Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended:
September 30, 2008
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from: _______ to _______
Commission
file number: 333-141141
interCLICK,
Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
01-0692341
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
257
Park Avenue South
Suite
602
New
York, NY
|
10010
|
(Address
of Principal Executive Offices)
|
(Zip
code)
|
|
|
(646)
722-6260
Registrant’s
Telephone Number, Including Area Code
|
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES
x NO
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer
o
|
Accelerated
Filer
o
|
Non-Accelerated
Filer
o
|
Smaller
reporting company
x
|
(Do
not
check if a smaller reporting company)
As
of
November 5,
2008,
37,845,167 shares of common stock,
$0.001
par value per share, of the issuer were outstanding.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS,
INC.)
Table
of Contents
|
|
|
|
Page
|
|
|
|
|
|
Part
I
|
FINANCIAL
INFORMATION
|
|
|
1
|
|
|
|
|
|
Item 1.
|
Financial
Statements
|
|
|
1
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets - September 30, 2008 (unaudited) and
December
31, 2007
|
|
|
1
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations for the three and nine months
ended September 30, 2008 and 2007 (unaudited)
|
|
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Changes in Stockholder's Equity for the
nine
months ended September 30, 2008 (unaudited)
|
|
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Cash Flows for the nine months ended
September 30, 2008 and 2007 (unaudited)
|
|
|
4
|
|
|
|
|
|
|
Notes
to the Unaudited Condensed Consolidated Financial
Statements
|
|
|
6
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Conditions and Results of
Operation
|
|
|
22
|
|
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
|
|
29
|
|
|
|
|
|
Part
II
|
OTHER
INFORMATION
|
|
|
30
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
|
|
30
|
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.)
Forward-Looking
Statements
This quarterly
report on Form 10-Q and other written reports and oral statements made from
time
to time by the Company may contain so-called “forward-looking statements,” all
of which are subject to risks and uncertainties. Forward-looking statements
can
be identified by the use of words such as “expects,” “plans,” “will,”
“forecasts,” “projects,” “intends,” “estimates,” and other words of similar
meaning. One can identify them by the fact that they do not relate strictly
to
historical or current facts. These statements are likely to address our growth
strategy, financial results, ability to raise additional capital and product
and
development programs. One must carefully consider any such statement and should
understand that many factors could cause actual results to differ from our
forward looking statements. These factors may include inaccurate assumptions
and
a broad variety of other risks and uncertainties, including some that are known
and some that are not. No forward looking statement can be guaranteed and actual
future results may vary materially.
Information
regarding market and industry statistics contained in this quarterly report
on
Form 10-Q is included based on information available to us that we believe
is
accurate. It is generally based on industry and other publications that are
not
produced for purposes of securities offerings or economic analysis. We have
not
reviewed or included data from all sources, and cannot assure investors of
the
accuracy or completeness of the data included in this quarterly report of Form
10-Q. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance
of products and services. We do not assume any obligation to update any
forward-looking statement. As a result, investors should not place undue
reliance on these forward-looking statements.
The
forward-looking statements included in this quarterly report on Form 10-Q are
made only as of the date of this quarterly report on Form 10-Q. We do not
intend, and do not assume any obligations, to update these forward looking
statements, except as required by law.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
PART
I.
FINANCIAL
INFORMATION
Item
1. Condensed Consolidated Financial Statements
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
611,189
|
|
$
|
3,675,483
|
|
Accounts
receivable, net of allowance of $345,208 and
$150,000
|
|
|
4,703,829
|
|
|
3,390,302
|
|
Prepaid
expenses and other current assets
|
|
|
205,796
|
|
|
55,750
|
|
Total
current assets
|
|
|
5,520,814
|
|
|
7,121,535
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
633,523
|
|
|
512,031
|
|
Intangible
assets, net
|
|
|
714,683
|
|
|
1,028,621
|
|
Goodwill
|
|
|
7,909,571
|
|
|
7,909,571
|
|
Investment
in Options Media Group Holdings, Inc.
|
|
|
1,694,000
|
|
|
-
|
|
Deferred
debt issue costs, net of accumulated amortization of
|
|
|
|
|
|
|
|
$0
and $13,932, respectively
|
|
|
-
|
|
|
77,505
|
|
Deferred
acquisition costs
|
|
|
-
|
|
|
129,333
|
|
Other
assets
|
|
|
211,943
|
|
|
66,937
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
16,684,534
|
|
$
|
16,845,533
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Senior
secured notes payable - related party, net of debt
|
|
|
|
|
|
|
|
discount
of $0 and $1,127,084, respectively
|
|
$
|
1,300,000
|
|
$
|
3,872,916
|
|
Capital
lease obligations, current portion
|
|
|
10,319
|
|
|
9,290
|
|
Accounts
payable
|
|
|
3,937,095
|
|
|
2,499,604
|
|
Accrued
expenses
|
|
|
610,390
|
|
|
1,046,719
|
|
Accrued
interest
|
|
|
1,068
|
|
|
36,173
|
|
Deferred
revenue
|
|
|
100,935
|
|
|
-
|
|
Payable
and promissory note settlement liability
|
|
|
1,090,230
|
|
|
-
|
|
Total
current liabilities
|
|
|
7,050,037
|
|
|
7,464,702
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations, net of current portion
|
|
|
10,286
|
|
|
19,317
|
|
Total
liabilities
|
|
|
7,060,323
|
|
|
7,484,019
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares authorized,
|
|
|
|
|
|
|
|
zero
shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, $0.001 par value; 140,000,000 shares authorized,
|
|
|
|
|
|
|
|
37,845,167
and 34,979,667 issued and outstanding, respectively
|
|
|
37,846
|
|
|
34,980
|
|
Additional
paid-in capital
|
|
|
24,390,346
|
|
|
12,737,982
|
|
Deferred
equity-based expense
|
|
|
-
|
|
|
(178,481
|
)
|
Accumulated
other comprehensive loss
|
|
|
(197,704
|
)
|
|
-
|
|
Accumulated
deficit
|
|
|
(14,606,277
|
)
|
|
(3,232,967
|
)
|
Total
stockholders’ equity
|
|
|
9,624,211
|
|
|
9,361,514
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
16,684,534
|
|
$
|
16,845,533
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the Three
|
|
For
the Three
|
|
For
the Nine
|
|
From
June 14, 2007
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
Months
Ended
|
|
(Inception)
to
|
|
|
|
September
30, 2008
|
|
September
30, 2007
|
|
September
30, 2008
|
|
September
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,756,707
|
|
$
|
1,169,991
|
|
$
|
13,992,303
|
|
$
|
1,169,991
|
|
Cost
of revenue
|
|
|
3,964,388
|
|
|
1,083,613
|
|
|
10,084,467
|
|
|
1,083,613
|
|
Gross
profit
|
|
|
1,792,319
|
|
|
86,378
|
|
|
3,907,836
|
|
|
86,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative (includes stock-based expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$439,768, $43,311, $1,417,031 and $43,311, respectively)
|
|
|
1,513,224
|
|
|
939,848
|
|
|
4,755,165
|
|
|
939,848
|
|
Sales
and marketing
|
|
|
1,282,205
|
|
|
109,884
|
|
|
3,552,847
|
|
|
109,884
|
|
Technology
support
|
|
|
256,370
|
|
|
-
|
|
|
764,779
|
|
|
-
|
|
Merger,
acquisition, and divestiture costs
|
|
|
57,415
|
|
|
187,353
|
|
|
569,477
|
|
|
187,353
|
|
Amortization
of intangible assets
|
|
|
104,571
|
|
|
91,094
|
|
|
313,938
|
|
|
91,094
|
|
Total
operating expenses
|
|
|
3,213,785
|
|
|
1,328,179
|
|
|
9,956,206
|
|
|
1,328,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss from continuing operations
|
|
|
(1,421,466
|
)
|
|
(1,241,801
|
)
|
|
(6,048,370
|
)
|
|
(1,241,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,140
|
|
|
23,995
|
|
|
14,903
|
|
|
23,995
|
|
Loss
on settlement of debt
|
|
|
-
|
|
|
-
|
|
|
(20,121
|
)
|
|
-
|
|
Loss
on sale of available-for-sale securities
|
|
|
(116,454
|
)
|
|
-
|
|
|
(116,454
|
)
|
|
-
|
|
Loss
on disposal of fixed assets
|
|
|
(15,385
|
)
|
|
-
|
|
|
(15,385
|
)
|
|
-
|
|
Interest
expense
|
|
|
(189,382
|
)
|
|
-
|
|
|
(1,422,885
|
)
|
|
-
|
|
Total
other income (expense)
|
|
|
(313,081
|
)
|
|
23,995
|
|
|
(1,559,942
|
)
|
|
23,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income tax benefit
|
|
|
(1,734,547
|
)
|
|
(1,217,806
|
)
|
|
(7,608,312
|
)
|
|
(1,217,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
280,019
|
|
|
-
|
|
|
280,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before equity investment
|
|
|
(1,734,547
|
)
|
|
(937,787
|
)
|
|
(7,608,312
|
)
|
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in investee's loss, net of income taxes
|
|
|
(404,103
|
)
|
|
-
|
|
|
(653,231
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(2,138,650
|
)
|
|
(937,787
|
)
|
|
(8,261,543
|
)
|
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(1,053,059
|
)
|
|
-
|
|
|
(1,988,232
|
)
|
|
-
|
|
Loss
on sale of discontinued operations, net of income
taxes
|
|
|
(498,554
|
)
|
|
-
|
|
|
(1,123,535
|
)
|
|
-
|
|
Net
loss from discontinued operations
|
|
|
(1,551,613
|
)
|
|
-
|
|
|
(3,111,767
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,690,263
|
)
|
|
(937,787
|
)
|
|
(11,373,310
|
)
|
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on available-for-sale securities
|
|
|
(197,704
|
)
|
|
-
|
|
|
(197,704
|
)
|
|
-
|
|
Total
other comprehensive loss
|
|
|
(197,704
|
)
|
|
-
|
|
|
(197,704
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(3,887,967
|
)
|
$
|
(937,787
|
)
|
$
|
(11,571,014
|
)
|
$
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share from continuing operations - basic and diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.22
|
)
|
$
|
(0.04
|
)
|
Loss
per share from discontinued operations - basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
-
|
|
$
|
(0.09
|
)
|
$
|
-
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.31
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
|
|
37,808,210
|
|
|
23,756,165
|
|
|
36,900,393
|
|
|
22,292,694
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine
Months Ended September 30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
Deferred
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Equity-
|
|
Other
|
|
|
|
Total
|
|
|
|
Common
Stock
|
|
Paid-In
|
|
Based
|
|
Comprehensive
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
Stock
|
|
Amount
|
|
Capital
|
|
Expense
|
|
Loss
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
34,979,667
|
|
$
|
34,980
|
|
$
|
12,737,982
|
|
$
|
(178,481
|
)
|
$
|
-
|
|
$
|
(3,232,967
|
)
|
$
|
9,361,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock in connection with Options
Media
Group merger
|
|
|
1,000,000
|
|
|
1,000
|
|
|
5,716,273
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,717,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Warrant in connection with Options Media
Group
merger
|
|
|
-
|
|
|
-
|
|
|
29,169
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
29,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued for cash
|
|
|
1,425,000
|
|
|
1,425
|
|
|
2,911,075
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,912,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued per price protection clause
|
|
|
75,000
|
|
|
75
|
|
|
(75
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued to settle debt
|
|
|
305,500
|
|
|
306
|
|
|
610,694
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
611,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred consulting - warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
178,481
|
|
|
-
|
|
|
-
|
|
|
178,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
60,000
|
|
|
60
|
|
|
188,940
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
189,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options expense
|
|
|
-
|
|
|
-
|
|
|
2,196,288
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,196,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(197,704
|
)
|
|
-
|
|
|
(197,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, nine months ended September 30, 2008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(11,373,310
|
)
|
|
(11,373,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2008
|
|
|
37,845,167
|
|
$
|
37,846
|
|
$
|
24,390,346
|
|
$
|
-
|
|
$
|
(197,704
|
)
|
$
|
(14,606,277
|
)
|
$
|
9,624,211
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
For
the Nine
|
|
From
June 14, 2007
|
|
|
|
Months
Ended
|
|
(Inception)
to
|
|
|
|
September
30, 2008
|
|
September
30, 2007
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,373,310
|
)
|
$
|
(937,787
|
)
|
Add
back loss from discontinued operations
|
|
|
3,111,767
|
|
|
-
|
|
Loss
from continuing operations
|
|
|
(8,261,543
|
)
|
|
(937,787
|
)
|
Adjustments
to reconcile net loss from continuing
|
|
|
|
|
|
|
|
operations
to net cash used in operating activities, net:
|
|
|
4,782,113
|
|
|
42,245
|
|
Net
cash used in operating activities
|
|
|
(3,479,430
|
)
|
|
(895,542
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property & equipment
|
|
|
(322,548
|
)
|
|
(60,847
|
)
|
Acquisition
of business, net of cash acquired
|
|
|
-
|
|
|
(4,279,534
|
)
|
Proceeds
from sales of property & equipment
|
|
|
13,000
|
|
|
-
|
|
Proceeds
from sales of available-for-sale securities
|
|
|
1,034,000
|
|
|
-
|
|
Deferred
acquisition costs
|
|
|
(10,619
|
)
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
713,833
|
|
|
(4,340,381
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Principal
payments on notes payable
|
|
|
(4,523,573
|
)
|
|
-
|
|
Proceeds
from issuance of notes payable - related party
|
|
|
1,300,000
|
|
|
250,000
|
|
Principal
payments on capital leases
|
|
|
(8,002
|
)
|
|
-
|
|
Proceeds
from common stock and warrants issued for cash
|
|
|
2,912,500
|
|
|
7,015,016
|
|
Net
cash (used in) provided by financing activities
|
|
|
(319,075
|
)
|
|
7,265,016
|
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
(2,685,674
|
)
|
|
-
|
|
Cash
flows from investing activities-acquisition
|
|
|
(1,885,624
|
)
|
|
-
|
|
Cash
flows from investing activities-divestiture
|
|
|
4,591,676
|
|
|
-
|
|
Net
cash provided by discontinued operations
|
|
|
20,378
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(3,064,294
|
)
|
|
2,029,093
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
3,675,483
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
611,189
|
|
$
|
2,029,093
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
For
the Nine
|
|
From
June 14, 2007
|
|
|
|
Months
Ended
|
|
(Inception)
to
|
|
|
|
September
30, 2008
|
|
September
30, 2007
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
261,796
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Issuance
of common stock and warrants in business combination
|
|
$
|
5,746,442
|
|
$
|
3,500,000
|
|
Conversion
of convertible notes
|
|
$
|
-
|
|
$
|
250,000
|
|
Issuance
of common stock and warrants in debt settlement
|
|
$
|
611,000
|
|
$
|
-
|
|
Issuance
of common stock for deferred services rendered
|
|
$
|
189,000
|
|
$
|
-
|
|
Issuance
of shares in Options Media Group Holdings, Inc. to
|
|
|
|
|
|
|
|
settle
accounts payable
|
|
$
|
54,611
|
|
$
|
-
|
|
Unrealized
loss on available-for-sale securities
|
|
$
|
197,704
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Note
1. Nature
of Operations, Going Concern and Basis of Presentation
Overview
Customer
Acquisition Network, Inc. was formed in Delaware on June 14, 2007.
