102 | ) | (72,119 | ) | (441,363 | ) | (1,423,584 | ) | ||||||||
| Balance December 31, 2013 | 1,281,412 | - | - | 1,281,412 | ||||||||||||
| Adjustments to prior estimates | 44,678 | - | - | 44,678 | ||||||||||||
| (Payments)/sublease income, net | 58,646 | - | - | 58,646 | ||||||||||||
| Balance December 31, 2014 | 1,384,736 | - | - | 1,384,736 | ||||||||||||
| Adjustments to prior estimates | (1,196,834 | ) | - | - | (1,196,834 | ) | ||||||||||
| (Payments)/sublease income, net | (88,593 | ) | - | - | (88,593 | ) | ||||||||||
| Balance December 31, 2015 | 99,309 | - | - | 99,309 | ||||||||||||
| Adjustments to prior estimates | (78,828 | ) | - | - | (78,828 | ) | ||||||||||
| (Payments)/sublease income, net | (20,481 | ) | - | - | (20,481 | ) | ||||||||||
| Balance December 31, 2016 | $ | - | $ | - | $ | - | $ | - | ||||||||
During the three months ended March 31, 2016, the Company announced the resignation of the 2009 Restructuring reserve accountCompany’s President and Chief Executive Officer, who was also a member of the Company’s Board of Directors. In connection with this resignation, the Company paid severance, will provide continuing medical coverage for 18 months, and incurred recruiting fees, resulting in restructuring and other charges of approximately $1.5 million. Additionally, in August 2016 the Company received the lease termination fee from the initiallandlord when The Deal’s office space was vacated resulting in a reduction to restructuring and other charges duringof approximately $583 thousand.
(13) Change in Fair Value of Contingent Consideration
During the first quarter 2009 throughthree months ended December 31, 2016, the Company reduced its conclusionestimate of the acquisition contingent earn-out payable to the former owners of Management Diagnostics LLC based upon revised 2017 revenue estimates, a resulting in 2014.restructuring and other charges credit of approximately $1.8 million.
| Restructuring and other charges | $ | 3,460,914 | ||
| Noncash charges | (451,695 | ) | ||
| Payments | (1,779,163 | ) | ||
| Balance December 31, 2009 | 1,230,056 | |||
| Payments | (385,295 | ) | ||
| Balance December 31, 2010 | 844,761 | |||
| Payments | (170,396 | ) | ||
| Balance December 31, 2011 | 674,365 | |||
| Payments | (165,401 | ) | ||
| Reduction to prior estimate | (288,667 | ) | ||
| Balance December 31, 2012 | 220,297 | |||
| Payments | (124,023 | ) | ||
| Balance December 31, 2013 | 96,274 | |||
| Reduction to prior estimate | (75,603 | ) | ||
| Payments | (20,671 | ) | ||
| Balance December 31, 2014 | $ | - |
(14) Other Liabilities
Other liabilities consist of the following:
| As of December 31, | As of December 31, | |||||||||||||||
| 2015 | 2014 | 2016 | 2015 | |||||||||||||
| Deferred rent | $ | 1,904,319 | $ | 1,870,583 | ||||||||||||
| Acquisition contingent earn-out | $ | 2,590,339 | $ | 2,602,105 | 907,657 | 2,590,339 | ||||||||||
| Deferred rent | 1,870,583 | 2,301,999 | ||||||||||||||
| Deferred revenue | 897,453 | 619,443 | 460,748 | 897,453 | ||||||||||||
| Other liabilities | 2,092 | 1,892 | 2,092 | 2,092 | ||||||||||||
| Noncurrent restructuring charges | - | 1,384,736 | ||||||||||||||
| $ | 5,360,467 | $ | 6,910,175 | $ | 3,274,816 | $ | 5,360,467 | |||||||||
(15) Employee Benefit Plan
The Company maintains a noncontributory savings plan in accordance with Section 401(k) of the Internal Revenue Code. The 401(k) plan covers all eligible employees. For the yearyears ended December 31, 2013,2016 and 2015, the plan provided an employer match of 100% of employee contributions, up to a maximum of 6% of each employee’s total compensation within statutory limits, and effective January 1, 2014, the Company increased its matching contribution toof 100% of employee contributions, up to a maximum of 8% of each employee’s total compensation within statutory limits. The Company’s matching contribution totaled approximately $1.7 million $1.4and $1.7 million and $759 thousand for the years ended December 31, 2015, 20142016 and 2013,2015, respectively.
