Unassociated Document
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, 2009
|
|
|
|
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: 001-34523
interCLICK,
Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
01-0692341
|
(State or other jurisdiction of
|
|
(I.R.S. Employer
|
incorporation or organization)
|
|
Identification No.)
|
|
|
|
257 Park Avenue South, Ste. 602, New York, NY
|
|
10010
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(646)
722-6260
(Registrant’s
telephone number, including area code)
N/A
(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o
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.
Large
accelerated filer o
|
Accelerated
filer o
|
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o
No
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
|
Outstanding
at November 10, 2009
|
Common
Stock, $0.001 par value per share
|
|
20,667,707
shares
|
TABLE
OF CONTENTS
|
Page
|
PART
I – FINANCIAL INFORMATION
|
|
|
|
Item
1.
|
Condensed
Consolidated Financial Statements (unaudited)
|
F-1
|
|
|
|
|
Condensed
Consolidated Balance Sheets (unaudited)
|
F-2
|
|
|
|
|
Condensed
Consolidated Statements of Operations (unaudited)
|
F-3
|
|
|
|
|
Condensed
Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
|
F-4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited)
|
F-5
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
(unaudited)
|
F-7
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
3
|
|
|
|
Item
3.
|
Qualitative
and Quantitative Disclosures about Market Risk
|
11
|
|
|
|
Item
4.
|
Controls
and Procedures
|
11
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
11
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
|
Item
1.
|
Legal
Proceedings
|
12
|
|
|
|
Item
1A.
|
Risk
Factors
|
12
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
19
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
|
|
|
Item
5.
|
Other
Information
|
19
|
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
SIGNATURES
|
21
|
PART
I – FINANCIAL INFORMATION
Item 1.
|
Financial
Statements.
|
InterCLICK,
Inc. (Formerly Customer Acquisition Network Holdings, Inc.) Index to
Condensed Consolidated Financial
Statements
|
|
|
Page
|
Financial
Statements
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets – September 30, 2009 (unaudited) and
December 31, 2008
|
|
F-2
|
|
Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 2009 and 2008 (unaudited)
|
|
F-3
|
|
Condensed
Consolidated Statement of Changes in Stockholders' Equity for the nine
months ended September 30, 2009 (unaudited)
|
|
F-4
|
|
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
30, 2009 and 2008 (unaudited)
|
|
F-5
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
|
F-7
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
(See Note 1)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,929,094 |
|
|
$ |
183,871 |
|
Accounts
receivable, net of allowance of $258,100 and $425,000,
respectively
|
|
|
14,476,271 |
|
|
|
7,120,311 |
|
Due
from factor
|
|
|
1,114,698 |
|
|
|
637,705 |
|
Prepaid
expenses and other current assets
|
|
|
373,505 |
|
|
|
94,164 |
|
Total
current assets
|
|
|
17,893,568 |
|
|
|
8,036,051 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $507,771 and $ 282,490,
respectively
|
|
|
458,483 |
|
|
|
596,913 |
|
Intangible
assets, net of accumulated amortization of $869,850 and $720,570,
respectively
|
|
|
460,833 |
|
|
|
610,113 |
|
Goodwill
|
|
|
7,909,571 |
|
|
|
7,909,571 |
|
Investment
in available-for-sale marketable securities
|
|
|
728,572 |
|
|
|
1,650,000 |
|
Deferred
debt issue costs, net of accumulated amortization of $31,639 and $6,667,
respectively
|
|
|
8,361 |
|
|
|
33,333 |
|
Other
assets
|
|
|
192,179 |
|
|
|
191,664 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
27,651,567 |
|
|
$ |
19,027,645 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
7,508,531 |
|
|
$ |
5,288,807 |
|
Due
to factor
|
|
|
5,559,011 |
|
|
|
3,188,425 |
|
Accrued
expenses (includes accrued compensation of $1,346,484 and $0,
respectively)
|
|
|
1,688,013 |
|
|
|
310,685 |
|
Warrant
derivative liability
|
|
|
267,789 |
|
|
|
- |
|
Deferred
revenue
|
|
|
151,465 |
|
|
|
9,972 |
|
Obligations
under capital leases, current portion
|
|
|
10,239 |
|
|
|
10,615 |
|
Accrued
interest
|
|
|
6,296 |
|
|
|
16,948 |
|
Deferred
rent, current portion
|
|
|
3,207 |
|
|
|
- |
|
Senior
secured note payable - related party
|
|
|
- |
|
|
|
400,000 |
|
Payable
and promissory note settlement liability
|
|
|
- |
|
|
|
248,780 |
|
Total
current liabilities
|
|
|
15,194,551 |
|
|
|
9,474,232 |
|
|
|
|
|
|
|
|
|
|
Obligations
under capital leases, net of current portion
|
|
|
1,763 |
|
|
|
9,495 |
|
Deferred
rent
|
|
|
83,062 |
|
|
|
72,696 |
|
Total
liabilities
|
|
|
15,279,376 |
|
|
|
9,556,423 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
|
|
|
|
|
|
20,644,856
and 18,922,596 issued and outstanding, respectively
|
|
|
20,645 |
|
|
|
18,923 |
|
Additional
paid-in capital
|
|
|
28,076,682 |
|
|
|
24,908,509 |
|
Accumulated
other comprehensive loss
|
|
|
(1,061,354 |
) |
|
|
(197,704 |
) |
Accumulated
deficit
|
|
|
(14,663,782 |
) |
|
|
(15,258,506 |
) |
Total
stockholders’ equity
|
|
|
12,372,191 |
|
|
|
9,471,222 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
27,651,567 |
|
|
$ |
19,027,645 |
|
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
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
14,395,236 |
|
|
$ |
5,756,707 |
|
|
$ |
33,467,213 |
|
|
$ |
13,992,303 |
|
Cost
of revenues
|
|
|
7,141,926 |
|
|
|
4,011,020 |
|
|
|
17,498,860 |
|
|
|
10,330,018 |
|
Gross
profit
|
|
|
7,253,310 |
|
|
|
1,745,687 |
|
|
|
15,968,353 |
|
|
|
3,662,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
3,383,752 |
|
|
|
1,881,513 |
|
|
|
8,021,106 |
|
|
|
6,113,362 |
|
Sales
and marketing
|
|
|
2,317,245 |
|
|
|
886,511 |
|
|
|
5,468,122 |
|
|
|
2,443,776 |
|
Technology
support
|
|
|
830,626 |
|
|
|
294,558 |
|
|
|
2,149,103 |
|
|
|
839,579 |
|
Amortization
of intangible assets
|
|
|
49,760 |
|
|
|
104,571 |
|
|
|
149,280 |
|
|
|
313,938 |
|
Total
operating expenses
|
|
|
6,581,383 |
|
|
|
3,167,153 |
|
|
|
15,787,611 |
|
|
|
9,710,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations
|
|
|
671,927 |
|
|
|
(1,421,466 |
) |
|
|
180,742 |
|
|
|
(6,048,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
- |
|
|
|
8,140 |
|
|
|
12 |
|
|
|
14,903 |
|
Interest
expense
|
|
|
(245,854 |
) |
|
|
(189,382 |
) |
|
|
(486,127 |
) |
|
|
(1,422,885 |
) |
Loss
on disposal of property and equipment