Outsiders
Entertainment, Inc. was incorporated on March 4, 2002, under the laws of the
State of Delaware. On August 28, 2007, the name was changed to Customer
Acquisition Network Holdings, Inc. On June 25, 2008, the name was changed to
interCLICK, Inc.
On
August
28, 2007, Customer Acquisition Network Holdings, Inc. ("Holdings") entered
into
an Agreement and Plan of Merger and Reorganization (the “CAN Merger Agreement”)
by and among Holdings, Customer Acquisition Network, Inc. ("CAN"), and CAN
Acquisition Sub Inc., a newly formed, wholly-owned Delaware subsidiary of
Holdings (“CAN Acquisition Sub”). The merger transaction contemplated under the
CAN Merger Agreement (the “CAN Merger”) was consummated on August 28, 2007, at
which time CAN Acquisition Sub was merged with and into CAN, and CAN, as the
surviving corporation, became a wholly-owned subsidiary of
Holdings.
Merger
with Desktop Interactive, Inc.
On
August
31, 2007, Holdings entered into an Agreement and Plan of Merger (the “Desktop
Merger Agreement”) by and among Holdings, Desktop Interactive, Inc., a privately
held Delaware corporation (“Desktop”), CAN and Desktop Acquisition Sub, Inc., a
newly formed, wholly-owned Delaware subsidiary of Holdings (“Desktop Acquisition
Sub”). The merger transaction contemplated under the Desktop Merger Agreement
(the “Desktop Merger"), was consummated on August 31, 2007, at which time,
Desktop Acquisition Sub was merged into Desktop, and Desktop, as the surviving
corporation, became a wholly-owned subsidiary of Holdings.
After
the
CAN Merger, Holdings succeeded to the business of CAN as its sole line of
business. Desktop owned and operated an Internet advertising network serving
Internet advertising to website publishers including proprietary ad serving
technology operated under the name “Interclick.” After the Desktop Merger, we
also continued to operate the Desktop business.
Unless
the context requires otherwise, references to the "Company," "CAN," "we," "our"
and "us" for periods prior to the closing of our reverse merger on August 28,
2007, refer to Customer Acquisition Network, Inc., a private Delaware
corporation that is now our wholly-owned subsidiary, and references to the
"Company," “Holdings”, “interCLICK”, "we," "our" and "us" for periods subsequent
to the closing of the reverse merger on August 28, 2007, refer to interCLICK,
Inc. (formerly Customer Acquisition Network Holdings, Inc.), a publicly traded
company, and its subsidiaries, Customer Acquisition Network, Inc., Desktop
Interactive, Inc. and Options Acquisition Sub, Inc. (which ceased being a
consolidated subsidiary on June 23, 2008 and was treated as discontinued
operations thereafter).
The
Company was previously presented as a development stage company. Upon its
acquisition of Desktop on August 31, 2007, the Company exited the development
stage.
Merger
with Customer Acquisition Network Holdings, Inc.
On
August
28, 2007, Holdings entered into the CAN Merger Agreement by and among Holdings,
CAN and CAN Acquisition Sub. Upon closing of the CAN Merger, CAN Acquisition
Sub
merged with and into CAN, and CAN, as the surviving corporation, became a
wholly-owned subsidiary of Holdings. Prior to the CAN Merger, Holdings’ name was
changed to Customer Acquisition Network Holdings, Inc. and Holdings effected
a
10.9583333333 -for-1 forward stock split of its common stock (the “Stock
Split”). All share and per share data in the accompanying financial statements
have been adjusted retroactively for the effect of the recapitalization and
subsequent stock split.
At
the
closing of the CAN Merger, each share of CAN's common stock issued and
outstanding, 24,238,000 immediately prior to the closing of the CAN Merger,
was
converted into the right to receive one share of Holdings’ common stock. In
addition, pursuant to the CAN Merger Agreement and under the terms of an
attendant Agreement of Conveyance, Transfer and Assignment of Assets and
Assumption of Obligations, Holdings transferred all of its pre- CAN Merger
assets and liabilities to its newly formed wholly owned subsidiary, Outsiders
Entertainment Holdings, Inc. (“Splitco”). Subsequently, Holdings transferred all
of its outstanding capital stock of Splitco to a major stockholder of Holdings
in exchange for cancellation of all shares of Holdings’ common stock held by
such shareholder (the “Split off”). The remaining shares outstanding (6,575,000,
excluding the Holdings shares issued to CAN’s shareholders as a result of the
CAN Merger), represent the surviving “Public Float” shares, of which 2.6 million
shares are restricted.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Recapitalization
Prior
to
the closing of the CAN Merger, Holdings had limited operations and net assets.
At the same time, CAN had significantly more capital than Holdings and had
commenced certain publishing/advertising operations. In addition, as discussed
in “Merger with Desktop,” above, after the closing of the CAN Merger, Holdings
consummated the Desktop Merger and effected the Split off. As a result of these
facts and the former shareholders of CAN obtaining voting and management control
of the combined entity, the CAN Merger is considered and accounted for as a
recapitalization of CAN, with CAN being considered as the acquirer and Holdings
the acquiree for accounting purposes. Accordingly, the Company’s financial
statements for periods prior to the CAN Merger become those of the accounting
acquirer, retroactively restated for the equivalent number of shares received
in
the CAN Merger. Operations prior to the CAN Merger are those of CAN and earnings
per share for the period prior to the CAN Merger are restated to reflect the
equivalent number of shares outstanding.
Merger
with Options Media
On
January 4, 2008, Holdings consummated an Agreement and Plan of Merger (the
“Options Merger”), wherein Holdings formed Options Acquisition Sub, Inc.
(“Options Acquisition”), and Options Newsletter, Inc.
(“Options Newsletter” or "Options") was merged into Options Acquisition, which
was the surviving corporation and a wholly-owned subsidiary of Holdings. On
June
23, 2008, Holdings consummated an Agreement of Merger and Plan or Reorganization
wherein Options Acquisition was sold to Options Media Group Holdings,
Inc.
Options
Newsletter, a privately held Delaware corporation, now known as Options
Media, began selling advertising space within free electronic newsletters
that Options Newsletter published and emailed to subscribers. Options Newsletter
also generated leads for customers by emailing its customers’ advertisements to
various email addresses from within the Options Newsletter database. Options
Newsletter was also an email service provider (“ESP”) and offered customers an
email delivery platform to create, send and track email campaigns. During the
period from January 4, 2008 to June 23, 2008 (date of disposition), the majority
of Options Newsletter’s revenue was derived from being an ESP, but Options
Newsletter continued to publish newsletters as well as email customer
advertisements on a cost per lead generated basis.
The
initial merger consideration with respect to the Options Merger (the “Options
Merger Consideration”) included $1.5 million in cash of which $150,000 was held
in escrow pending passage of deferred representation and warranty time period
and 1.0 million shares of Holdings’ stock valued at $5.72 per share (applying
EITF 99-12 “Determination of the Measurement Date for the Market Price of
Acquirer Securities Issued in a Purchase Business Combination”). The total
initial purchase price was $7,395,362 and included cash of $1,500,000, common
stock valued at $5,717,273, legal fees of $73,920, valuation service fees of
$25,000, brokers fees of $50,000 and 10,000 warrants valued at $29,169 with
an exercise price of $5.57 per share.
The
shares of Holdings’ stock issued in conjunction with the Options
Merger are subject to a 12-month lockup.
In
addition to the initial merger consideration, Holdings was obligated to pay
an
additional $1 million (the “Earn Out”) if certain gross revenues are achieved
for the one year period subsequent to the Options Merger payable 60 days after
the end of each of the quarters starting with March 31, 2008. For the quarters
ended March 31, 2008 and June 30, 2008, the Company incurred $279,703 and
$221,743, respectively, in Earn Out. On September 30, 2008, the Company entered
into a settlement agreement with the seller whereby the Company agreed to pay
the remaining $498,554 of Earn Out. The $1,000,000 Earn Out has increased the
purchase price and been included as an adjustment to goodwill in the purchase
price allocation below. The total Earn Out due of $1,000,000 has been included
in payable and promissory note settlement liability on the accompanying balance
sheet as of September 30, 2008 (See Divestiture of Options Media
below).
Holdings
has accounted for the acquisition utilizing the purchase method of accounting
in
accordance with Statement of Financial Accounting Standards (SFAS) No. 141,
“Business Combinations”. The results of operations of Options Acquisition were
included in the consolidated results of operations of the Company beginning
on
January 1, 2008. The operations from January 1, 2008 to January 4, 2008 were
not
material. The net purchase price, including acquisition costs paid, and adjusted
for the total Earn Out to be paid as part of the September 30, 2008 settlement
with the seller, was allocated to assets acquired and liabilities assumed as
follows:
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Current
assets (including cash of $41,424)
|
|
$
|
58,153
|
|
Property
and equipment
|
|
|
112,289
|
|
Other
assets (Software)
|
|
|
67,220
|
|
Goodwill
(adjusted for Earn Out)
|
|
|
8,020,450
|
|
Other
Intangibles
|
|
|
660,000
|
|
|
|
|
|
|
Liabilities
assumed
|
|
|
(258,750
|
)
|
Deferred
tax liability
|
|
|
(264,000
|
)
|
Net
purchase price
|
|
$
|
8,395,362
|
|
Intangible
assets acquired include customer relationships valued at $610,000 and $50,000
for a covenant not to compete.