F-35
| F-32 |
(16) Subsequent EventSelected Quarterly Financial Data (Unaudited)
| For the Year Ended December 31, 2016 | ||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Total net revenue | $ | 16,069 | $ | 16,293 | $ | 15,214 | $ | 15,924 | ||||||||
| Total operating expense (Note 1) | 19,208 | 17,173 | 16,097 | 28,233 | ||||||||||||
| Net loss | (3,444 | ) | (1,211 | ) | (1,221 | ) | (11,639 | ) | ||||||||
| Preferred stock cash dividends | - | - | - | - | ||||||||||||
| Net loss attributable to common stockholders | $ | (3,444 | ) | $ | (1,211 | ) | $ | (1,221 | ) | $ | (11,639 | ) | ||||
| Basic and diluted net loss attributable to common stockholders | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.33 | ) | ||||
On February 23,
| For the Year Ended December 31, 2015 | ||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Total net revenue | $ | 16,890 | $ | 17,137 | $ | 16,662 | $ | 16,967 | ||||||||
| Total operating expense (Note 2) | 17,601 | 17,521 | 16,033 | 16,740 | ||||||||||||
| Net (loss) income | (977 | ) | (671 | ) | 354 | (249 | ) | |||||||||
| Preferred stock cash dividends | 96 | 96 | 96 | 96 | ||||||||||||
| Net (loss) income attributable to common stockholders | $ | (1,073 | ) | $ | (768 | ) | $ | 258 | $ | (346 | ) | |||||
| Basic and diluted net (loss) income attributable to common stockholders | $ | (0.03 | ) | $ | (0.02 | ) | $ | 0.01 | $ | (0.01 | ) | |||||
Note 1: During the three months ended March 31, 2016, the Company announced that its Board of Directors had appointed Lawrence S. Kramer as interim President and Chief Executive Officer. The appointment followed the resignation of Elisabeth DeMarse as the Company’s President and Chief Executive Officer resulting in restructuring and memberother charges of approximately $1.4 million, with an additional $163 thousand charge recorded during the three months ended June 30, 2016. Additionally, during the three months ended March 31, 2016, the Company recorded a $1.2 million provision as an estimate for state and municipal sales tax not collected on sales to our customers or remitted to various states or municipalities, with an additional $120 thousand recorded during the three months ended June 30, 2016. During the three months ended September 30, 2016, the Company received a lease termination credit of approximately $583 thousand resulting from the termination of The Deal’s office space lease. During the three months ended December 31, 2016, the Company reduced its estimate of the Board of Directors. The change was effective immediately. The Company also entered into a Separation Agreement and Release of All Claims with Ms. DeMarse (the “Separation Agreement”). Pursuantacquisition contingent earn-out payable to the termsformer owners of Management Diagnostics LLC based upon revised 2017 revenue estimates, a resulting in a change in fair value of contingent consideration credit of approximately $1.8 million. Additionally, during the three months ended December 31, 2016 the Company recorded an impairment of goodwill of approximately $11.6 million, reversed $700 thousand of the Separation Agreement, Ms. DeMarse has agreedsales tax provision that had been recorded earlier in the year, and recorded catch up amortization expense of $1.5 million related to provide transition services to the Company through February 29, 2016 (the “Separation Date”)capitalized software and to release certain claims she may have against the Company and other released parties. The Company has agreed to pay or otherwise provide Ms. DeMarse with (1) amounts earned as an employee through the Separation Date, (2) an amount equal to $1,104,000, which reflects the amount of the cash payment to which Ms. DeMarse would have been entitled under her existing Amended and Restated Severance Agreement with the Company had she been terminated without cause, (3) reimbursement for premiums to continue Ms. DeMarse’s medical coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for 18 months, at the coverage levels in effect immediately prior to the Separation Date.website development projects.