|
|
|
- |
|
|
|
(15,385 |
) |
|
|
- |
|
|
|
(15,385 |
) |
Loss
on settlement of debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20,121 |
) |
Warrant
derivative liability expense
|
|
|
(274,725 |
) |
|
|
- |
|
|
|
(506,786 |
) |
|
|
- |
|
Loss
on sale of available-for-sale securities
|
|
|
- |
|
|
|
(116,454 |
) |
|
|
(36,349 |
) |
|
|
(116,454 |
) |
Total
other income (expense)
|
|
|
(520,579 |
) |
|
|
(313,081 |
) |
|
|
(1,029,250 |
) |
|
|
(1,559,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before equity investment
|
|
|
151,348 |
|
|
|
(1,734,547 |
) |
|
|
(848,508 |
) |
|
|
(7,608,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in investee's loss, net of income taxes
|
|
|
- |
|
|
|
(404,103 |
) |
|
|
- |
|
|
|
(653,231 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
151,348 |
|
|
|
(2,138,650 |
) |
|
|
(848,508 |
) |
|
|
(8,261,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
(1,220 |
) |
|
|
(1,123,535 |
) |
Loss
from discontinued operations, net
|
|
|
- |
|
|
|
(1,551,613 |
) |
|
|
(1,220 |
) |
|
|
(3,111,767 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
151,348 |
|
|
|
(3,690,263 |
) |
|
|
(849,728 |
) |
|
|
(11,373,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on available-for-sale securities
|
|
|
- |
|
|
|
(314,158 |
) |
|
|
(899,999 |
) |
|
|
(314,158 |
) |
Reclassification
adjustments for losses included in net income (loss)
|
|
|
- |
|
|
|
116,454 |
|
|
|
36,349 |
|
|
|
116,454 |
|
Total
other comprehensive loss
|
|
|
- |
|
|
|
(197,704 |
) |
|
|
(863,650 |
) |
|
|
(197,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$ |
151,348 |
|
|
$ |
(3,887,967 |
) |
|
$ |
(1,713,378 |
) |
|
$ |
(11,571,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share from continuing operations - basic and
diluted
|
|
$ |
0.01 |
|
|
$ |
(0.12 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.45 |
) |
Loss
per share from discontinued operations - basic and diluted
|
|
|
- |
|
|
|
(0.08 |
) |
|
|
- |
|
|
|
(0.17 |
) |
Net
earnings (loss) per share - basic and diluted
|
|
$ |
0.01 |
|
|
$ |
(0.20 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.62 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - basic
|
|
|
20,628,042 |
|
|
|
18,904,118 |
|
|
|
19,578,110 |
|
|
|
18,450,209 |
|
Weighted
average number of common shares - diluted
|
|
|
22,399,847 |
|
|
|
18,904,118 |
|
|
|
19,578,110 |
|
|
|
18,450,209 |
|
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
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Equity
|
|
Balance,
December 31, 2008
|
|
|
18,922,596 |
|
|
$ |
18,923 |
|
|
$ |
24,908,509 |
|
|
$ |
(197,704 |
) |
|
$ |
(15,258,506 |
) |
|
$ |
9,471,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle
|
|
|
- |
|
|
|
- |
|
|
|
(1,864,466 |
) |
|
|
- |
|
|
|
1,444,452 |
|
|
|
(420,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
- based compensation
|
|
|
5,274 |
|
|
|
5 |
|
|
|
1,891,879 |
|
|
|
- |
|
|
|
- |
|
|
|
1,891,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to eliminate or modify price protection for
warrants
|
|
|
352,500 |
|
|
|
352 |
|
|
|
658,659 |
|
|
|
- |
|
|
|
- |
|
|
|
659,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services rendered and to be rendered
|
|
|
75,000 |
|
|
|
75 |
|
|
|
185,925 |
|
|
|
- |
|
|
|
- |
|
|
|
186,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock and warrants issued under private placement, net of placement
fees
|
|
|
1,250,000 |
|
|
|
1,250 |
|
|
|
2,255,750 |
|
|
|
- |
|
|
|
- |
|
|
|
2,257,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to extend debt maturity date
|
|
|
5,000 |
|
|
|
5 |
|
|
|
11,995 |
|
|
|
- |
|
|
|
- |
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in lieu of cash to pay accrued interest
|
|
|
5,528 |
|
|
|
6 |
|
|
|
13,260 |
|
|
|
- |
|
|
|
- |
|
|
|
13,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on available for sale securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(899,999 |
) |
|
|
- |
|
|
|
(899,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
adjustment for losses on available-for-sale securities included in net
income(loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
36,349 |
|
|
|
- |
|
|
|
36,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
28,958 |
|
|
|
29 |
|
|
|
15,171 |
|
|
|
- |
|
|
|
- |
|
|
|
15,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(849,728 |
) |
|
|
(849,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2009
|
|
|
20,644,856 |
|
|
$ |
20,645 |
|
|
$ |
28,076,682 |
|
|
$ |
(1,061,354 |
) |
|
$ |
(14,663,782 |
) |
|
$ |
12,372,191 |
|
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 CASH FLOWS
(Unaudited)
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(849,728 |
) |
|
$ |
(11,373,310 |
) |
Add
back loss from discontinued operations, net
|
|
|
1,220 |
|
|
|
3,111,767 |
|
Loss
from continuing operations
|
|
|
(848,508 |
) |
|
|
(8,261,543 |
) |
Adjustments
to reconcile net loss from continuing
|
|
|
|
|
|
|
|
|
operations
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
1,953,884 |
|
|
|
1,441,240 |
|
Warrant
derivative liability expense
|
|
|
506,786 |
|
|
|
- |
|
Depreciation
|
|
|
225,281 |
|
|
|
172,671 |
|
Amortization
of intangible assets
|
|
|
149,280 |
|
|
|
313,938 |
|
Loss
on sale of available-for-sale securities
|
|
|
36,349 |
|
|
|
116,454 |
|
Amortization
of debt issue costs
|
|
|
24,972 |
|
|
|
77,505 |
|
Amortization
of debt discount
|
|
|
12,000 |
|
|
|
1,239,061 |
|
Equity
method pick up from investment
|
|
|
- |
|
|
|
653,231 |
|
Write-off
of deferred acquisition costs
|
|
|
- |
|
|
|
96,954 |
|
Loss
on settlement of debt
|
|
|
- |
|
|
|
20,121 |
|
Loss
on disposal of property and equipment
|
|
|
- |
|
|
|
15,385 |
|
Provision
for bad debts
|
|
|
(87,084 |
) |
|
|
252,236 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(7,268,876 |
) |
|
|
(1,565,763 |
) |
Increase
in prepaid expenses and other current assets
|
|
|
(155,341 |
) |
|
|
(150,046 |
) |
Increase
in other assets
|
|
|
(515 |
) |
|
|
(145,006 |
) |
Increase
in accounts payable
|
|
|
2,219,724 |
|
|
|
1,492,102 |
|
Increase
(decrease) in accrued expenses
|
|
|
1,377,328 |
|
|
|
(436,329 |
) |
Increase
(decrease) in accrued interest
|
|
|
2,614 |
|
|
|
(35,105 |
) |
Increase
in deferred revenue
|
|
|
141,493 |
|
|
|
100,935 |
|
Increase
in deferred rent
|
|
|
13,573 |
|
|
|
- |
|
Net
cash used in operating activities
|
|
|
(1,697,040 |
) |
|
|
(4,601,959 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(86,851 |
) |
|
|
(322,548 |