Goodwill
is expected not to be deductible for income tax purposes.
In
connection with the purchase of Options, the Company executed a three-year
employment agreement with the former owner of Options to pay him $250,000 per
year plus 300,000 options which cliff vest 1/3 at the end of each of three
years
and are exercisable at $1.00 per share. On September 30, 2008, the Company
entered into a settlement agreement with the seller whereby all 300,000 stock
options became fully vested immediately and exercisable as follows: 100,000
stock options shall be exercisable as of January 15, 2009 and 200,000 stock
options shall be exercisable as of September 30, 2009. Accordingly, the
remaining unrecognized portion of the fair value of the stock options of
$962,829 was recognized and included in loss from discontinued operations as
of
September 30, 2008.
Divestiture
of Options Media
On
June
23, 2008, Holdings, as the sole stockholder of Options Acquisition entered
into
an Agreement of Merger and Plan of Reorganization (the “Options Divestiture”) by
and among, Options Media Group Holdings, Inc. (“OPMG”), Options Acquisition and
Options Acquisition Corp., a newly formed, wholly owned Delaware subsidiary
of
OPMG.
At
the
closing of the Options Divestiture on June 23, 2008, the Company, as Options
Acquisition’s sole stockholder, received (i) 12,500,000 shares of OPMG’s common
stock (the “OPMG Stock”), (ii) $3,000,000 in cash and (iii) a $1,000,000 senior
secured promissory note receivable from OPMG (the “Note”). The OPMG Stock was
valued at $3,750,000 using a price of $0.30 per share, which was based on a
private placement for OPMG shares that was occurring at the same time of the
Options Divestiture. The Note bears interest of 10%, is due December 23, 2008,
and is secured by a first priority security interest in OPMG and its active
subsidiaries’ assets. On
July
18, 2008, OPMG satisfied in full its obligations under the $1,000,000
senior secured promissory note issued to the Company in connection with the
Options Divestiture.
As a
result, the Company received $1,006,164, which includes accrued
interest.
The
loss
from the Options Divestiture is included in loss on sale of discontinued
operations and is calculated as follows:
Consideration
received for sale:
|
|
|
|
|
Cash
consideration
|
|
$
|
3,000,000
|
|
Note
receivable
|
|
|
1,000,000
|
|
12.5
million shares of OPMG
|
|
|
3,750,000
|
|
Total
consideration received
|
|
|
7,750,000
|
|
|
|
|
|
|
Less:
net book value of subsidiary sold:
|
|
|
|
|
Original
purchase price (including Earn Out payments due)
|
|
|
8,395,362
|
|
Asset
contributed to Options Acquisition
|
|
|
350,000
|
|
Advances
to Options Acquisition
|
|
|
402,190
|
|
Corporate
allocation to Options Acquisition
|
|
|
661,156
|
|
Equity
method pick up from 1/1/08 to 6/23/08
|
|
|
(935,173
|
)
|
Net
book value of subsidiary sold, June 23, 2008
|
|
|
8,873,535
|
|
|
|
|
|
|
Loss
on sale of discontinued operations
|
|
$
|
(1,123,535
|
)
|
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Regarding
the net book value of the subsidiary sold, the asset contributed to Options
Acquisition in the above table consisted of an inventory of qualified data
for
use by the Company in email advertising purchased from a customer for $350,000
and contributed to Options.
As
a
result of the Options Divestiture and the cash proceeds received by the Company,
the Company paid down $2,750,000 of the balance on that certain promissory
note
dated November 15, 2007 (the “Longview Note”), among the Company, CAN, Desktop
(the “Subsidiaries”) and Longview Marquis Master Fund, L.P., (“Longview”). The
remaining balance of the Longview Note as of June 23, 2008 (giving effect to
the
increase in principal described under the “Amendment Agreement” below) was
$1,773,573. The Company also pledged the OPMG Stock to Longview, in order to
secure the remaining balance of the Longview Note (See Note 5).
On
September 30, 2008, the Company entered into a settlement agreement with the
former owner of Options Media to settle all amounts due under the $1 million
Earn Out and the January 4, 2008 employment agreement whereby the Company agreed
to pay $600,000 upon execution of the settlement agreement and $500,000, payable
in two equal installments on October 30, 2008 and January 15, 2009. The
$1,100,000 in payments has been discounted to a net present value of $1,090,230
using a discount rate of 12%. In addition, all stock options previously granted
to the former owner
of
Options Media
became
fully vested immediately. As
a
result of the settlement, the additional loss from discontinued operations
was
$1,053,059 and the additional loss on sale of discontinued operations was
$498,554 for the three months ended September 30, 2008.
Going
Concern
As
reflected in the accompanying unaudited condensed consolidated financial
statements for the nine months ended September 30, 2008, the Company had a
net
loss of $11,373,310 and $3,479,430 of
net
cash used in operations. At September 30, 2008 the Company had a working capital
deficiency of $1,529,223, which includes $1,300,000 of net carrying value of
senior secured notes payable maturing December 31, 2008. Additionally at
September 30, 2008, the Company had an accumulated deficit of $14,606,277.
These
matters and the Company’s expected needs for capital investments required to
support operational growth and maturing debt raise substantial doubt about
its
ability to continue as a going concern. The Company’s unaudited condensed
consolidated financial statements do not include any adjustments to reflect
the
possible effects on recoverability and classification of assets or the amounts
and classification of liabilities that may result from our inability to continue
as a going concern.
Since
inception, the Company has financed its working capital and capital expenditure
requirements primarily from the issuance of short term debt securities and
sales
of common stock as well as sales of online advertising services. In addition,
the Company is pursuing the refinancing of its maturing debt and/or extending
the maturity of such debt beyond December 31, 2008.
While
we
have heavily invested in our online advertising and will continue to invest
in
online advertising, we believe that based on our current cash and working
capital position, our current and projected operations and our assessment of
how
potential equity and/or debt investors have viewed, and will continue to view,
us and the expected growth in our business, we will be able to obtain the
required capital and cash flows from operations to execute our business plan
successfully and continue operations through September 30, 2009, however, there
can be no assurances.
Our
business plan is based on our ability to generate future revenues from the
sale
of advertising as well as the obtaining of adequate capital to support our
growth and operating activities. However, the time required for us to become
profitable from operations is uncertain, and we cannot assure investors that
we
will achieve or sustain operating profitability or generate sufficient cash
flow
and obtain the necessary capital to meet our planned capital expenditures,
working capital and debt service requirements.
We
believe that actions being taken by management as discussed above provide the
opportunity to allow us to continue as a going concern.
Basis
of Presentation
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
The
interim condensed consolidated financial statements included herein have
been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
the
Company’s management, all adjustments (consisting of normal recurring
adjustments and reclassifications and non-recurring adjustments) necessary
to
present fairly our results of operations and cash flows for the three and
nine
months ended September 30,2008 and our financial position as of September
30,
2008 have been made. The results of operations for such interim periods are
not
necessarily indicative of the operating results to be expected for the full
year.
Certain
information and disclosures normally included in the notes to the annual
consolidated financial statements have been condensed or omitted from these
interim consolidated financial statements. Accordingly, these interim condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-KSB (the “Annual Report”) for the fiscal year ended
December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”)
on April 15, 2008.
Note
2. Significant Accounting Policies
Use
of Estimates
Our
unaudited condensed consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments
and
assumptions. We believe that the estimates, judgments and assumptions upon
which
we rely are reasonable based upon information available to us at the time that
these estimates, judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities as
of
the date of our condensed consolidated financial statements as well as the
reported amounts of revenues and expenses during the periods presented. Our
unaudited condensed consolidated financial statements would be affected to
the
extent there are material differences between these estimates and actual
results. In many cases, the accounting treatment of a particular transaction
is
specifically dictated by GAAP and does not require management’s judgment in its
application. There are also areas in which management’s judgment in selecting
any available alternative would not produce a materially different result.
Significant estimates include the valuation of accounts receivable, purchase
price fair value allocation for business combinations, valuation and
amortization periods of intangible assets and deferred costs, valuation of
goodwill, valuation of capital stock, options and warrants granted for services
or recorded as debt discounts, or other non-cash purposes including business
combinations, the estimate of the valuation allowance on deferred tax assets,
and estimates in equity investee’s losses.
Cash
and Cash Equivalents
The
Company considers all short-term highly liquid investments with an original
maturity at the date of purchase of three months or less to be cash equivalents.
There were no cash equivalents at September 30, 2008.
Principals
of Consolidation
The
consolidated financial statements include the accounts of interCLICK, Inc.
(formerly Customer Acquisition Network Holdings, Inc.) and its wholly-owned
subsidiary and prior subsidiary through its sale date. All significant
inter-company balances and transactions have been eliminated in the
consolidation. As
a
result of the Options Divestiture, the results of Options Acquisition are
reported as “Discontinued Operations” for all periods presented.
Accounts
Receivable and Allowance for Doubtful Accounts Receivable
Trade
accounts receivables are stated at gross invoice amounts less an allowance
for
doubtful accounts receivable.
Credit
is
extended to customers based on an evaluation of their financial condition and
other factors. The Company generally does not require collateral or other
security to support accounts receivable. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential bad
debts.
The
Company estimates its allowance for doubtful accounts by evaluating specific
accounts where information indicates the customers may have an inability to
meet
financial obligations, such as bankruptcy proceedings and receivable amounts
outstanding for an extended period beyond contractual terms. In these cases,
the
Company uses assumptions and judgment, based on the best available facts and
circumstances, to record a specific allowance for those customers against
amounts due to reduce the receivable to the amount expected to be collected.
These specific allowances are re-evaluated and adjusted as additional
information is received. The amounts calculated are analyzed to determine the
total amount of the allowance.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Direct
write-offs are taken in the period when the Company has exhausted its efforts
to
collect overdue and unpaid receivables or otherwise evaluates
other circumstances that indicate that the Company should abandon such
efforts.
Business
Combinations
The
Company accounts for its acquisitions utilizing the purchase method of
accounting. Under the purchase method of accounting, the total consideration
paid is allocated to the underlying assets and liabilities, based on their
respective estimated fair values. The excess of the purchase price over the
estimated fair values of the net assets acquired is recorded as goodwill.
Determining the fair value of certain acquired assets and liabilities,
identifiable intangible assets in particular, is subjective in nature and often
involves the use of significant estimates and assumptions including, but not
limited to: estimates of revenue growth rates, determination of appropriate
discount rates, estimates of advertiser and publisher turnover rates, and
estimates of terminal values. These assumptions are generally made based on
available historical information. Definite-lived identifiable intangible assets
are amortized on a straight-line basis, as this basis approximates the expected
cash flows from the Company’s existing definite-lived identifiable intangible
assets.
Property
and Equipment
Property
and equipment is stated at cost. Depreciation is computed using the straight
line method and is expensed upon the estimated useful lives of the assets.
Expenditures for additions and improvements are capitalized while repairs and
maintenance are expensed as incurred.
Depreciation
expense for the three and nine months ended September 30, 2008 was $66,448
and
$172,671, respectively.
Intangible
Assets
The
Company records the purchase of intangible assets not purchased in a
business combination in accordance with SFAS 142 “Goodwill and Other Intangible
Assets” and records intangible assets acquired in a business combination in
accordance with SFAS 141 “Business Combinations”.
Customer
relationships are amortized based upon the estimated percentage of annual or
period projected cash flows generated by such relationships, to the total cash
flows generated over the estimated three year life of the Customer
relationships. Accordingly, this results in an accelerated amortization in
which
the majority of costs is amortized during the two-year period following the
acquisition date of the intangible. Developed technology is being amortized
on a
straight-line basis over five years. The domain name is being amortized over
its
remaining life at acquisition date of six months.
Goodwill
The
Company tests goodwill for impairment in accordance with the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and
Other Intangible Assets”. Accordingly, goodwill is tested for impairment at
least annually at the reporting unit level or whenever events or circumstances
indicate that goodwill might be impaired. The Company has determined its
reporting units based on the guidance in SFAS No. 142 and Emerging Issues
Task Force (“EITF”) Issue D-101, “Clarification of Reporting Unit Guidance
in Paragraph 30 of FASB Statement No. 142.” As of September 30, 2008, the
Company’s reporting units consisted of interCLICK and Desktop. The Company has
elected to test for goodwill impairment annually.