(17) Selected Quarterly Financial Data (Unaudited)
| F-33 |
| For the Year Ended December 31, 2015 | ||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Total net revenue | $ | 16,890 | $ | 17,137 | $ | 16,662 | $ | 16,967 | ||||||||
| Total operating expense (Note) | 17,601 | 17,521 | 16,033 | 16,740 | ||||||||||||
| Net (loss) income | (977 | ) | (671 | ) | 354 | (249 | ) | |||||||||
| Preferred stock cash dividends | 96 | 96 | 96 | 96 | ||||||||||||
| Net (loss) income attributable to common stockholders | $ | (1,073 | ) | $ | (768 | ) | $ | 258 | $ | (346 | ) | |||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (0.03 | ) | $ | (0.02 | ) | $ | 0.01 | $ | (0.01 | ) | |||||
| For the Year Ended December 31, 2014 | ||||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Total net revenue | $ | 14,389 | $ | 14,762 | $ | 14,619 | $ | 17,283 | ||||||||
| Total operating expense | 15,554 | 15,435 | 15,113 | 18,355 | ||||||||||||
| Net loss | (1,127 | ) | (642 | ) | (467 | ) | (1,556 | ) | ||||||||
| Preferred stock cash dividends | 96 | 96 | 96 | 96 | ||||||||||||
| Net loss attributable to common stockholders | $ | (1,223 | ) | $ | (738 | ) | $ | (563 | ) | $ | (1,652 | ) | ||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Net loss attributable to common stockholders | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.05 | ) | ||||
Note:Note 2: In August 2015, the Company received a one year notice of termination under which the landlord elected to terminate The Deal’s office space lease resulting in a $1.2 million restructuring and other charges reduction to total operating expense.
(17) Segment and Geographic Data
Segments
Effective October 1, 2016 and a result of organizational changes related to our new management team in 2016, we changed our financial reporting to better reflect how we gather and analyze business and financial information about our businesses. We now report our results in three segments: (i) The Deal / BoardEx and (ii) RateWatch, which comprise our business to business segment, and (iii) business to consumer, which is primarily comprised of the Company’s premium subscription newsletter products and website advertising. We have revised our 2015 financial results to conform to the 2016 presentation.
| F-34 |
| For the Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Revenue: | ||||||||
| - The Deal / BoardEx | $ | 22,130,695 | $ | 21,716,721 | ||||
| - RateWatch | 7,192,706 | 7,275,399 | ||||||
| Total business to business | 29,323,401 | 28,992,120 | ||||||
| - Business to consumer | 34,176,130 | 38,663,780 | ||||||
| Total | $ | 63,499,531 | $ | 67,655,900 | ||||
| Operating (loss) income: | ||||||||
| - The Deal / BoardEx | $ | (14,714,304 | ) | $ | (3,344,626 | ) | ||
| - RateWatch | (484,439 | ) | 128,168 | |||||
| Total business to business | (15,198,743 | ) | (3,216,458 | ) | ||||
| - Business to consumer | (2,012,844 | ) | 2,977,433 | |||||
| Total | $ | (17,211,587 | ) | $ | (239,025 | ) | ||
| Net interest (expense) income: | ||||||||
| - The Deal / BoardEx | $ | (90,867 | ) | $ | (142,694 | ) | ||
| - RateWatch | 9,862 | 3,177 | ||||||
| Total business to business | (81,005 | ) | (139,517 | ) | ||||
| - Business to consumer | 46,884 | 16,880 | ||||||
| Total | $ | (34,121 | ) | $ | (122,637 | ) | ||
| Provision for income taxes: | ||||||||
| - The Deal / BoardEx | $ | 138,816 | $ | 382,043 | ||||
| - RateWatch | 6,978 | 126,612 | ||||||
| Total business to business | 145,794 | 508,655 | ||||||
| - Business to consumer | 123,213 | 672,686 | ||||||
| Total | $ | 269,007 | $ | 1,181,341 | ||||
| Net (loss) income: | ||||||||
| - The Deal / BoardEx | $ | (14,943,987 | ) | $ | (3,869,363 | ) | ||
| - RateWatch | (481,555 | ) | 4,733 | |||||
| Total business to business | (15,425,542 | ) | (3,864,630 | ) | ||||