) |
Proceeds
from sales of property and equipment
|
|
|
- |
|
|
|
13,000 |
|
Proceeds
from sale of available-for-sale securities
|
|
|
21,429 |
|
|
|
1,034,000 |
|
Deferred
acquisition costs
|
|
|
- |
|
|
|
(10,619 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(65,422 |
) |
|
|
713,833 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from common stock and warrants issued for cash
|
|
|
2,257,000 |
|
|
|
2,912,500 |
|
Proceeds
from stock options exercised
|
|
|
15,200 |
|
|
|
- |
|
Proceeds
from factor, net
|
|
|
1,893,593 |
|
|
|
- |
|
Proceeds
from issuance of notes payable
|
|
|
- |
|
|
|
1,300,000 |
|
Principal
payments on notes payable
|
|
|
(400,000 |
) |
|
|
(4,523,573 |
) |
Principal
payments on capital leases
|
|
|
(8,108 |
) |
|
|
(8,002 |
) |
Net
cash provided by (used in) financing activities
|
|
|
3,757,685 |
|
|
|
(319,075 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities
|
|
|
- |
|
|
|
(1,563,145 |
) |
Cash
flows from investing activities-acquisition
|
|
|
- |
|
|
|
(1,885,624 |
) |
Cash
flows from investing activities-divestiture
|
|
|
(250,000 |
) |
|
|
4,591,676 |
|
Net
cash (used in) provided by discontinued operations
|
|
|
(250,000 |
) |
|
|
1,142,907 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,745,223 |
|
|
|
(3,064,294 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
183,871 |
|
|
|
3,675,483 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
1,929,094 |
|
|
$ |
611,189 |
|
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 CASH FLOWS
(Unaudited)
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
412,364 |
|
|
$ |
261,796 |
|
Income
taxes paid
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Unrealized
loss on available-for-sale securities
|
|
$ |
863,650 |
|
|
$ |
197,704 |
|
Issuance
of common stock to eliminate or modify price protection
|
|
|
|
|
|
|
|
|
for
warrants
|
|
$ |
508,497 |
|
|
$ |
- |
|
Issuance
of common stock for services to be rendered
|
|
$ |
124,000 |
|
|
$ |
189,000 |
|
Issuance
of common stock to pay accrued interest payable
|
|
$ |
13,266 |
|
|
$ |
- |
|
Issuance
of common stock to extend debt maturity date
|
|
$ |
12,000 |
|
|
$ |
- |
|
Issuance
of common stock and warrants in business combination
|
|
$ |
- |
|
|
$ |
5,746,442 |
|
Issuance
of common stock and warrants in debt settlement
|
|
$ |
- |
|
|
$ |
611,000 |
|
Issuance
of shares in Options Media Group Holdings, Inc. to
|
|
|
|
|
|
|
|
|
settle
accounts payable
|
|
$ |
- |
|
|
$ |
54,611 |
|
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, 2009
(Unaudited)
Note 1. Nature of Operations and Basis of
Presentation
Overview
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 (the “Company”).
Customer
Acquisition Network, Inc. (“CAN”) was formed in Delaware on June 14,
2007.
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.
On August
31, 2007, the Company entered into and consummated an Agreement and Plan of
Merger (the “Desktop Merger”), wherein the Company acquired 100% of Desktop
Interactive, Inc. (“Desktop”), a privately-held Delaware corporation engaged in
the Internet advertising business.
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 with and into Options Acquisition, which was the surviving
corporation and a wholly-owned subsidiary of Holdings. On June 23,
2008, Options Acquisition was sold to Options Media Group Holdings, Inc
(“OPMG”).
Basis
of Presentation
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 (the “SEC”). 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, 2009 and 2008 and our financial
position as of September 30, 2009 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-K for the fiscal year ended December 31, 2008, as filed
with the SEC on March 31, 2009. The
December 31, 2008 balance sheet is derived from those
statements.
All
references to outstanding shares, options, warrants and per share information
have been adjusted to give effect to the one-for-two reverse stock split
effective October 23, 2009.
Note 2. Liquidity
Although
the Company has had historical net losses and net cash used in operations
through September 30, 2009, the Company's revenues and gross margins have
experienced positive trends. In June 2009, the Company completed a
private placement resulting in net proceeds of $2,257,000. At
September 30, 2009, the Company had cash of $1,929,094 and positive working
capital of $2,699,017. The Company also has a factoring agreement
(Crestmark Commercial Capital Lending, LLC (“Crestmark”). The unused
amount under the line of credit was $2,555,687 at September 30, 2009 and allows
the Company to convert up to 80% of eligible accounts receivable quickly to
cash. For all of these reasons, the Company expects that it has
sufficient cash and borrowing capacity to meet its working capital needs for at
least the next 12 months.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
3. 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 unaudited 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 and allowance for
doubtful accounts, purchase price fair value allocation for business
combinations, estimates of depreciable lives and valuation of property and
equipment, valuation and amortization periods of intangible assets and deferred
costs, valuation of goodwill, valuation of discounts on debt, valuation of
derivatives, valuation of investment in available-for-sale securities, valuation
of common shares, options and warrants granted for services or recorded as debt
discounts or other non-cash purposes including business combinations, the
valuation allowance on deferred tax assets, estimates of the tax effects of
business combinations and sale of subsidiary, and estimates in equity investee’s
losses.
Principles
of Consolidation
The
consolidated financial statements include the accounts of interCLICK, Inc. and
its wholly-owned subsidiary and Options Acquisition 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”.
Fair
Value Measurements
On
January 1, 2008, the Company adopted the provisions of the predecessor to
Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and
Disclosures”. All references to Topic 820 include the
predecessor. ASC Topic 820 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,
ASC Topic 820 was amended in order to delay the effective date of ASC Topic 820
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 ASC Topic 820 are certain leasing transactions accounted for under
ASC Topic 840, “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
ASC Topic 820.