We
completed our annual goodwill impairment test as of December 31, 2007 and
determined that no adjustment to the carrying value of goodwill was required.
In
addition, as there have been quarterly impairment indicators present, the
Company tested for impairment through September 30, 2008, and determined no
impairment adjustment was needed at this time.
Long-lived
Assets
Management
evaluates the recoverability of the Company’s identifiable intangible assets and
other long-lived assets in accordance with SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-lived Assets,” which generally requires the
assessment of these assets for recoverability when events or circumstances
indicate a potential impairment exists. Events and circumstances considered
by
the Company in determining whether the carrying value of identifiable intangible
assets and other long-lived assets may not be recoverable include, but are
not
limited to: significant changes in performance relative to expected operating
results, significant changes in the use of the assets, significant negative
industry or economic trends, a significant decline in the Company’s stock price
for a sustained period of time, and changes in the Company’s business strategy.
In determining if impairment exists, the Company estimates the undiscounted
cash
flows to be generated from the use and ultimate disposition of these assets.
If
impairment is indicated based on a comparison of the assets’ carrying values and
the undiscounted cash flows, the impairment loss is measured as the amount
by
which the carrying amount of the assets exceeds the fair market value of the
assets.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Revenue
Recognition
The
Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”)
No. 104, “Revenue Recognition in Financial Statements.” Under SAB
No. 104, the Company recognizes revenue when the following criteria have
been met: persuasive evidence of an arrangement exists, the fees are fixed
or
determinable, no significant Company obligations remain, and collection of
the
related receivable is reasonably assured.
Revenues
consist of amounts charged to customers, net of discounts, credits and amounts
paid or due under revenue sharing arrangements, for actions on advertisements
placed on our publisher vendor’s websites. The Company’s revenue is recognized
in the period that the advertising impressions, click-throughs or actions occur,
when lead-based information is delivered or, provided that no significant
Company obligations remain, collection of the resulting receivable is reasonably
assured, and prices are fixed or determinable. Additionally, consistent with
the
provisions of EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal
versus Net as an Agent,” the Company recognizes revenue as a principal.
Accordingly, revenue is recognized on a gross basis.
Cost
of Revenue
Cost
of
revenue consists of publisher fees. The Company becomes obligated to make
payments related to the above fees in the period the advertising impressions,
click-throughs, actions or lead-based information are delivered or occur. Such
expenses are classified as cost of revenue in the corresponding period in which
the revenue is recognized in the accompanying statement of
operations.
Fair
Value of Financial Instruments
The
Company’s financial instruments, including cash and cash equivalents, accounts
receivable, notes payable, accounts payable and accrued expenses, are carried
at
historical cost basis, which approximates their fair values because of the
short-term nature of these instruments.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes
in
accordance with SFAS No. 109, “Accounting for Income Taxes.” Under this
method, income tax expense is recognized for the amount of: (i) taxes
payable or refundable for the current year, and (ii) deferred tax
consequences of temporary differences resulting from matters that have been
recognized in an entity’s financial statements or tax returns. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to
taxable income in the years in which those temporary differences are expected
to
be recovered or settled. The effect on deferred tax assets and liabilities
of a
change in tax rates is recognized in the results of operations in the period
that includes the enactment date. A valuation allowance is provided to reduce
the deferred tax assets reported if, based on the weight of the available
positive and negative evidence, it is more likely than not some portion or
all
of the deferred tax assets will not be realized. A liability (including interest
if applicable) is established in the consolidated financial statements to the
extent a current benefit has been recognized on a tax return for matters that
are considered contingent upon the outcome of an uncertain tax position.
Applicable interest is included as a component of income tax expense and income
taxes payables.
In
June
2006, the FASB issued
SFASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an
interpretation of FASB Statement No. 109” (“FIN 48”).
This
statement which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS No.
109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48, which is effective for fiscal years beginning after December 15, 2006,
also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. We adopted the
provisions of FIN 48 on our inception date of June 14, 2007. The adoption of
the
provisions of FIN 48 did not have a material impact on our financial position
and results of operations.
Stock-based
Compensation
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Compensation
expense associated with the granting of stock based awards to employees and
directors and non-employees is recognized in accordance with SFAS No.
123(R), “Share Based Payment” and related interpretations. SFAS No. 123(R)
requires companies to estimate and recognize the fair value of stock-based
awards to employees and directors. The value of the portion of an award that
is
ultimately expected to vest is recognized as an expense over the requisite
service periods using the straight-line attribution method.
Basic
and Diluted Net Loss Per Common Share
Basic
net
loss per common share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding for the period. Diluted net loss
per common share is computed using the weighted average number of common shares
outstanding for the period, and, if dilutive, potential common shares
outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon the exercise of stock options, stock
warrants, convertible debt instruments or other common stock
equivalents.
Reclassifications
Certain
amounts in the accompanying 2007 financial statements have been reclassified
to
conform to the 2008 presentation.
Comprehensive
Loss
Comprehensive
loss includes net loss as currently reported by the Company adjusted for other
comprehensive items. Other comprehensive items for the Company consist of
unrealized gains and losses related to the Company's equity securities accounted
for as available-for-sale with changes in fair value recorded through
stockholders’ equity.
Investments
The
Company invests in various marketable equity instruments and accounts for such
investments in accordance with SFAS 115. Trading securities that the Company
may
hold are treated in accordance with SFAS 115 with any unrealized gains and
losses included in earnings. Available-for-sale securities are carried at
fair value, with unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. Investments classified as held-to-maturity
are carried at amortized cost. In determining realized gains and losses, the
cost of the securities sold is based on the specific identification
method.
The
Company accounts for investments in which the Company owns more than 20% of
the
investee, using the equity method in accordance with APB No. 18, "The Equity
Method of Accounting for Investments in Common Stock" ("APB 18"). Under the
equity method, an investor initially records an investment in the stock of
an
investee at cost, and adjusts the carrying amount of the investment to recognize
the investor's share of the earnings or losses of the investee after the date
of
acquisition. The amount of the adjustment is included in the determination
of
net income by the investor, and such amount reflects adjustments similar to
those made in preparing consolidated statements including adjustments to
eliminate intercompany gains and losses, and to amortize, if appropriate, any
difference between investor cost and underlying equity in net assets of the
investee at the date of investment. The investment of an investor is also
adjusted to reflect the investor's share of changes in the investee's capital.
Dividends received from an investee reduce the carrying amount of the
investment. A series of operating losses of an investee or other factors may
indicate that a decrease in value of the investment has occurred which is other
than temporary and which should be recognized even though the decrease in value
is in excess of what would otherwise be recognized by application of the equity
method.
Certain
securities that the Company may invest in may be determined to be
non-marketable. Non-marketable securities where the Company owns less than
20%
of the investee are accounted for at cost pursuant to APB No. 18.
Management
determines the appropriate classification of its investments at the time of
acquisition and reevaluates such determination at each balance sheet date.
The
Company periodically reviews its investments in marketable and non-marketable
securities and impairs any securities whose value is considered non-recoverable.
The Company's determination of whether a security is other than temporarily
impaired incorporates both quantitative and qualitative information. GAAP
requires the exercise of judgment in making this assessment for qualitative
information, rather than the application of fixed mathematical criteria. The
Company considers a number of factors including, but not limited to, the length
of time and the extent to which the fair value has been less than cost, the
financial condition and near term prospects of the issuer, the reason for the
decline in fair value, changes in fair value subsequent to the balance sheet
date, and other factors specific to the individual investment. The Company's
assessment involves a high degree of judgment and accordingly, actual results
may differ materially from the Company's estimates and judgments.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Recently
Issued Accounting Standards
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”). SFAS 141R requires that upon initially
obtaining control, an acquirer will recognize 100% of the fair values of
acquired assets, including goodwill, and assumed liabilities, with only limited
exceptions, even if the acquirer has not acquired 100% of its target.
Additionally, contingent consideration arrangements will be fair valued at
the
acquisition date and included on that basis in the purchase price consideration
and transaction costs will be expensed as incurred. SFAS 141R also modifies
the
recognition for pre-acquisition contingencies, such as environmental or legal
issues, restructuring plans and acquired research and development value in
purchase accounting. SFAS 141R amends SFAS No. 109, “Accounting for Income
Taxes,” to require the acquirer to recognize changes in the amount of its
deferred tax benefits that are recognizable because of a business combination
either in income from continuing operations in the period of the combination
or
directly in contributed capital, depending on the circumstances. SFAS 141R
is effective for business combinations for which the acquisition date is on
or
after January 1, 2009. The impact of adopting SFAS 141R will be
dependent on the future business combinations that the Company may pursue after
its effective date.
On
January 1, 2008, the Company adopted the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value as used in numerous
accounting pronouncements, establishes a framework for measuring fair value
and
expands disclosure of fair value measurements. In February 2008, the
Financial Accounting Standards Board (“FASB”) issued FASB Staff Position, “FSP
FAS 157-2—Effective Date of FASB Statement No. 157” (“FSP 157-2”), which
delays the effective date of SFAS 157 for one year for certain nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). Excluded from the scope of SFAS 157 are certain leasing
transactions accounted for under SFAS No. 13, “Accounting for Leases.” The
exclusion does not apply to fair value measurements of assets and liabilities
recorded as a result of a lease transaction but measured pursuant to other
pronouncements within the scope of SFAS 157. The Company does not expect that
the adoption of the provisions of FSP 157-2 will have a material impact on
its consolidated financial position, cash flows or results of
operations.
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements” (“SFAS 160”). This Statement
amends Accounting Research Bulletin No. 51, “Consolidated Financial
Statements,” to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 is required to be adopted simultaneously with SFAS 141R
and
is effective for the Company on January 1, 2009. The Company does not
currently have a non-controlling interests in its subsidiary, and accordingly,
the adoption of SFAS 160 is not expected to have a material impact on its
consolidated financial position, cash flows or results of
operations.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced disclosures
about an entity’s derivative and hedging activities and thereby improves the
transparency of financial reporting. It is intended to enhance the current
disclosure framework in SFAS 133 by requiring that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation. This disclosure better conveys the purpose of derivative use in
terms of the risks that the entity is intending to manage. The new disclosure
standard is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. We have not yet determined
the effect on our financial statements, if any, upon the adoption of SFAS
161.
The
Company does not believe that the adoption of any recently issued standards
will
have a material effect on the Company’s financial position or results of
operations and cash flows.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Note
3. Intangible Assets
Intangible
assets, which were all acquired from the Desktop business combination, consisted
of the following:
|
|
September
30,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
540,000
|
|
$
|
540,000
|
|
Developed
technology
|
|
|
790,000
|
|
|
790,000
|
|
Domain
name
|
|
|
683
|
|
|
683
|
|
|
|
|
1,330,683
|
|
|
1,330,683
|
|
Accumulated
amortization
|
|
|
(616,000
|
)
|
|
(302,062
|
)
|
Intangible
assets, net
|
|
$
|
714,683
|
|
$
|
1,028,621
|
|
Customer
relationships are amortized based upon the estimated percentage of annual or
period projected cash flows generated by such relationships, to the total cash
flows generated over the estimated three year life of the customer
relationships. Accordingly, this results in an accelerated amortization in
which
the majority of costs is amortized during the two-year period following the
acquisition date of the intangible.
Developed
technology is being amortized on a straight-line basis over five years.
The
domain name is being amortized over its remaining life at acquisition date
of
six months.
Amortization
expense for the three and nine months ended September 30, 2008 was $104,571
and
$313,938, respectively.