| - Business to consumer | (2,089,173 | ) | 2,321,627 | |||||
| Total | $ | (17,514,715 | ) | $ | (1,543,003 | ) | ||
| F-35 |
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
In 2016 and 2015, substantially all of the Company’s revenue were from customers in the United States and substantially all of our long-loved 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.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2015, 20142016 and 20132015
| Allowance for Doubtful Accounts | Balance at Beginning of Period | Provisions Charged to Expense | Write- offs | Balance at End of Period | Balance at Beginning of Period | Provision (Recovery) Charged to Expense | Write- offs | Balance at End of Period | ||||||||||||||||||||||||
| For the year ended December 31, 2016 | $ | 357,417 | $ | (21,458 | ) | $ | 19,755 | $ | 316,204 | |||||||||||||||||||||||
| For the year ended December 31, 2015 | $ | 318,141 | $ | 129,108 | $ | 89,832 | $ | 357,417 | $ | 318,141 | $ | 129,108 | $ | 89,832 | $ | 357,417 | ||||||||||||||||
| For the year ended December 31, 2014 | $ | 202,207 | $ | 202,340 | $ | 86,406 | $ | 318,141 | ||||||||||||||||||||||||
| For the year ended December 31, 2013 | $ | 165,291 | $ | 80,819 | $ | 43,903 | $ | 202,207 | ||||||||||||||||||||||||
F-37
| F-36 |
EXHIBIT INDEX
| Exhibit | Incorporated by Reference | |||||||||
| Number | Description | Form | File No. | Exhibit | Filing Date | |||||
| 3.1 | Amended and Restated Bylaws of the Company. | 8-K | 000-25779 | 3.1 | March 19, 2015 | |||||
| 3.2 | Restated Certificate of Incorporation of the Company. | 10-K | 000-25779 | 3.1 | March 14, 2011 | |||||
| 3.3 | Certificate of Amendment dated May 31, 2011 to Restated Certificate of Incorporation. | 8-K | 000-25779 | 99.1 | June 2, 2011 | |||||
| 3.4 | Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of Delaware on November 15, 2007. | 8-K | 000-25779 | 3.1 | November 20, 2007 | |||||
| 4.1 | Specimen certificate for the Company’s shares of Common Stock. | S-1/A | 333-72799 | 4.3 | April 19, 1999 | |||||
| 4.2 | Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 4.1 | November 20, 2007 | |||||
| 10.1 | Stock Purchase Agreement, dated October 7, 2014 by and between TheStreet, Inc., The Deal, LLC and Management Diagnostics Limited. | 10-K | 000-25779 | 10.1 | March 5, 2015 | |||||
| 10.2+ | Severance Agreement Between TheStreet, Inc. and Erwin Eichmann, dated November 5, 2014 | 10-Q | 000-25779 | 10.1 | November 7, 2014 | |||||
| 10.3+ | Separation Agreement and Release of All Claims dated as of December 16, 2015 between the Company and Erwin Eichmann | |||||||||
| 10.4+ | Form of Indemnification Agreement for directors and executive officers of the Company. | 10-K | 000-25779 | 10.26 | March 7, 2012 | |||||
| 10.5+ | Amended and Restated 2007 Performance Incentive Plan. | 14A | 000-25779 | April 30, 2013 | ||||||
| 10.6 | Agreement of Lease, dated July 22, 1999, between 14 Wall Street Holdings 1, LLC (as successor to W12/14 Wall Acquisition Associates LLC) and the Company. | 10-Q | 000-25779 | 10.1 | August 16, 1999 | |||||
| 10.7 | Amendment of Lease dated October 31, 2001, between 14 Wall Street Holdings 1, LLC (as successor to W12/14 Wall Acquisition Associates LLC) and the Company. | 10-K | 000-25779 | 10.12 | March 16, 2005 | |||||
| 10.8 | Second Amendment of Lease dated March 21, 2007, between 14 Wall Street Holdings 1, LLC and the Company. | 10-K | 000-25779 | 10.24 | March 14, 2008 | |||||
| 10.9 | Third Amendment of Lease dated December 31, 2008, between CRP/Capstone 14W Property Owner, L.L.C. and the Company. | 10-K | 000-25779 | 10.22 | March 13, 2009 | |||||
| 10.10 | Stock Purchase Agreement dated November 1, 2007 by and among BFPC Newco LLC, Larry Starkweather, Kyle Selberg, Rachelle Zorn, Robert Quinn and Larry Starkweather as Agent. | 8-K | 000-25779 | 2.1 | November 6, 2007 | |||||