Reclassifications
Certain
amounts in the accompanying 2008 financial statements and those previously
issued for the three and six months ended June 30, 2009 have been reclassified
at September 30, 2009. In particular, bad debt expense is now included in
general and administrative expenses. Merger, acquisition, divestiture
and investor relations costs are now included in general and administrative
expenses. Ad serving costs have been reclassified from general and
administrative costs to cost of revenues. Whereas all compensation
costs (including stock-based compensation) had been included in general and
administrative expenses, a portion of these costs have been allocated to both
sales and marketing expenses and technology support expenses.
Discontinued
Operations
On June
23, 2008, the Company completed the sale of its Options Acquisition subsidiary
pursuant to an Agreement of Merger and Plan of Reorganization. The amounts
associated with the sale of this subsidiary are reported as discontinued
operations in the accompanying unaudited condensed consolidated financial
statements, in accordance with ASC 820-20-45. In addition, certain
allocable corporate expenses pertaining to Options Acquisition are also included
in discontinued operations.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
3. Significant Accounting Policies (Continued)
Accounting
for Derivatives
The
Company evaluates its options, warrants or other contracts to determine if those
contracts or embedded components of those contracts qualify as derivatives to be
separately accounted for under ASC Topic 815, “Derivatives and
Hedging”. The result of this accounting treatment is that the fair
value of the derivative is marked-to-market each balance sheet date and recorded
as a liability. In the event that the fair value is recorded as a
liability, the change in fair value is recorded in the statement of operations
as other income (expense). Upon conversion or exercise of a derivative
instrument, the instrument is marked to fair value at the conversion date and
then that fair value is reclassified to equity. Equity instruments that
are initially classified as equity that become subject to reclassification under
ASC Topic 815 are reclassified to liability at the fair value of the instrument
on the reclassification date.
Cumulative
Effect of Change in Accounting Principle
On
January 1, 2009, the Company determined that certain of its warrants previously
issued contain round-down protection (price protection) and such instruments are
not considered indexed to a company’s own stock because neither the occurrence
of a sale of common shares by the Company at market nor the issuance of another
equity-linked instrument with a lower strike price is an input to the fair value
of a fixed-for-fixed option on equity shares. Accordingly, the warrants
with price protection qualify as derivatives and need to be separately accounted
for as a liability under ASC Topic 815. In accordance with ASC Topic
815, the cumulative effect of the change in accounting principle has been
applied retrospectively and has been recognized as an adjustment to the opening
balance of equity. The cumulative-effect adjustment amounts
recognized in the statement of financial position as a result of the initial
adoption of this policy were determined based on the amounts that would have
been recognized if the policy had been applied from the issuance date of the
instrument. As a result of the accounting change, the accumulated deficit
as of January 1, 2009 decreased from $15,258,506, as originally reported, to
$13,814,054 and additional paid-in capital decreased from $24,908,509, as
originally reported, to $23,044,043.
Recently
Issued Accounting Standards
In May
2009, the Financial
Accounting Standards Board (“FASB”) issued an accounting standard that
became part of ASC Topic 855, “Subsequent Events”. ASC Topic 855
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. ASC Topic 855 sets forth (1) the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, (2) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements and (3) the disclosures that an entity should
make about events or transactions that occurred after the balance sheet
date. ASC Topic 855 is effective for interim or annual financial
periods ending after June 15, 2009. The adoption of ASC Topic
855 did not have a material effect on the Company’s financial
statements.
In June
2009, the FASB issued an accounting standard whereby the FASB Accounting
Standards Codification (“Codification”) will be the single source of
authoritative nongovernmental U.S. generally accepted accounting
principles. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. ASC Topic 105 is effective for interim and annual
periods ending after September 15, 2009. All existing accounting
standards are superseded as described in ASC Topic 105. All other
accounting literature not included in the Codification is
non-authoritative. The Codification is not expected to have a
significant impact on the Company’s financial statements.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
4. Intangible Assets
Intangible
assets, which were all acquired from the Desktop business combination, consisted
of the following at September 30, 2009 and December 31, 2008:
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
Customer
relationships
|
|
$ |
540,000 |
|
|
$ |
540,000 |
|
Developed
technology
|
|
|
790,000 |
|
|
|
790,000 |
|
Domain
name
|
|
|
683 |
|
|
|
683 |
|
|
|
|
1,330,683 |
|
|
|
1,330,683 |
|
Accumulated
amortization
|
|
|
(869,850 |
) |
|
|
(720,570 |
) |
Intangible
assets, net
|
|
$ |
460,833 |
|
|
$ |
610,113 |
|
Customer
relationships are fully amortized as of September 30, 2009 and were 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 resulted in accelerated amortization in which the majority of costs were
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 fully amortized as of September 30, 2009 and was amortized over
its remaining life of six months following the acquisition date of the
intangible.
The
following is a schedule of estimated future amortization expense of intangible
assets as of September 30, 2009:
Year Ending December 31,
|
|
|
|
2009
|
|
$ |
39,500 |
|
2010
|
|
|
158,000 |
|
2010
|
|
|
158,000 |
|
2011
|
|
|
105,333 |
|
Total
|
|
$ |
460,833 |
|
Note
5. Investment in Available-For-Sale Marketable
Securities
The
following represents information about available-for sale securities held at
September 30, 2009:
Securities in loss positions
|
|
|
|
|
Aggregate
|
|
|
Aggregate
|
|
more than 12 months
|
|
Cost
|
|
|
Unrealized losses
|
|
|
Fair Value
|
|
Options
Media Group Holdings, Inc. ("OPMG")
|
|
$ |
1,789,926 |
|
|
$ |
1,061,354 |
|
|
$ |
728,572 |
|
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 shares were 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.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
5. Investment in Available-For-Sale Marketable Securities
(Continued)
While the
OPMG closing stock price on September 30, 2009 was $0.13 per share, management
has deemed the market for OPMG shares to be inactive in nature due to the
extremely low average volume of shares traded. In May 2009, the
Company sold some of its shares of OPMG to an unrelated third party for $0.10
per share. Accordingly, the Company has utilized the $0.10 per share
price from the May 2009 sale to value its remaining 7.3 million OPMG shares
resulting in a fair value of $728,572 as of September 30, 2009. As a
result of the valuation, the Company maintains a $1,061,354 unrealized loss on
available-for-sale equity securities in the stockholders’ section of the
accompanying condensed consolidated balance sheet. The Company has
determined that the decline in the fair value of its investment in OPMG below
its cost basis is not other than temporary as of September 30, 2009, based on
the extent and length of time over which the market value has been less than
cost; a due diligence inquiry the Company made relating to OPMG’s prospects; an
understanding that OPMG is taking steps to raise additional capital; and
because the Company has both the ability and the intent to keep its investment
in OPMG for a period sufficient to allow for an anticipated recovery in market
value. Our co-chairmen are OPMG’s largest debt holders.