Note
4. Investments
The
following represents information about available-for sales securities held
as of
September 30, 2008:
Securities
in loss positions
|
|
|
|
Aggregate
|
|
Aggregate
|
|
less
than 12 months
|
|
Cost
|
|
Unrealized
losses
|
|
Fair
Value
|
|
Options
Media Group Holdings, Inc.
|
|
$
|
1,891,704
|
|
$
|
197,704
|
|
$
|
1,694,000
|
|
At
the
closing of the Options Divestiture on June 23, 2008, the Company, as Options
Acquisition’s sole stockholder, received as part of the divestiture 12,500,000
shares of OPMG’s common stock (the “OPMG Stock”). The OPMG Stock was valued at
$3,750,000 using a price of $0.30 per share, which was based on a private
placement for OPMG shares that was occurring at the same time of the Options
Divestiture. From June 23, 2008 forward, the Company accounted for the
investment in OPMG under the equity method until September 18, 2008, at which
time the Company’s ownership percentage fell to below 20% and the Company lost
significant influence and control over the investee. From June 23, 2008 through
September 18, 2008, the Company recognized an aggregate of $653,231 of its
proportionate share of the investee losses. During that same period, the Company
sold an aggregate of 4.7 million OPMG shares having a basis of $1,180,496 for
proceeds of $1,034,000, resulting in a loss of $146,496. On September 30, 2008,
the Company gave 100,000 OPMG shares having a basis of $24,568 in order to
settle $54,611 of accounts payable, resulting in a gain of $30,042. The
OPMG
closing
stock price on September 30, 2008 was $1.80 per share, however, due to the
thinly traded nature of such shares coupled with the fact that the Company
owns
restricted shares, the Company has used its most recent cash sales price of
OPMG
stock of $0.22 per share to value its remaining 7.7 million OPMG shares. This
resulted in a basis of $1,694,000 as of September 30, 2008. This investment
is
classified as available-for-sale equity securities in the accompanying unaudited
consolidated financial statements at September 30, 2008. As a result of
the valuation, during the three and nine months ended September 30, 2008, the
Company recorded a $197,704 unrealized loss on available-for-sale equity
securities in the stockholders’ section of the unaudited consolidated financial
statements. The OPMG Stock has been pledged as security for the GRQ Notes (See
Note 5).
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Note
5. Notes Payable and other obligations
|
|
September
30,
|
|
|
|
2008
|
|
6%
Senior secured promissory notes
|
|
|
|
|
payable
(due December 31, 2008)
|
|
$
|
1,300,000
|
|
Equipment
- Capital lease obligation
|
|
|
20,605
|
|
Total
notes payable, long-term debt
|
|
|
|
|
and
other obligations
|
|
|
1,320,605
|
|
Less:
Current maturities
|
|
|
(1,310,319
|
)
|
Amount
due after one year
|
|
$
|
10,286
|
|
|
|
December
31, 2007
|
|
|
|
|
|
Debt
Discount
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
|
|
|
Accumulated
|
|
Notes
Payable
|
|
|
|
|
|
Issue
|
|
Lender
|
|
Common
|
|
Amortization
of
|
|
net
of
|
|
|
|
Principal
|
|
Discount
|
|
Fee
|
|
Stock
|
|
Debt
Discount
|
|
Debt
Discount
|
|
8%
Senior secured promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable
(due May 30, 2008)
|
|
$
|
5,000,000
|
|
$
|
(500,000
|
)
|
$
|
(50,000
|
)
|
$
|
(802,500
|
)
|
$
|
225,416
|
|
$
|
3,872,916
|
|
Equipment
- Capital lease obligation
|
|
|
28,607
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,607
|
|
Total
notes payable, long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other obligations
|
|
|
5,028,607
|
|
|
(500,000
|
)
|
|
(50,000
|
)
|
|
(802,500
|
)
|
|
225,416
|
|
|
3,901,523
|
|
Less:
Current maturities
|
|
|
(5,009,290
|
)
|
|
500,000
|
|
|
50,000
|
|
|
802,500
|
|
|
(225,416
|
)
|
|
(3,882,206
|
)
|
Amount
due after one year
|
|
$
|
19,317
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
19,317
|
|
Senior
Secured Promissory Notes
On
November 30, 2007, pursuant to a purchase agreement we sold senior secured
promissory notes (the “Longview Notes”) in the original aggregate principal
amount of $5,000,000. We received net proceeds in the amount of $4,500,000
net
of $500,000 of an Original Issue Discount upon sale of the Longview
Notes.
The
Longview Notes were to mature on May 30, 2008 and bore interest at the rate
of 8% per annum, payable quarterly in cash. We used the net proceeds from the
sale of the Longview Notes first, to pay expenses and commissions related to
the
sale of the Longview Notes and second, for the general working capital needs
and
acquisitions of companies or businesses reasonably related to Internet marketing
and advertising.
In
addition, the Purchase Agreement contains certain customary negative covenants,
including, without limitation, certain restrictions (subject to limited
exceptions) on (i) the issuance of variable priced securities, (ii) purchases
and payments, (iii) limitations on prepayments, (iv) incurrence of indebtedness,
(v) sale of collateral, (vi) affiliate transactions and (vii) the ability to
make loans and investments.
In
consideration of the execution and delivery by the buyers of the Agreement,
by
and among the Company and the buyers, the buyers purchased 150,000 common shares
at a negotiated purchase price of $0.01 per share from a third party stockholder
of the Company. On such date, the closing trading price of the Company's common
stock on the Over The Counter Bulletin Board was $5.35. The purchase of the
common shares at a favorable price from such third party stockholder was a
material inducement to the buyers entering into the transactions. Accordingly,
under U.S. GAAP, of the $4.5 million received by the Company in connection
with
the sale of the senior notes to the buyers, $802,500 has been allocated to
the
value of the common shares sold to the buyers as if such common shares were
contributed to the Company by the third party and then reissued by the Company
in connection with the transactions.
The
resulting aggregate debt discount of $1,352,500 (consisting of the original
issue discount of $500,000, lender fees of $50,000 and the 150,000 common shares
valued at $802,500) was being amortized to interest expense over the original
term of the debt through May 30, 2008.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
On
May 5,
2008, $611,111 of the original $5,000,000 face value of debt was settled by
the
issuance of 305,500 common shares and 152,750 five-year warrants exercisable
at
$2.50 per share having an aggregate value of $611,000, which was based on a
private placement of similar securities of the Company occurring at the time
of
settlement. The net book value of the debt at the date of settlement was
$588,404, resulting in a loss on settlement of $22,707, of which $20,121 was
included in other income (expense) and $2,586 was included in loss from
discontinued operations.
Amortization
of the debt discount for the three and nine months ended September 30, 2008
totaled $120,819 and $1,239,061, of which $120,819 and $1,075,140 is included
in
interest expense and $0 and $163,921 is included in discontinued operations,
respectively.
In
addition, the Company incurred legal and other fees associated with the issuance
of the Longview Notes. Such fees of $91,437 are included in deferred debt issue
costs and were amortized to interest expense over the term of the debt.
Amortization of the deferred costs for the three and nine months ended September
30, 2008 totaled $0 and $77,505, of which $0 and $66,134 is included in interest
expense and $0 and $11,371 is included in discontinued operations, respectively.
On
May
30, 2008, the Company paid a one-time cash fee in the amount of $50,000 to
extend the maturity date on the senior secured promissory note from May 30,
2008
to June 13, 2008. Accordingly, $0 and $44,524 is included in interest expense
and
$0
and $5,476 is included in discontinued operations
for the
three and nine months ended September 30, 2008, respectively.
On
June
17, 2008, the Company paid a one-time cash fee in the amount of $50,000 (the
“Extension Amount”) to extend the maturity date on the senior secured promissory
note from June 13, 2008 until June 20, 2008. The Extension Amount may be
credited against the outstanding principal balance in certain circumstances
as
described in the Amendment Agreement, which, in fact, occurred as a result
of
the Options Divestiture.
On
June
23, 2008, the Company utilized proceeds from the Options Divestiture in order
to
enter into an “Amendment Agreement” whereby the Company paid down $2,750,000 of
the balance on the senior secured promissory note. The remaining balance of
the
Longview Notes as of June 23, 2008 (giving effect to the increase in principal
per the Amendment Agreement of $134,684) was $1,773,573. Also per the Amendment
Agreement, the maturity date of the Longview Notes was extended to August 30,
2008 and the interest rate was increased from 8% to 12%. The Company also
pledged the OPMG stock to Longview, in order to secure the remaining balance
of
the Longview Notes. The
resulting debt discount of $134,684 was amortized to interest expense over
the
term of the note. Amortization of the new debt discount for the three and nine
months ended September 30, 2008 was $120,819 and $134,684, respectively, all
of
which is included in interest expense.
As
of
September 30, 2008, all principal and accrued interest on the Longview Notes
had
been repaid.
On
September 26, 2008, we sold senior secured promissory notes (the “GRQ
Notes”) in the original aggregate principal amount of $1,300,000 to a related
party. The GRQ Notes bear interest at the rate of 6% per annum and mature
December 31, 2008. We used the net proceeds from the sale of the GRQ Notes
to
repay the Longview Notes. The
Company also pledged the OPMG Stock as collateral on the GRQ Notes.
Accrued
interest related to above notes at September 30, 2008 and at December 31, 2007,
was $1,068 and $33,333, respectively.
Note
6. Net Loss per Share
Basic
earnings per share are computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share are computed
using the weighted average number of common and potentially dilutive securities
outstanding during the period. Potentially dilutive securities consist of the
incremental common shares issuable upon exercise of stock options and warrants
and conversion of convertible debt (using the treasury stock method).
Potentially dilutive securities are excluded from the computation if their
effect is anti-dilutive. The treasury stock effect of options, warrants and
conversion of convertible debt to shares of common stock outstanding at
September 30, 2008 have not been included in the calculation of the net loss
per
share as such effect would have been anti-dilutive. As a result, the basic
and
diluted loss per share for all periods presented are identical.
At
September 30, 2008, there were common stock options for 5,136,954 shares, which
if exercised, may dilute future earnings per share.
At
September 30, 2008, there were common stock warrants for 1,402,050 shares,
which
if exercised, may dilute future earnings per share.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Note
7. Income Taxes
As
part
of the allocation of the purchase price associated with the Options Merger
(see
Note 1), a deferred tax liability of $264,000 was established as a result of
differences between the book and tax basis of acquired intangible assets. Upon
completion of the Options Divestiture, the entire deferred tax liability was
recognized as a deferred tax benefit in operations, which ultimately increased
the loss on sale from discontinued operations and decreased the loss from
discontinued operations.
In
addition, the Company has not recognized a tax benefit for the three and nine
months ended September 30, 2008, due to the Company's continuing
losses.
Note
8. Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue up to 10,000,000 shares of $0.001 par value
preferred stock of which none is issued and outstanding at September 30,
2008.
Common
Stock
The
Company is authorized to issue up to 140,000,000 shares of $0.001 par value
common stock of which 37,845,167 shares were issued and outstanding at September
30, 2008.
On
January 4, 2008, the Company issued 1,000,000 shares of its common stock valued
at $5,717,273, and 10,000 five-year warrants valued at $29,169 with an exercise
price of $5.57 per share as part of the consideration to purchase Options
Acquisition. On June 23, 2008, Options Acquisition was sold and all related
activity has been reclassified to discontinued operations
accordingly.
During
the period from March 28, 2008 through April 1, 2008, the Company entered into
subscription agreements pursuant to which the Company sold to various investors
(i) 300,000 shares of its common stock and (ii) five-year warrants to purchase
150,000 shares of its common stock at an exercise price of $2.75 per share
for
gross proceeds of $750,000 ($2.50 per unit), of which $25,000 was paid in
finder’s fees. Until the earlier of 24 months from the closing date or such date
there is an effective registration statement on file with the SEC covering
the
resale of all of the shares and warrants, the shares and warrants are price
protected and the Company is obligated to issue additional shares and/or
warrants in the event the Company issues common stock at a price less than
$2.50
per share.
During
the period from April 30, 2008 through July 17, 2008, the Company entered into
subscription agreements pursuant to which the Company sold to various investors
(i) 1,125,000 shares of its common stock and (ii) five-year warrants to purchase
562,500 shares of its common stock at an exercise price of $2.50 per share
for
gross proceeds of $2,250,000 ($2.00 per unit), of which $62,500 and five-year
warrants to purchase 11,800 shares of its common stock at an exercise price
of
$2.50 per share was paid in finder’s fees. Until the earlier of 24 months from
the closing date or such date there is an effective registration statement
on
file with the SEC covering the resale of all of the shares and warrants, the
shares and warrants are price protected and the Company is obligated to issue
additional shares and/or warrants in the event the Company issues common stock
at a price less than $2.00 per share.