| 10.11 | Securities Purchase Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 10.1 | November 20, 2007 | |||||
| 10.12 | Equity Interest Purchase Agreement, dated as of September 11, 2012 between TheStreet, Inc. and WPPN, L.P. | 8-K | 000-25779 | 2.1 | September 12, 2012 | |||||
| Exhibit | Incorporated by Reference | |||||||||
| Number | Description | Form | File No. | Exhibit | Filing Date | |||||
| 3.1 | Amended and Restated Bylaws of the Company. | 8-K | 000-25779 | 3.1 | June 28, 2016 | |||||
| 3.2 | Restated Certificate of Incorporation of the Company. | 10-K | 000-25779 | 3.1 | March 14, 2011 | |||||
| 3.3 | Certificate of Amendment dated May 31, 2011 to Restated Certificate of Incorporation. | 8-K | 000-25779 | 99.1 | June 2, 2011 | |||||
| 3.4 | Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of Delaware on November 15, 2007. | 8-K | 000-25779 | 3.1 | November 20, 2007 | |||||
| 4.1 | Specimen certificate for the Company’s shares of Common Stock. | S-1/A | 333-72799 | 4.3 | April 19, 1999 | |||||
| 4.2 | Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 4.1 | November 20, 2007 | |||||
| 10.1+ | Form of Indemnification Agreement for directors and executive officers of the Company. | 10-K | 000-25779 | 10.26 | March 7, 2012 | |||||
| 10.2 | Amended and Restated 2007 Performance Incentive Plan. | 14A | 000-25779 | April 30, 2013 | ||||||
| 10.3 | Third Lease Amendment Agreement dated December 31, 2008, between CRP/Capstone 14W Property Owner, L.L.C. and the Company. | 10-K | 000-25779 | 10.22 | March 13, 2009 | |||||
| 10.4 | Securities Purchase Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P. | 8-K | 000-25779 | 10.1 | November 20, 2007 | |||||
| 10.5+ | Agreement for Grant of Incentive Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.2 | May 7, 2012 | |||||
| 10.6+ | Agreement for Grant of Non-Qualified Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.3 | May 7, 2012 | |||||
| 10.7+ | Stock Purchase Agreement dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.4 | May 7, 2012 | |||||
| 10.8+ | Amended and Restated Severance Agreement dated as of December 21, 2015 between the Company and Elisabeth DeMarse. | 10-K | 000-25779 | 10.17 | March 9, 2016 | |||||
| 10.9+ | Separation Agreement and Release of All Claims dated as of February 22, 2016 between the Company and Elisabeth DeMarse. | 10-K | 000-25779 | 10.18 | March 9, 2016 | |||||
| 10.13+ | Employment Letter dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.1 | May 7, 2012 | |||||
| 10.14+ | Agreement for Grant of Incentive Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.2 | May 7, 2012 | |||||
| 10.15+ | Agreement for Grant of Non-Qualified Stock Options dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.3 | May 7, 2012 | |||||
| 10.16+ | Stock Purchase Agreement dated as of March 7, 2012 between the Company and Elisabeth DeMarse. | 10-Q | 000-25779 | 10.4 | May 7, 2012 | |||||
| 10.17+ | Amended and Restated Severance Agreement dated as of December 21, 2015 between the Company and Elisabeth DeMarse. | |||||||||
| 10.18+ | Separation Agreement and Release of All Claims dated as of February 22, 2016 between the Company and Elisabeth DeMarse. | |||||||||
| 10.19+ | Employment Offer Letter dated as of August 13, 2012 between the Company and Erwin Eichmann. | 10-K | 000-25773 | 10.23 | February 22, 2013 | |||||
| 10.20+ | Sign-On Bonus Offer Letter dated as of August 13, 2012 between the Company and Erwin Eichmann. | 10-K | 000-25773 | 10.24 | February 22, 2013 | |||||
| 10.21+ | Agreement for Grant of Incentive Stock Option dated as of August 17, 2012 between the Company and Erwin Eichmann. | 10-K | 000-25773 | 10.25 | February 22, 2013 | |||||