Note
6. Notes Payable – Related Party, Factor Agreement and Other
Obligations
Notes
Payable – Related Party
Notes
payable – related party consisted of the following at September 30, 2009 and
December 31, 2008:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
6%
Senior secured promissory note payable - related party
|
|
$ |
- |
|
|
$ |
400,000 |
|
Less:
Current maturities
|
|
|
- |
|
|
|
(400,000 |
) |
Amount
due after one year
|
|
$ |
- |
|
|
$ |
- |
|
On June
5, 2009, the Company and the noteholder, one of our co-chairmen, agreed to
extend the maturity date for $100,000 of the notes payable from June 30, 2009 to
December 31, 2009. In exchange, this portion of the notes payable was
converted to a 6% unsecured convertible note, convertible at the rate of $4.00
per share. The modification of this debt instrument was substantial
and, therefore under GAAP, the debt was deemed to be extinguished and replaced
with new debt. The conversion feature was the only consideration
given to the noteholder for the maturity date extension. As the
conversion feature’s exercise price exceeded the quoted trade price of the
underlying stock at the date of the modification, it did not have any intrinsic
value. Accordingly, the Company did not record any entries pertaining
to the aforementioned replacement of the noteholder’s debt. On
September 29, 2009, the entire principal amount of the convertible note
payable of $100,000 was repaid.
On June
22, 2009, the Company repaid $100,000 of the remaining $300,000 of senior
secured promissory note payable. In addition, the Company and the noteholder
agree to extend the maturity date for the remaining $200,000 of the notes
payable from June 30, 2009 to December 31, 2009. In exchange, the noteholder
received 5,000 common shares having a fair value of $12,000, which was treated
as debt discount and was being amortized over the remaining term of the debt.
Additionally, the Company issued 5,528 common shares in lieu of cash as payment
for $13,266 of accrued interest related to the notes payable. On August 19,
2009, the entire principal amount of the senior secured note payable of $200,000
was repaid along with a portion of the accrued interest of $1,874. Accordingly,
the remaining unamortized portion of the debt discount of $11,500 was recognized
as interest expense during the three months ended September 30,
2009.
Accrued
interest related to above notes at September 30, 2009 and December 31, 2008 was
$6,296 and $16,948, respectively.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
6. Notes Payable – Related Party, Factor Agreement and Other Obligations
(Continued)
Factor
Agreement
On
November 13, 2008, the Company entered into a revolving credit facility, in the
form of an Accounts Receivable Financing Agreement (the “Agreement”), with
Crestmark to finance certain eligible accounts receivable of the Company, as
defined in the Agreement, up to a maximum credit line of $3.5 million
(subsequently increased to $4.5 million on February 3, 2009, $5.5 million on
April 30, 2009, and to $7.0 million on September 2, 2009), which would represent
gross factored accounts receivable less a 20% reserve holdback by
Crestmark. The Crestmark credit facility has an interest rate equal
to prime plus 1.0% (overall interest rate of 4.25% at September 30, 2009)
and is secured by all of the Company’s assets except property and equipment
financed elsewhere and the Company’s investment in OPMG shares, which had been
pledged to secure the 6% senior secured promissory note payable – related
party. In addition, the Company pays 0.575% (decreased to 0.375% on
September 2, 2009) per 30 days on each invoice amount until the invoice is
paid. The Crestmark credit facility was for an initial term of six
months expiring May 12, 2009 (extended on March 3, 2009 for one year to May 12,
2010) and renews automatically unless terminated by either party not less than
30 days and not more than 90 days prior to the next anniversary
date. The balance due on the Crestmark credit facility at September
30, 2009 was $4,444,313, which is net of the 20% reserve of $1,114,698 that is
presented as Due from factor, a current asset. The unused amount
under the line of credit available to the Company at September 30, 2009 was
$2,555,687.
The
following is a summary of accounts receivable factored as well as factor fees
incurred for the three and nine months ended September 30, 2009:
|
|
For the Three
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
Accounts
receivable factored
|
|
$ |
8,790,480 |
|
|
$ |
24,498,489 |
|
|
|
|
|
|
|
|
|
|
Factoring
fees incurred
|
|
$ |
200,188 |
|
|
$ |
447,675 |
|
Note
7. Net Earnings (Loss) per Share
Basic
earnings (loss) per share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings (loss)
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 (using the
treasury stock method) as well as nonvested common shares and convertible
debt. Potentially dilutive securities are excluded from the
computation if their effect is anti-dilutive. Accordingly,
potentially dilutive securities for the nine months ended September 30, 2009 and
for the three and nine months ended September 30, 2008 have not been included in
the calculation of the diluted net loss per share as such effect would have been
anti-dilutive. As a result, the basic and diluted loss per share
amounts for the nine months ended September 30, 2009 and for the three and nine
months ended September 30, 2008 are identical.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note 7. Net Earnings (Loss) per Share
(Continued)
Components
of basic and diluted earnings per share for the three months ended September 30,
2009 were as follows:
|
|
For the Three Months Ended September 30, 2009
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
Income
from continuing operations
|
|
$ |
151,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders
|
|
$ |
151,348 |
|
|
|
20,628,033 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
- |
|
|
|
1,565,617 |
|
|
|
|
|
Warrants
|
|
|
- |
|
|
|
158,012 |
|
|
|
|
|
Nonvested
common stock
|
|
|
- |
|
|
|
23,448 |
|
|
|
|
|
Convertible
debt
|
|
|
1,496 |
|
|
|
24,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common stockholders + assumed
conversions
|
|
$ |
152,844 |
|
|
|
22,399,838 |
|
|
$ |
0.01 |
|
Options
to purchase 252,500 common shares and warrants to purchase 428,460 common shares
were outstanding during the three months ended September 30, 2009, but were not
included in the computation of diluted earnings per share because the exercise
prices were greater than the average market price of the common
shares. The options and warrants are considered to be common stock
equivalents and are only included in the calculation of diluted earnings per
common share when their effect is dilutive.
Options
to purchase 4,599,167 common shares, warrants to purchase 1,126,025 common
shares, and 23,448 nonvested common shares were outstanding during the nine
months ended September 30, 2009, but were not included in the computation of
diluted loss per share because the effects would have been
anti-dilutive. The options and warrants are considered to be common
stock equivalents and are only included in the calculation of diluted earnings
per common share when their effect is dilutive.
Note
8. Stockholders’ Equity
Preferred
Stock
The
Company is authorized to issue up to 10,000,000 preferred shares having a par
value of $0.001 per share, of which none was issued and outstanding at September
30, 2009 and December 31, 2008.