On
April
30, 2008, as a result of the issuance by the Company of common stock at a price
below $2.50 per share and warrants at an exercise price below $2.75 per share,
the Company issued an additional 75,000 shares of its common stock and five-year
warrants to purchase 15,000 shares of its common stock at an exercise price
of
$2.50 per share, pursuant to price protection clauses contained within the
subscription agreements. In addition, the five-year warrants to purchase 150,000
shares of the Company’s common stock at an exercise price of $2.75 per share
were also repriced to $2.50 per share. As the additional issuances of equity
instruments stemmed from a capital transaction, there is no effect on the
accompanying statement of operations. Accordingly, the activity was recorded
by
an increase in common stock of $75 with a corresponding decrease in additional
paid-in capital.
On
May 5,
2008, the Company settled $611,111 of the original $5,000,000 face value of
the
senior secured notes payable by issuance of 305,500 of its common shares and
five-year warrants to purchase 152,750 of its common shares at an exercise
price
of $2.50 per share having an aggregate value of $611,000, which was based on
a
private placement price of $2.00 per unit for similar securities occurring
at
the time of settlement. The net book value of the debt at the date of settlement
was $588,404, resulting in a loss on settlement of $22,707, of which $20,121
was
included in other income (expense) and $2,586 was included in loss from
discontinued operations.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
During
the three and nine months ended September 30, 2008, the Company amortized
$24,919 and $178,481, respectively, of deferred equity-based expense related
to
warrants.
On
May
28, 2008, the Company issued 60,000 common shares having a fair value of
$189,000 (based on a quoted trading price of $3.15 per share) to an investor
relations firm in exchange for services to be rendered over a three-month
period. Accordingly, $126,000 and $189,000 has been expensed during the three
and nine months ended September 30, 2008, respectively.
Stock
Incentive Plan and Option Grants
During
the three and nine months ended September 30, 2008, the Company recognized
stock-based compensation of $1,276,597 and $2,196,288, respectively, in
connection with the Company’s stock option plan.
During
the nine months ended September 30, 2008, the Company granted 1,970,000 stock
options, each exercisable at the fair value of the common stock on the
respective grant dates ranging from $1.31 to $6.16 pursuant to employment
contracts. The options vest pro rata over 2 to 4 years and expire 5 years from
the grant date. The total value of the options of $3,721,182 was computed using
a Black-Scholes option pricing method with volatilities ranging from 71% to
127%
(based earlier on comparable companies and later on historical volatility),
an
expected term of 5 years (based on contracted term since we have no history
and
using the SAB 107 simplified method does not produce a material difference),
dividends of 0% and interest rates ranging from 2.66% to 3.79%. The expense
will
be recognized pro rata over the respective 2-year to 4-year requisite service
periods. On September 23, 2008, an aggregate of 1,462,500 of the stock options
issued during 2008 were repriced resulting in an additional fair value of
$380,250, which is being recognized over the remaining vesting periods.
Note
9. Commitments and Contingencies
Leases
As
of
September 30, 2008 the minimum future lease payments for the New York and
Florida leases, both of which have noncancelable terms in excess of one year,
are as follows:
Year
ending December 31,
|
|
|
|
2008
|
|
$
|
76,539
|
|
2009
|
|
|
447,458
|
|
2010
|
|
|
456,208
|
|
2011
|
|
|
465,183
|
|
2012
|
|
|
421,588
|
|
2013
|
|
|
378,252
|
|
Later
years
|
|
|
341,824
|
|
|
|
$
|
2,587,052
|
|
Rent
expense for the three and nine months ended September 30, 2008 was $58,570
and
$110,539, respectively.
The
Company leased office space for its Fort Lauderdale, Florida location under
a
yearly renewable lease agreement bearing monthly rent of $11,300. In July 2008,
this office was relocated to Boca Raton, Florida, where the Company entered
into
a five-year lease agreement bearing monthly rent of $3,313 with an annual 3.0%
escalation. The Company leased office space for its New
York,
NY location, under a five-year lease agreement bearing monthly rent of $8,798.
In September 2008, the Company relocated this office to a larger space in New
York, where the Company entered into a six-year lease agreement bearing monthly
rent of $25,073 with an annual 2.5% escalation. As the Company is still
obligated under the original New York lease, the Company is attempting to
sublease this office space.
Severance
Package
On
April
25, 2008, Bruce Kreindel, the Company’s former Chief Financial Officer (the
“CFO”), Treasurer, and formerly a member of the board of directors of the
Company, executed a separation and release agreement (the “Separation
Agreement”) in which he resigned as CFO, Treasurer and as a member of the board
of directors of the Company. Mr. Kreindel remained in the position of interim
CFO until the appointment of David Garrity as the Company’s new CFO on June
30, 2008. Pursuant to the terms of the Separation Agreement, Mr. Kreindel
received, as severance (i) $50,000 (paid May 6, 2008), and (ii) $125,000 (of
which $104,167 has been paid and $20,833 is included in accrued expenses as
of
September 30, 2008) to be paid in accordance with the Company’s regular payroll
practices. Pursuant to the terms of the employment agreement dated June 28,
2007
between Mr. Kreindel and the Company, Mr. Kreindel received equity in the
Company known as “Founder’s Stock.” Pursuant to the terms of the Separation
Agreement, Mr. Kreindel will retain his Founder’s Stock. Mr. Kreindel has agreed
that, at any time prior to December 27, 2008, he will, as may be required by
the
Company, enter into a lock-up agreement on the same terms and conditions as
all
other members of the Company’s board of directors, with respect to the Founder’s
Stock. Prior to entering into the Separation Agreement, 115,954 options had
vested as of the date of the Separation Agreement. Pursuant to the Separation
Agreement, Mr. Kreindel will not be entitled to any other options. Mr. Kreindel
will have the unqualified right to exercise any of the vested options for a
period of 12 months after the separation date.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Guaranteed
Bonus
On
December 2007, the Company entered into an employment agreement whereby the
Company is obligated to pay a guaranteed bonus of $500,000 during the first
year
of the employment agreement. As of September 30, 2008, the Company has paid
$250,000 of the guaranteed bonus and the remaining $250,000 of the guaranteed
bonus is included in accrued expenses.
Earn
Out for Options Acquisition
As
part
of the Options Merger, the Company became obligated to pay up to an additional
$1 million (the “Earn Out”) if certain gross revenues are achieved for the one
year period subsequent to the Options Merger payable 60 days after the end
of
each of the quarters starting with March 31, 2008. On September 30, 2008, the
Company entered into a settlement agreement with the former owner of Options
Media to settle all amounts due under the $1 million Earn Out and the January
4,
2008 employment agreement whereby the Company agreed to pay $600,000 upon
execution of the settlement agreement and $500,000, payable in two equal
installments on October 30, 2008 and January 15, 2009. The $1,100,000 in
payments has been discounted to a net present value of $1,090,230 using a
discount rate of 12%. In addition, all stock options previously granted to
the
former owner
of
Options Media
became
fully vested immediately. As a result of the settlement, the additional loss
from discontinued operations was $1,053,059 and the additional loss on sale
of
discontinued operations was $498,554 for the three months ended September 30,
2008.
Agreement
with Falcon
On
May
28, 2008, the Company entered into a six-month Consulting Services Agreement
(the “Agreement”) whereby the Company is to receive investor and marketing
relations in exchange for: (i) issuing 60,000 of its common shares within ten
days of the Agreement having a fair value of $189,000, (ii) issuing 60,000
of
its common shares at August 28, 2008 having a fair value of $189,000, (iii)
an
initial cash fee of $30,000, and (iv) a monthly cash fee of $25,000. On August
12, 2008, the consultant was terminated. Accordingly, the 60,000 common shares
due to the consultant on August 28, 2008 were not issued. No further
consideration is due under the Agreement as of September 30, 2008.
Legal
Matters
From
time
to time, we may be involved in litigation relating to claims arising out of
our
operations in the normal course of business. As of September 30, 2008, there
were no pending or threatened lawsuits that could reasonably be expected to
have
a material effect on the results of our operations.
On
May
16, 2008, Devon Cohen, our former Chief Operating Officer, commenced an
employment arbitration action against us before the American Arbitration
Association, claiming that he was terminated by us without cause that he is
therefore owed $600,000 as severance compensation. On September 24, 2008, the
litigation between the Company and Mr. Cohen was settled with no obligation
for
either party to the suit except to pay their own legal fees.
There
are
no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to our interest.
Note
10. Concentrations
Concentration
of Credit Risk
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(Unaudited)
Financial
instruments that potentially subject the Company to concentration of credit
risk
consist of cash and cash equivalents and accounts receivable. Cash and cash
equivalents are deposited in the local currency in two financial institutions
in
the United States. The balance, at any given time, may exceed Federal Deposit
Insurance Corporation (“FDIC”) insurance limits. As of September 30, 2008,
there was $1,102,554 in excess of insurable limits. Subsequent to September
30, 2008, the FDIC insurance limits were temporarily increased to $250,000
per
institution thereby, further reducing the Company’s risk.
Concentration
of Revenues and Accounts Receivable
For
the
three and nine months ended September 30, 2008, the Company had significant
customers with individual percentage of total revenues equaling 10% or greater
as follows:
|
|
For
the Three
|
|
For
the Nine
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
|
|
September 30, 2008
|
|
September 30, 2008
|
|
Customer
1
|
|
|
9.1
|
%
|
|
12.9
|
%
|
Customer
2
|
|
|
7.5
|
%
|
|
10.1
|
%
|
|
|
|
16.6
|
%
|
|
23.0
|
%
|
Note
11. Related Party Transactions
Included
in revenues for the three and nine months ended September 30, 2008 is
approximately $0 and $43,000, respectively, of revenue from a related party
affiliate which is controlled by one of our directors who was one of the former
owners of Desktop.
On
September 26, 2008, we sold senior secured promissory notes (the “GRQ
Notes”) in the original aggregate principal amount of $1,300,000 to a related
party (See Note 5).
Note
12. Subsequent Events
In
October 2008, the Company entered into a revolving credit facility with Silicon
Valley Bank to finance 80% of its accounts receivable up to a maximum credit
line of $3 million. The credit line has an interest rate equal to Prime plus
2.0% and is secured by all of the Company’s assets except property and equipment
financed elsewhere and the Company’s 7.7
million
OPMG share investment which has been pledged to secure the GRQ Notes (see Note
5).
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operation
The
following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and related notes appearing
elsewhere in this quarterly report on Form 10-Q. In addition to historical
information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties, and assumptions. Our actual results may
differ materially from those anticipated in these forward-looking statements
as
a result of certain factors, including but not limited to those set forth under
"Risk Factors" in our annual report on Form 10-KSB filed on April 15,
2008.
Management's
discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these consolidated financial statements requires
us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates and assumptions,
including, but not limited to, those related to revenue recognition, allowance
for doubtful accounts, income taxes, goodwill and other intangible assets,
and
contingencies and litigation. We base our estimates on historical experience
and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results may differ from these estimates and
assumptions.
Company
Overview
We
operate the interCLICK Network, an online ad network that combines advanced
behavioral targeting with site by site reporting, allowing advertisers to
identify and track their desired audience on an unprecedented level. interCLICK
offers advanced proprietary demographic, behavioral, contextual, geographic
and
retargeting technologies across a network of name brand publishers to ensure
the
right message is delivered to a precise audience in a brand friendly
environment.
By
combining site by site transparency and advanced behavioral targeting,
interCLICK is taking the inefficiencies out of the buyer/seller dynamic by
allowing advertisers to achieve a direct response metric, whether it’s a click,
lead or a sale. We believe that this fundamental difference allows
online marketers to achieve a better return on investment while still being
able to target the premium websites.
Corporate
History
Prior
to
August 28, 2007, we were a public company, without material assets or
activities. On August 28, 2007, we completed a reverse merger, pursuant to
which a wholly-owned subsidiary of ours merged with and into a private company,
Customer Acquisition Network, Inc., with such private company being the
surviving company. In connection with this reverse merger, we discontinued
our
former business and succeeded to the business of Customer Acquisition
Network, Inc. as our sole line of business. For financial reporting
purposes, Customer Acquisition Network, Inc., and not us, is considered the
accounting acquirer. Accordingly, the historical financial statements presented
and the discussion of financial condition and results of operations herein
are
those of Customer Acquisition Network, Inc. and do not include our
historical financial results.