| 10.22+ | Employment Offer Letter dated as of February 1, 2013 between the Company and John C. Ferrara. | 10-K | 000-25773 | 10.26 | February 22, 2013 | |||||
| 10.23+ | Separation Agreement and General Release dated as of November 2, 2015 between the Company and John C. Ferrara. | 10-Q | 000-25779 | 10.2 | November 5, 2015 | |||||
| 10.24+ | Form of Stock Option Grant Agreement under the Company’s 2007 Performance Incentive Plan. | 10-K | 000-25779 | 10.19 | February 28, 2014 | |||||
| 10.25+ | Form of Agreement of Restricted Stock Units Under the Company’s 2007 Performance Incentive Plan. | 10-K | 000-25779 | 10.20 | February 28, 2014 | |||||
| 10.26+ | Employment Agreement dated as of November 14, 2013 between James J. Cramer and the Company. | 10-K | 000-25779 | 10.21 | February 28, 2014 | |||||
| 10.27 | Employment Offer Letter dated as of July 18, 2013 between the Company and Vanessa J. Soman. | 10-K | 000-25779 | 10.22 | February 28, 2014 | |||||
| 10.28+ | Severance Agreement between TheStreet, Inc. and Vanessa J. Soman, dated January 26, 2015. | 10-Q | 000-25779 | 10.1 | August 7, 2015 | |||||
| 10.29+ | Separation Agreement and General Release dated as of September 22, 2015 between the Company and Vanessa J. Soman. | 10-Q | 000-25779 | 10.1 | November 5, 2015 | |||||
| 10.30+ | Employment Offer Letter dated as of January 19, 2016 between the Company and Eric Lundberg. | |||||||||
| 10.31+ | Severance Agreement dated as of January 19, 2016 between the Company and Eric Lundberg. | |||||||||
| 10.32+ | Agreement for Grant of Non-Qualified Stock Option dated as of January 19, 2016 between the Company and Eric Lundberg. |
| Form of Stock Option Grant Agreement under the Company’s 2007 Performance Incentive Plan. | 10-K | 000-25779 | 10.19 | February 28, 2014 | ||||||
| 10.11+ | Form of Agreement of Restricted Stock Units Under the Company’s 2007 Performance Incentive Plan. | 10-K | 000-25779 | 10.20 | February 28, 2014 | |||||
| 10.12+ | Employment Agreement dated as of November 14, 2013 between James J. Cramer and the Company. | 10-K | 000-25779 | 10.21 | February 28, 2014 | |||||
| 10.13+ | Employment Offer Letter dated as of January 19, 2016 between the Company and Eric Lundberg. | 10-K | 000-25779 | 10.30 | March 9, 2016 | |||||
| 10.14+ | Severance Agreement dated as of January 19, 2016 between the Company and Eric Lundberg. | 10-K | 000-25779 | 10.31 | March 9, 2016 | |||||
| 10.15+ | Agreement for Grant of Non-Qualified Stock Option dated as of January 19, 2016 between the Company and Eric Lundberg. | 10-K | 000-25779 | 10.32 | March 9, 2016 | |||||
| 10.16+ | Employment Offer Letter dated as of June 9, 2016 between the Company and David Callaway. | 10-Q | 000-25779 | 10.1 | August 3, 2016 | |||||
| 10.17+ | Severance Agreement dated as of July 6, 2016 between the Company and David Callaway. | 10-Q | 000-25779 | 10.2 | August 3, 2016 | |||||
| 10.18+ | Agreement for Grant of Non-Qualified Stock Option dated as of July 6, 2016 between the Company and David Callaway. | 10-Q | 000-25779 | 10.3 | August 3, 2016 | |||||
| 10.19+ | Director Compensation Policy. | |||||||||
| 21.1 | Subsidiaries of the Company. | |||||||||
| 23.1 | Consent of BDO USA, LLP. | |||||||||
| 31.1 | Rule 13a-14(a) Certification of CEO. | |||||||||
| 31.2 | Rule 13a-14(a) Certification of CFO. | |||||||||
| 32.1 | Section 1350 Certification of CEO. | |||||||||
| 32.2 | Section 1350 Certification of CFO. | |||||||||
| 101.INS* | XBRL Instance Document | |||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Document | |||||||||
| 101.DEF* | XBRL Taxonomy Extension Definitions Document | |||||||||
| 101.LAB* | XBRL Taxonomy Extension Labels Document | |||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Document |
| + | Indicates management contract or compensatory plan or arrangement |
| * | Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. |