Common
Stock
The
Company is authorized to issue up to 140,000,000 common shares having a par
value of $0.001 per share, of which 20,644,856 and 18,922,596 shares were
issued and outstanding at September 30, 2009 and December 31, 2008,
respectively. At the Company’s 2009 annual meeting that was held on
October 23, 2009, the stockholders of the Company voted to approve a 1 for 2
reverse stock split of the Company’s common stock. Each stockholder
entitled to a fractional share as a result of the reverse stock split received a
full share in lieu of any such fractional share. Accordingly, all
share amounts have been retroactively restated to reflect the reverse stock
split.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
8. Stockholders’ Equity (Continued)
Common
Stock (Continued)
During
the period from May 18, 2009 through June 17, 2009, the Company entered into
separate agreements with investors that had purchased equity units in the
Company during 2008. These equity units had consisted of common
shares and warrants to purchase common shares, both of which contained price
protection clauses. As a result of these agreements, the Company
issued 352,500 common shares in exchange for (i) the elimination of price
protection on 650,000 common shares, the elimination of price protection on
warrants to purchase 314,940 common shares, and (iii) the repricing of warrants
to purchase 272,565 common shares from an exercise price of $5.00 per share to
$2.80 per share. Accordingly, the warrant derivative liability was
valued at the date of the agreements relinquishing the price protection clauses
and the difference was recorded to warrant derivative liability expense in the
accompanying unaudited consolidated statements of operations. As a
result of the common shares issued in connection with the elimination of
round-down protection for the warrants, an
additional $150,514 was recorded to warrant derivative liability
expense in the accompanying unaudited consolidated statement of operations.
Then, the pertinent portion of the warrant liability of $508,497 was
reclassified to equity by an increase in common stock of $352 and an increase in
additional paid-in capital of $508,145.
On June
1, 2009, the Company issued 75,000 common shares to a consultant for services to
be rendered over a 12-month period. The shares have a fair value of
$186,000, of which $62,000 was recognized as of September 30, 2009, and the
remaining $124,000 remains deferred and is included in prepaid expenses and
other current assets on the accompanying unaudited consolidated balance
sheet.
On June
22, 2009, the Company issued 5,000 common shares having a fair value of
$12,000 in order to extend the maturity date for a portion of its notes payable
– related party (see Note 6). Additionally, the Company issued
5,528 common shares to settle $13,266 of accrued interest related to the notes
payable – related party (see Note 6).
On June
22, 2009, the Company closed a private placement whereby the Company sold to
four investors (one of whom was a co-chairman of the Company’s Board of
Directors) (i) 1,250,000 common shares and (ii) three-year warrants to purchase
312,500 common shares at an exercise price of $2.80 per share for gross proceeds
of $2,500,000, of which $243,000 and three-year warrants to purchase 112,500
common shares at an exercise price of $2.80 per share was paid in direct
placement costs. As part of the private placement, the Company agreed
to file a registration statement within 60 days of closing and that said
registration statement would be declared effective within 120 days of closing,
subject to liquidated damages. On August 21, 2009, the Company filed
the registration statement, which then became effective on August 31,
2009. As a result, no liquidated damages are due or shall become due
regarding the registration rights (see Note 10).
Warrant
Grants
On June
22, 2009, as part of a private placement, the Company issued three-year warrants
to purchase 425,000 common shares exercisable at $2.80 per share (see
above).
A summary
of the Company’s warrant activity during the nine months ended September 30,
2009 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
No. of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Balance
Outstanding, 12/31/08
|
|
|
701,025 |
|
|
$ |
4.68 |
|
|
|
|
|
|
|
Granted
|
|
|
425,000 |
|
|
$ |
2.80 |
|
|
|
|
|
|
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Balance
Outstanding, 9/30/09
|
|
|
1,126,025 |
|
|
$ |
3.44 |
|
|
|
3.1 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
9/30/09
|
|
|
1,126,025 |
|
|
$ |
3.44 |
|
|
|
3.1 |
|
|
$ |
- |
|
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
8. Stockholders’ Equity (Continued)
Warrant
Grants (Continued)
Certain
of the Company’s warrants contain round-down protection (price protection),
which caused the warrants to be treated as derivatives (see Note
9). The fair value of the warrant derivative liability was $267,789
as of September 30, 2009 and has been recorded as a liability in the
accompanying unaudited condensed consolidated balance sheet. The change in
fair value (taking into consideration the cumulative effect of the change in
accounting principle adopted on January 1, 2009) of the warrant derivative
liability of $356,272 during the nine months ended September 30, 2009 has been
recorded in the accompanying unaudited condensed consolidated statement of
operations as other income (expense).
Stock
Incentive Plan and Option Grants
On
February 6, 2009, the Company increased the number of common shares eligible for
grant under the 2007 Incentive Stock and Award Plan (the “Plan”) from 500,000 to
612,500 common shares. In addition, the 2007 Equity Incentive Plan
was deemed fully used with 2,250,000 common shares reserved and any remaining
shares available for grant, including the new 112,500 common shares, shall be
under the Plan. On June 5, 2009, the Company increased the number of
common shares eligible for grant under the Plan from 612,500 to 1,862,500 common
shares. On July 27, 2009, the Company increased the number of common
shares eligible for grant under the Plan from 1,862,500 to 2,112,500 common
shares. On September 24, 2009, the Company increased the number of
common shares eligible for grant under the Plan from 2,112,500 to 3,112,500
common shares.
On
February 6, 2009, the Company granted options to purchase 310,000 common shares
(all of which were under the Plan) at an exercise price of $1.52 having an
aggregate fair value of $384,400 all of which expire five years from the grant
date. Of the options granted, (i) 110,000 were issued to officers and
vested immediately and (ii) 200,000 were issued to an employee and vest in equal
increments over a four-year period each June 30 and December 31 commencing
June 30, 2009, subject to continued employment by the Company.
During
the three months ended June 30, 2009, the Company granted options to purchase
1,351,250 common shares (of which 1,201,250 were under the Plan) at various
exercise prices ranging from $2.40 to $2.60 having an aggregate fair value of
$2,873,850 all of which expire five years from the grant date. Of the
options granted, (i) 600,000 were issued to officers and vest in equal
increments quarterly over a four-year period commencing June 30, 2009, (ii)
150,000 were issued to a director and vest in equal increments quarterly
over a four-year period commencing June 30, 2009 (iii) 583,750 were issued
to employees of which 200,000 vest in equal increments quarterly over
a four-year period commencing June 30, 2009 and 383,750 vest annually over
a three-year period subject to continued employment by the
Company.
During
the three months ended September 30, 2009, the Company granted options to
purchase 666,250 common shares (of which 516,250 were under the Plan) at various
exercise prices ranging from $2.36 to $4.00 having an aggregate fair value of
$1,930,775 all of which expire five years from the grant date. Of the
options granted, (i) 250,000 were issued to an officer and vest in equal
increments quarterly over a three-year period commencing September 30,
2009, (ii) 150,000 were issued to a member on the advisory board and
vest in equal increments quarterly over a four-year period commencing
September 30, 2009, and (iii) 266,250 were issued to employees and vest annually
over a three-year period subject to continued employment by the
Company.