On
August
31, 2007, we consummated the acquisition of Desktop Interactive, Inc.,
(“Desktop”) known in the industry as InterCLICK, one of the nation’s leading
Internet advertising networks. ComScore,
the industry standard utilized to measure an ad network’s capability to reach
unique online visitors, recently ranked interCLICK as the eleventh largest
ad
network in the United States as of September 30, 2008. InterCLICK reaches 122
million unique U.S. visitors per month, or 64% of the U.S. online population,
with total pages viewed per month totaling almost 5.9 billion. interCLICK’s
rapidly expanding customer base includes some of the world’s largest Internet
publishers and advertisers.
On
January 4, 2008, we consummated the acquisition of Options Newsletter, Inc.,
known in the industry as Options Media (“Options”), a leading provider of email
delivery services.
On
June
23, 2008, we consummated the divestiture of Options to Options Media Group
Holdings, Inc.
On
June
25, 2008, Customer Acquisition Network Holdings, Inc. changed its name to
interCLICK, Inc. (“interCLICK”).
Results
of Operations
The
following table presents our results of operations for the three and nine months
ended September 30, 2008. It should be noted that our results of operations
and
our liquidity and capital resources discussions focus primarily on the
operations of interCLICK while referring to Options as a discontinued operation
for the three and nine months ended September 30, 2008 (otherwise referred
to as
the “Period”).
|
|
For
the Three
|
|
For
the Three
|
|
For
the Nine
|
|
From
June 14, 2007
|
|
|
|
Months
Ended
|
|
Months
Ended
|
|
Months
Ended
|
|
(Inception)
to
|
|
|
|
September
30, 2008
|
|
September
30, 2007
|
|
September
30, 2008
|
|
September
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,756,707
|
|
$
|
1,169,991
|
|
$
|
13,992,303
|
|
$
|
1,169,991
|
|
Cost
of revenue
|
|
|
3,964,388
|
|
|
1,083,613
|
|
|
10,084,467
|
|
|
1,083,613
|
|
Gross
profit
|
|
|
1,792,319
|
|
|
86,378
|
|
|
3,907,836
|
|
|
86,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative (includes stock-based expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$439,768, $43,311, $1,417,031 and $43,311, respectively)
|
|
|
1,513,224
|
|
|
939,848
|
|
|
4,755,165
|
|
|
939,848
|
|
Sales
and marketing
|
|
|
1,282,205
|
|
|
109,884
|
|
|
3,552,847
|
|
|
109,884
|
|
Technology
support
|
|
|
256,370
|
|
|
-
|
|
|
764,779
|
|
|
-
|
|
Merger,
acquisition, and divestiture costs
|
|
|
57,415
|
|
|
187,353
|
|
|
569,477
|
|
|
187,353
|
|
Amortization
of intangible assets
|
|
|
104,571
|
|
|
91,094
|
|
|
313,938
|
|
|
91,094
|
|
Total
operating expenses
|
|
|
3,213,785
|
|
|
1,328,179
|
|
|
9,956,206
|
|
|
1,328,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss from continuing operations
|
|
|
(1,421,466
|
)
|
|
(1,241,801
|
)
|
|
(6,048,370
|
)
|
|
(1,241,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
8,140
|
|
|
23,995
|
|
|
14,903
|
|
|
23,995
|
|
Loss
on settlement of debt
|
|
|
-
|
|
|
-
|
|
|
(20,121
|
)
|
|
-
|
|
Loss
on sale of available-for-sale securities
|
|
|
(116,454
|
)
|
|
-
|
|
|
(116,454
|
)
|
|
-
|
|
Loss
on disposal of fixed assets
|
|
|
(15,385
|
)
|
|
-
|
|
|
(15,385
|
)
|
|
-
|
|
Interest
expense
|
|
|
(189,382
|
)
|
|
-
|
|
|
(1,422,885
|
)
|
|
-
|
|
Total
other income (expense)
|
|
|
(313,081
|
)
|
|
23,995
|
|
|
(1,559,942
|
)
|
|
23,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income tax benefit
|
|
|
(1,734,547
|
)
|
|
(1,217,806
|
)
|
|
(7,608,312
|
)
|
|
(1,217,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
280,019
|
|
|
-
|
|
|
280,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before equity investment
|
|
|
(1,734,547
|
)
|
|
(937,787
|
)
|
|
(7,608,312
|
)
|
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in investee's loss, net of income taxes
|
|
|
(404,103
|
)
|
|
-
|
|
|
(653,231
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(2,138,650
|
)
|
|
(937,787
|
)
|
|
(8,261,543
|
)
|
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(1,053,059
|
)
|
|
-
|
|
|
(1,988,232
|
)
|
|
-
|
|
Loss
on sale of discontinued operations, net of income
taxes
|
|
|
(498,554
|
)
|
|
-
|
|
|
(1,123,535
|
)
|
|
-
|
|
Net
loss from discontinued operations
|
|
|
(1,551,613
|
)
|
|
-
|
|
|
(3,111,767
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,690,263
|
)
|
|
(937,787
|
)
|
|
(11,373,310
|
)
|
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on available-for-sale securities
|
|
|
(197,704
|
)
|
|
-
|
|
|
(197,704
|
)
|
|
-
|
|
Total
other comprehensive loss
|
|
|
(197,704
|
)
|
|
-
|
|
|
(197,704
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(3,887,967
|
)
|
$
|
(937,787
|
)
|
$
|
(11,571,014
|
)
|
$
|
(937,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share from continuing operations - basic and diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.04
|
)
|
$
|
(0.22
|
)
|
$
|
(0.04
|
)
|
Loss
per share from discontinued operations - basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
-
|
|
$
|
(0.09
|
)
|
$
|
-
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.31
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
|
|
37,808,210
|
|
|
23,756,165
|
|
|
36,900,393
|
|
|
22,292,694
|
|
Three
Months Ended September 30, 2008 Compared with Three Months Ended September
30,
2007
Revenues
Revenues
from continuing operations for the three months ended September 30, 2008
increased to $5,756,707 from $1,169,991 in the 2007 period, an increase of
392%.
The
increase is primarily attributable to
the
Company's national sales force expansion and the continued shift towards
higher-priced cost per click (CPC) and cost per thousand (CPM) advertising
campaigns.
Seasonally,
the third quarter marks the start of the stronger half of the year in terms
of
demand for CPM advertising campaigns. interCLICK is particularly sensitive
to
this seasonality effect given that the majority of its revenues are tied to
CPM
campaigns. However, in response to well-known unfavorable macro-economic
developments, the overall U.S. Internet audience based on ComScore data
contracted to 189.2mm average viewers in the third quarter of 2008, a decline
of
0.7%, as compared to the second quarter of 2008, while still showing an increase
of 4.5%, as compared to the second quarter of 2007. For the same periods
indicated, we experienced growth of 7.5% and 52.0%, respectively, as our
audience reach expanded rapidly based on signing more publishers and gaining
access to more inventory.
During
the three months ended September 30, 2008, revenues from large branded
advertisers accounted for more than 85% of overall revenues as compared to
less
than 75% for the 2007 period.
Cost
of Revenue and Gross Profit
Cost
of
revenue for the three months ended September 30, 2008 increased to $3,964,388
from $1,083,613 in the 2007 period, an increase of 266%. The
increase is primarily attributable to the
growth in advertising campaigns requiring the purchase of appropriate levels
of
inventory from publishers. Cost
of
revenue is comprised of the amounts we paid to website publishers on
interCLICK’s online advertising network. Cost of revenue represented 68.9% of
revenue for the three months ended September 30, 2008 compared to 92.6 % of
revenue for the 2007 period. The decrease is primarily attributable to
improvements in our technology platform resulting in a better match between
acquired publisher inventory and advertising campaigns.
Gross
profit for the three months ended September 30, 2008 increased to $1,792,319
from $86,378 in the 2007 period, an increase of 1,975%. The
increase is primarily attributable to the
higher level of revenues combined with the positive revenue mix shift towards
higher margin CPM advertising campaigns.
Gross
profit
represented 31.1% of revenue for the three months ended September 30, 2008
compared to 7.4% of revenue for the 2007 period.
We
pay
interCLICK’s website publishers on a CPM or a revenue share basis. The amount of
display advertisements we deliver (e.g. impressions) reflects the level of
publishing media we can acquire. Based on our ComScore rating as
of
September 30, 2008, we reach 64% of the domestic online population and are
ranked as the eleventh largest ad network in the domestic online
marketplace.
We
endeavor both to expand our publisher base and to increase the levels of
acquired publishing media, particularly with tier one publishers.
Operating
Expenses:
General
and Administrative
General
and administrative expenses consist primarily of executive and administrative
compensation, facilities costs, insurance, depreciation, professional fees
and
investor relations services fees. General and administrative expenses for the
three months ended September 30, 2008 increased to $1,513,224 from $939,848
in
the 2007 period, an increase of 61.0%. The
increase is primarily attributable to headcount
expansion over the period.
General
and administrative expenses
represented 26.3% of revenue for the three months ended September 30, 2008
compared to 80.3% of revenue for the 2007 period.
Included
in general and administrative expenses are non-cash stock based compensation,
which is comprised of expense from our stock option plans and amortization
of
warrants issued for consulting services. Non-cash stock based compensation
for
the three months ended September 30, 2008 increased to $439,768 from $43,311
in
the same period in 2007, an increase of 915%. The
increase is primarily attributable to the
award
of incentive stock option grants to current as well as new employees.
Non-cash
stock based compensation represented 7.6% of revenue for the three months ended
September 30, 2008 compared to 3.7% of revenue for the 2007 period.
Sales
and Marketing
Sales
and
marketing expenses consist primarily of compensation for sales and marketing
and
related support resources, sales commissions and trade shows. Sales and
marketing expenses for the three months ended September 30, 2008 increased
to
$1,282,205 from $109,884 in the 2007 period, an increase of 1,067%. The
increase is primarily attributable to our
national sales-force expansion.
Sales
and
marketing expenses
represented 22.3% of revenue for the three months ended September 30, 2008
compared to 9.4% of revenue for the 2007 period.
We
expect
sales and marketing costs to increase as a result of our continued expansion
of
sales and marketing resources and the expected overall growth in our
business.
Technology
Support
Technology
Support consists primarily of compensation of technology support and related
consulting resources and third party ad server costs for interCLICK. Technology
support and related consulting support resources have been directed primarily
towards continued enhancement of our consumer behavioral-targeting and
predictive scoring capabilities, integration and optimization of captured and
acquired consumer data, and ongoing maintenance and improvement of our ad server
optimization technology platform. Technology
support expenses for the three months ended September 30, 2008 increased to
$256,370 from $0 in the 2007 period. The
increase is primarily attributable to expenditures
necessary to support our increased operating scale.
Technology
support expenses
represented 4.5% of revenue for the three months ended September 30, 2008
compared to 0.0% of revenue for the 2007 period.
Amortization
of Intangible Assets
Amortization
of intangible assets includes amortization of customer relationships, developed
technology and a domain name acquired through the Desktop acquisition.
Amortization of intangible assets for the three months ended September 30,
2008
increased to $104,571 from $91,094 in the 2007 period, an increase of 14.8%.
The
increase is primarily attributable to three full months of amortization
in
the
2008 period versus one month of amortization in the 2007 period.
Amortization
of intangible assets represented 1.8% of revenue for the three months ended
September 30, 2008 compared to 7.8% of revenue for the 2007 period.
Merger,
Acquisition and Divestiture Costs
Merger,
acquisition and divestiture costs consist primarily of audit and accounting
services related to the acquisition and subsequent divestiture of Options
Acquisition Sub, Inc. Merger, acquisition and divestiture costs for the three
months ended September 30, 2008 decreased to $57,415 from $187,353 in the 2007
period, a decrease of 69.4%. The
decrease is primarily attributable to management's
decision to focus on the organic growth of its internet ad network
operations.
Merger,
acquisition and divestiture costs represented 1.0% of revenue for the three
months ended September 30, 2008 compared to 16.0% of revenue for the 2007
period.
Income
taxes
As
part
of the allocation of the purchase price associated with the Options Merger,
(see
Note 1 of the consolidated financial statements) a deferred tax liability of
$264,000 was established as a result of differences between the book and tax
basis of acquired intangible assets. With our divesture of the business of
Options Acquisition Sub, Inc. in June 2008, the deferred tax liability has
been
eliminated.