The
Company estimates the fair value of share-based compensation utilizing the
Black-Scholes option pricing model, which is dependent upon several variables
such as the expected option term, expected volatility of our stock price over
the expected term, expected risk-free interest rate over the expected option
term, expected dividend yield rate over the expected option term, and an
estimate of expected forfeiture rates. The Company believes this
valuation methodology is appropriate for estimating the fair value of stock
options granted to employees and directors which are subject to ASC Topic 718
requirements. These amounts are estimates and thus may not be
reflective of actual future results, nor amounts ultimately realized by
recipients of these grants. The Company recognizes compensation on a
straight-line basis over the requisite service period for each
award. The following table summarizes the assumptions the Company
utilized to record compensation expense for stock options granted during the
nine months ended September 30, 2009:
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
8. Stockholders’ Equity (Continued)
Stock
Incentive Plan and Option Grants (Continued)
|
|
For the Nine
|
|
|
For
the Nine
|
|
|
|
Months Ended
|
|
|
Months
Ended
|
|
Assumptions
|
|
September 30, 2009
|
|
|
September
30, 2008
|
|
Expected
life (years)
|
|
|
5.0 |
|
|
|
5.0 |
|
Expected
volatility
|
|
|
115.5%
- 121.4 |
% |
|
|
52.8%
- 80.0 |
% |
Weighted-average
volatility |
|
|
119.6 |
% |
|
|
60.5 |
% |
Risk-free
interest rate
|
|
|
1.89%
- 2.86 |
% |
|
|
3.03%
- 3.73 |
% |
Dividend
yield
|
|
|
0.00 |
% |
|
|
0 |
% |
The
expected life is based on the contractual term. The expected
volatility is based on historical volatility. The risk-free interest
rate is based on the U.S. Treasury yields with terms equivalent to the expected
life of the related option at the time of the grant. Dividend yield
is based on historical trends. While the Company believes these
estimates are reasonable, the compensation expense recorded would increase if
the expected life was increased, a higher expected volatility was used, or if
the expected dividend yield increased.
A summary
of the Company’s stock option activity during the nine months ended September
30, 2009 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
No. of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Balance
Outstanding, 12/31/08
|
|
|
2,518,394 |
|
|
$ |
2.19 |
|
|
|
|
|
|
|
Granted
|
|
|
2,327,500 |
|
|
$ |
2.64 |
|
|
|
|
|
|
|
Exercised
|
|
|
(60,000 |
) |
|
$ |
2.44 |
|
|
|
|
|
|
|
Forfeited
|
|
|
(128,750 |
) |
|
$ |
2.61 |
|
|
|
|
|
|
|
Expired
|
|
|
(57,977 |
) |
|
$ |
2.00 |
|
|
|
|
|
|
|
Balance
Outstanding, 9/30/09
|
|
|
4,599,167 |
|
|
$ |
2.41 |
|
|
|
4.0 |
|
|
$ |
8,343,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
9/30/09
|
|
|
1,596,041 |
|
|
$ |
2.11 |
|
|
|
3.4 |
|
|
$ |
3,372,654 |
|
The
weighted-average grant-date fair value of options granted during the nine months
ended September 30, 2009 and 2008 was $2.25 and $3.98,
respectively. The total intrinsic value of options exercised during
the nine months ended September 30, 2009 was $100,800. The Company
expects 4,453,725 of all outstanding stock options to eventually
vest.
Nonvested
Common Stock Grants
On
February 27, 2009, the Company granted 28,125 restricted common shares
having a fair value of $56,250 (based on a quoted trading price of $2.00 per
share) to an officer. The shares were issued under the 2007
Incentive Stock and Award Plan and vest in equal increments over
a four-year period each June 30 and December 31 commencing June 30, 2009,
subject to continued employment by the Company.
On August
7, 2009, the Company granted 10,000 restricted common shares having a fair value
of $37,400 (based on a quoted trading price of $3.74 per share) to an
officer. The shares were issued under the 2007 Incentive Stock and
Award Plan and vest in six months, subject to continued employment by the
Company.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
8. Stockholders’ Equity (Continued)
Nonvested
Common Stock Grants (Continued)
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
Nonvested Shares
|
|
Shares
|
|
|
Fair Value
|
|
Nonvested at December 31, 2008
|
|
|
- |
|
|
|
- |
|
Granted
|
|
|
38,125 |
|
|
$ |
2.46 |
|
Vested
|
|
|
(5,274 |
) |
|
$ |
2.00 |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Nonvested
at September 30, 2009
|
|
|
32,851 |
|
|
$ |
2.53 |
|
As of
September 30, 2009, there was $6,689,949 of total unrecognized compensation
costs related to nonvested share-based compensation
arrangements. That cost is expected to be recognized over a
weighted-average period of 1.5 years.
Note
9. Fair Value of Financial Instruments
The
estimated fair value of certain financial instruments, including cash and cash
equivalents, accounts receivable, 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.
On
January 1, 2009, we adopted a newly issued accounting standard for fair
value measurements of all nonfinancial assets and nonfinancial liabilities not
recognized or disclosed at fair value in the financial statements on a recurring
basis. The accounting standard for those assets and liabilities did not
have a material impact on our financial position, results of operations or
liquidity. We did not have any significant nonfinancial assets or
nonfinancial liabilities that would be recognized or disclosed at fair value on
a recurring basis as of September 30, 2009.
The
accounting standard for fair value measurements provides a framework for
measuring fair value and requires expanded disclosures regarding fair value
measurements. Fair value is defined as the price that would be received
for an asset or the exit price that would be paid to transfer a liability in the
principal or most advantageous market in an orderly transaction between market
participants on the measurement date. The accounting standard established
a fair value hierarchy which requires an entity to maximize the use of
observable inputs, where available. This hierarchy prioritizes the inputs
into three broad levels as follows. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or
liabilities. Level 2 inputs are quoted prices for similar assets and
liabilities in active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument. Level 3
inputs are unobservable inputs based on the Company’s own assumptions used to
measure assets and liabilities at fair value. A financial asset or
liability’s classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
We
classify assets and liabilities measured at fair value in their entirety based
on the lowest level of input that is significant to their fair value
measurement. Assets and liabilities measured at fair value on a recurring
basis consisted of the following at September 30, 2009:
|
|
Total Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
Value at
|
|
|
Fair Value Measurements at September 30, 2009
|
|
|
|
September 30, 2009
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in available-for-sale marketable securities
|
|
$ |
728,572 |
|
|
$ |
- |
|
|
$ |
728,572 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
derivative liability
|
|
$ |
267,789 |
|
|
$ |
- |
|
|
$ |
267,789 |
|
|
$ |
- |
|
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
9. Fair Value of Financial Instruments (Continued)
The
Company estimates the fair value of the warrant derivative liability utilizing
the Black-Scholes option pricing model, which is dependent upon several
variables such as the contractual warrant term, expected volatility of our
stock price over the contractual warrant term, expected risk-free
interest rate over the contractual warrant term, and the expected dividend yield
rate over the contractual warrant term. The Company believes
this valuation methodology is appropriate for estimating the fair value of the
warrant derivative liability. The following table summarizes the
assumptions the Company utilized to estimate the fair value of the warrant
derivative liability at September 30, 2009:
Assumptions
|
|
September 30, 2009
|
|
Expected
life (years)
|
|
|
3.6
- 3.7 |
|
Expected
volatility
|
|
|
115.8 |
% |
Risk-free
interest rate
|
|
|
1.45 |
% |
Dividend
yield
|
|
|
0.00 |
% |
The
expected term is based on the contractual term. The expected
volatility is based on historical volatility. The risk-free interest
rate is based on the U.S. Treasury yields with terms equivalent to the expected
life of the related option at the time of the grant. Dividend yield
is based on historical trends. While the Company believes these
estimates are reasonable, the fair value would increase if a higher expected
volatility was used, or if the expected dividend yield
increased.