We
have
not recognized a tax benefit for the three months ended September 30, 2008
due
to our continued losses. For the three months ended September 30, 2007, we
had
recognized a tax benefit of $280,019.
Nine
Months Ended September 30, 2008 Compared with Nine Months Ended September 30,
2007
Revenues
Revenues
from continuing operationsfor the nine months ended September 30, 2008 increased
to $13,992,303 from $1,169,991 in the 2007 period, an increase of 1,096%.
The
increase is primarily attributable to our
national sales force expansion and the continued shift towards higher-priced
cost per click (CPC) and cost per thousand (CPM) advertising
campaigns.
During
the nine months ended September 30, 2008, CPM revenues accounted for over 84%
of
interCLICK’s overall revenues as compared to less than 75% for the 2007
period.
Cost
of Revenue and Gross Profit
Cost
of
revenue for the nine months ended September 30, 2008 increased to $10,084,467
from $1,083,613 in the 2007 period, an increase of 831%. The
increase is primarily attributable to the
growth in advertising campaigns requiring the purchase of appropriate levels
of
inventory from publishers.
Cost of
revenue is comprised of the amounts we paid to website publishers on
interCLICK’s online advertising network. Cost of revenue represented 72.1% of
revenue for the nine months ended September 30, 2008 compared to 92.6 % of
revenue for the 2007 period. The decrease is primarily attributable to
improvements in our technology platform resulting in a better match between
acquired publisher inventory and advertising campaigns.
Gross
profit for the nine months ended September 30, 2008 increased to $3,907,836
from
$86,378 in the 2007 period, an increase of 4,424%. The
increase is primarily attributable to the
higher level of revenues combined with the positive revenue mix shift towards
higher margin CPM advertising campaigns.
Gross
profit
represented 27.9% of revenue for the nine months ended September 30, 2008
compared to 7.4% of revenue for the 2007 period.
We
pay
interCLICK’s website publishers on a CPM or a revenue share basis. The amount of
display advertisements we deliver (e.g. impressions) reflects the level of
publishing media we can acquire. Based
on
ComScore data as of September 30, 2008, we reach 64% of the domestic online
population and are ranked as the eleventh largest ad network in the domestic
online marketplace.
We
endeavor both to expand our publisher base and to increase the levels of
acquired publishing media, particularly with tier one publishers.
Operating
Expenses:
General
and Administrative
General
and administrative expenses for the nine months ended September 30, 2008
increased to $4,755,165 from $939,848 in the 2007 period, an increase of 406%.
The
increase is primarily attributable to headcount
expansion over the period.
General
and administrative expenses
represented 34.0% of revenue for the nine months ended September 30, 2008
compared to 80.3% of revenue for the 2007 period.
Included
in general and administrative expenses are non-cash stock based compensation,
which is comprised of expense from our stock option plans and amortization
of
warrants issued for consulting services. Non-cash stock based compensation
for
the nine months ended September 30, 2008 increased to $1,417,031 from $43,311
in
the 2007 period, an increase of 3,172%. The
increase is primarily attributable to the
award
of incentive stock option grants to current as well as new employees.
Non-cash
stock based compensation represented 24.6% of revenue for the nine months ended
September 30, 2008 compared to 3.7% of revenue for the 2007 period.
Sales
and Marketing
Sales
and
marketing expenses for the nine months ended September 30, 2008 increased to
$3,552,847 from $109,884 in the 2007 period, an increase of 3,133%. The
increase is primarily attributable to our
national sales-force expansion.
Sales
and
marketing expenses
represented 25.4% of revenue for the nine months ended September 30, 2008
compared to 9.4% of revenue for the 2007 period.
We
expect
sales and marketing costs to increase as a result of our continued expansion
of
sales and marketing resources and the expected overall growth in our
business.
Technology
Support
Technology
support expenses for the nine months ended September 30, 2008 increased to
$764,779 from $0 in the 2007 period. The
increase is primarily attributable to expenditures
necessary to support our increased operating scale.
Technology
support expenses
represented 5.5% of revenue for the nine months ended September 30, 2008
compared to 0.0% of revenue for the 2007 period.
Amortization
of Intangible Assets
Amortization
of intangible assets for the nine months ended September 30, 2008 increased
to
$313,938 from $91,094 in the 2007 period, an increase of 245%. The
increase is primarily attributable to nine full months of amortization in the
2008
period
versus one month of amortization in the 2007 period.
Amortization
of intangible assets represented 2.2% of revenue for the nine months ended
September 30, 2008 compared to 7.8% of revenue for the 2007 period.
Merger,
Acquisition and Divestiture Costs
Merger,
acquisition and divestiture costs for the nine months ended September 30, 2008
increased to $569,477 from $187,353 in the 2007 period, an increase of 204%.
The
decrease is primarily attributable to management's
decision to focus on the organic growth of its internet ad network
operations.
Merger,
acquisition and divestiture costs represented 4.1% of revenue for the nine
months ended September 30, 2008 compared to 16.0% of revenue for the 2007
period.
Income
taxes
As
part
of the allocation of the purchase price associated with the Options Merger, (see
Note 1 of the consolidated financial statements) a deferred tax liability of
$264,000 was established as a result of differences between the book and tax
basis of acquired intangible assets. With our divesture of the business of
Options Acquisition Sub, Inc. in June 2008, the deferred tax liability has
been
eliminated.
We
have
not recognized a tax benefit for the nine months ended September 30, 2008 due
to
our continued losses. For the nine months ended September 30, 2007, we had
recognized a tax benefit of $280,019.
Liquidity
and Capital Resources
At
September 30, 2008, we had a cash and cash equivalent balance of approximately
$0.6 million and a working capital deficit of approximately $1.5 million. Net
cash used in operating activities during the nine months ended September 30,
2008 totaled approximately $3.5 million. This resulted primarily from a loss
from operations of approximately $8.3 million and a $0.7 million outflow of
cash
from changes in operating assets and liabilities offset by $5.5 million in
non-cash charges.
Net
cash
provided by investing activities for the nine months ended September 30, 2008
totaled approximately $0.7 million. This resulted primarily from proceeds from
the sale of available-for-sale securities of approximately $1.0 million offset
by purchases of property and equipment of approximately $0.3
million.
Net
cash
used in financing activities for the nine months ended September 30, 2008 was
approximately $0.3 million. This resulted primarily from approximately $4.5
million in note payable principal payments offset by approximately $2.9 million
in cash received from stock subscriptions and $1.3 million received from the
issuance of notes payable.
On
November 30, 2007, pursuant to a purchase agreement we sold senior secured
promissory notes (the “Senior Notes”) in the original aggregate principal amount
of $5,000,000. We received net proceeds in the amount of $4,500,000 net of
$500,000 of an Original Issue Discount upon sale of the Senior
Notes.
The
Senior Notes were to mature on May 30, 2008 and bore interest at the rate
of 8% per annum, payable quarterly in cash. We used the net proceeds from the
sale of the Senior Notes first, to pay expenses and commissions related to
the
sale of the Senior Notes and second, for the general working capital needs
and
acquisitions of companies or businesses reasonably related to Internet marketing
and advertising.
On
May 5,
2008, $611,111 of the original $5,000,000 face value of the Senior Notes was
settled by the issuance of 305,500 common shares and 152,750 five-year warrants
exercisable at $2.50 per share having an aggregate value of $611,000, which
was
based on a private placement of similar securities occurring at the time of
settlement. The net book value of the debt at the date of settlement was
$588,404, resulting in a loss on settlement of $22,707, of which $20,121 was
included in other income (expense) and $2,586 was included in loss from
discontinued operations.
Amortization
of the debt discount for the three and nine months ended September 30, 2008
totaled $120,819 and $1,239,061, of which $120,819 and $1,075,140 is included
in
interest expense and $0 and $163,921 is included in discontinued operations,
respectively.
In
addition, we incurred legal and other fees associated with the issuance of
the
Senior Notes. Such fees of $91,437 are included in deferred debt issue costs
and
were amortized to interest expense over the term of the debt. Amortization
of the deferred costs for the three and nine months ended September 30, 2008
totaled $0 and $77,505, of which $0 and $66,134 is included in interest expense
and $0 and $11,371 is included in discontinued operations, respectively.
On
May
30, 2008, we paid a one-time cash fee in the amount of $50,000 to extend the
maturity date on the Senior Notes from May 30, 2008 to June 13, 2008.
Accordingly, $0 and $44,524 is included in interest expense and
$0
and $5,476 is included in discontinued operations
for the
three and nine months ended September 30, 2008, respectively.
On
June
17, 2008, we paid a one-time cash fee in the amount of $50,000 (the “Extension
Amount”) to extend the maturity date on the Senior Notes from June 13, 2008
until June 20, 2008. The Extension Amount was credited against the outstanding
principal balance (see
Note
1 of the consolidated financial statements).
On
June
23, 2008, we utilized proceeds from the Options Divestiture (see
Note
1 of the consolidated financial statements)
to pay
down $2,750,000 of the balance on the Senior Notes, while at the same time
we
agreed to increase the principal thereunder by $134,684, leaving a balance
of
$1,773,573 owed under the Senior Notes. In connection with this pay down, the
maturity date of the Senior Notes was extended to August 30, 2008 and the
interest rate was increased from 8% to 12%. We also pledged our
holdings in Options Media Group Holdings, Inc. (the “OPMG Stock”), in order to
secure the remaining balance of the Senior Notes. The
resulting debt discount of $134,684 was amortized to interest expense over
the
term of the Senior Notes. Amortization of the new debt discount for the three
and nine months ended September 30, 2008 was $120,819 and $134,684,
respectively, all of which is included in interest expense.
As
of
September 30, 2008, all principal and accrued interest on the Senior Notes
had
been repaid.
On
September 26, 2008, we sold senior secured promissory notes (the “GRQ
Notes”) in the original aggregate principal amount of $1,300,000 to a related
party. The GRQ Notes bear interest at the rate of 6% per annum and mature
December 31, 2008. We used the net proceeds from the sale of the GRQ Notes
to
repay the Senior Notes. We
also
pledged the OPMG Stock as collateral on the GRQ Notes.
Accrued
interest related to the above described notes at September 30, 2008 and at
December 31, 2007, was $1,068 and $33,333, respectively.
Item
4T. Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation
of
our management, including our chief executive officer and chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer
in the
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based
upon
our evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective, as of
the
end of the period covered by this Report (September 30, 2008), in ensuring
that
material information that we are required to disclose in reports that we
file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms.
There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II
OTHER
INFORMATION
Item
1. Legal Proceedings
From
time
to time we may be involved in claims arising in the ordinary course of business.
To our knowledge there are no pending or threatened legal proceedings,
government actions, administrative actions, investigations or claims against
us,
except as described below.
On
May
16, 2008, Devon Cohen, our former Chief Operating Officer, commenced an
employment arbitration action against us before the American Arbitration
Association, claiming that he was terminated by us without cause that he is
therefore owed $600,000 as severance compensation. On September 24, 2008, the
litigation between us and Mr. Cohen was settled with no obligation for either
party to the suit except to pay their own legal fees.
Item
6. Exhibits
Exhibit
No.
|
Description
|
|
|
31.1*
|
Section
302 Certification by the Principal Executive Officer
|
|
|
31.2*
|
Section
302 Certification by the Principal Financial Officer
|
|
|
32.1*
|
Section
906 Certification by the Principal Executive Officer
|
|
|
32.2*
|
Section
906 Certification by the Principal Financial
Officer
|
________________________
*
Filed
herewith
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
INTERCLICK,
INC. |
|
|
|
Date: November
6, 2008 |
By: |
/s/ Michael
Mathews |
|
Michael
Mathews |
|
Chief
Executive Officer
(Principal Executive
Officer)
|
|
|
|
Date: November
6, 2008 |
By: |
/s/ David
Garrity |
|
David
Garrity |
|
Chief
Financial Officer |
|
(Principal Financial
Officer) |
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
|
|
31.1*
|
Section
302 Certification by the Principal Executive Officer
|
|
|
31.2*
|
Section
302 Certification by the Principal Financial Officer
|
|
|
32.1*
|
Section
906 Certification by the Principal Executive Officer
|
|
|
32.2*
|
Section
906 Certification by the Principal Financial
Officer
|
________________________
*
Filed
herewith