There
were no changes in the valuation techniques during the three months ended
September 30, 2009.
Note
10. Commitments and Contingencies
Settlement
with Former Owner of Options Newsletter
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 was 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 of
March 31, 2009, the Company had paid the entire balance of the payable and
promissory note settlement liability.
Registration
Rights
On June
22, 2009, the Company closed a $2,500,000 private placement (see Note
8). As part of the offering, the Company was required to file a
registration statement within 60 days of the closing date of June 22, 2009 or
the Company would have been obligated to pay liquidated damages (in cash or
common shares, at the Company’s option) equal to 1% per month of the total
amount invested. In addition, the registration statement must have
been declared effective within 120 days of closing or the Company would have
been obligated to pay liquidated damages (in cash or common shares, at the
Company’s option) equal to 1% per month of the total amount
invested. The maximum potential consideration that the Company could
have been required to transfer under the registration payment arrangement was
$150,000. On August 21, 2009, the Company filed the registration
statement, which then became effective on August 31, 2009. The
Company is obligated to maintain the effectiveness of the registration statement
through December 22, 2009.
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, 2009, there
were no pending or threatened lawsuits that could reasonably be expected to have
a material effect on the results of our operations.
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.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note 11. Concentrations
Concentration
of Credit Risk
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 three financial
institutions in the United States. The balance, at any given time, may
exceed Federal Deposit Insurance Corporation insurance limits. As of
September 30, 2009 and 2008, there was approximately $2,072,000 and
$1,103,000, respectively, in excess of insurable limits.
Concentration
of Revenues, Accounts Receivable and Affiliate Expense
For the
three and nine months ended September 30, 2009 and 2008, the Company had
significant customers with individual percentage of total revenues equaling 10%
or greater as follows:
|
|
For the Three
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Customer
1
|
|
|
20.9 |
% |
|
|
0.0 |
% |
|
|
12.7 |
% |
|
|
0.0 |
% |
Customer
2
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
12.9 |
% |
Customer
3
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
10.1 |
% |
Totals
|
|
|
20.9 |
% |
|
|
0.0 |
% |
|
|
12.7 |
% |
|
|
23.0 |
% |
At
September 30, 2009 and 2008, concentration of accounts receivable with
significant customers representing 10% or greater of accounts receivable was as
follows:
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Customer
1
|
|
|
24.6 |
% |
|
|
0.0 |
% |
Totals
|
|
|
24.6 |
% |
|
|
0.0 |
% |
For the
three and nine months ended September 30, 2009 and 2008, the Company made
significant purchases from publishers with individual percentage of total
affiliate expense (included in cost of revenues) equaling 10% or greater as
follows:
|
|
For the Three
|
|
|
For the Three
|
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Publisher
1
|
|
|
33.6 |
% |
|
|
20.9 |
% |
|
|
25.0 |
% |
|
|
26.0 |
% |
Publisher
2
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
12.5 |
% |
Totals
|
|
|
33.6 |
% |
|
|
20.9 |
% |
|
|
25.0 |
% |
|
|
38.5 |
% |
Note
12. Income Taxes
The
Company files a consolidated U.S. income tax return that includes its
U.S. subsidiary. The Company also files state income tax returns
in Florida, Illinois and New York. The Company has not recorded an
income tax provision or benefit for the three and nine months ended September
30, 2009 as a full valuation allowance was established in 2008 based upon
the potential likelihood of realizing the deferred tax asset and taking into
consideration the Company's financial position and results of operations for the
current period. Future realization of the deferred tax benefit depends on
the existence of sufficient taxable income within the carryforward period under
the Federal tax laws. At September 30, 2009, the Company had
approximately $4.3 million of federal net operating loss carryforwards which
will expire from 2027 to 2029.
INTERCLICK,
INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND
SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
(Unaudited)
Note
13. 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 was controlled by one of our executive officers and
directors who was one of the former owners of Desktop, the company we acquired
on August 31, 2007.
On
September 26, 2008, we sold senior secured promissory notes (the “GRQ
Notes”) in the original aggregate principal amount of $1,300,000 to one of our
co-chairmen, all of which has been repaid as of September 30, 2009 (see
Note 6).
Note
14. Subsequent Events
On
November 10, 2009, the Company signed a term sheet for office space that shall
be its new corporate headquarters in New York City. The new office space
shall consist of 16,840 square feet with rent of approximately $49,000 per month
for a term of eight years. The Company plans to sublet the current space
of its headquarters.
In
preparing these condensed consolidated financial statements, the Company has
evaluated events and transactions for potential recognition or disclosure
through November 16, 2009, the date the financial statements were
issued.
Item 2.
|
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.
|
The
following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and related notes appearing
elsewhere in this 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 Part II, Item 1A, of this report.
Management’s
discussion and analysis of financial condition and results of operations is
based upon our unaudited consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these unaudited consolidated
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, 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. 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
interCLICK
provides a transparent platform enabling digital advertisers and agencies to
maximize return on investment (“ROI”) at unprecedented
scale. The Company's platform applies traditional supply chain methodologies
leveraging premium publisher inventory and third party data sources to maximize
the effectiveness along the online advertising value chain.
interCLICK
is a next-generation online ad network that combines complete data and inventory
transparency with best in breed targeting solutions. Its premier technology
platform increases campaign effectiveness and ROI by delivering highly targeted
ads to the most relevant audiences with unprecedented scalability. The
interCLICK platform was built to leverage leading data providers and
targeting technology to deliver the most efficient campaigns at the greatest
scale for advertisers.
Significant
events which have affected our results of operations include:
|
·
|
Our
revenues for the quarter ended September 30, 2009 were $14,395,236
compared to $5,756,707 for the same quarter in 2008 and $10,648,686 in the
quarter ended June 30, 2009. These increases were 150% and
35.2%, respectively. In the first nine months of 2009, our
revenues were $33,467,213 compared to $13,992,303 for the same period in
2008, or an increase of approximately
139%;
|
|
·
|
As
our revenues increased, our gross margins also increased. Our gross
margins were 50.4% for the third quarter 2009 as compared to 30.3% for the
third quarter 2008 and 47.7% for the first nine months of 2009 compared to
26.2% for the same period of 2008;
|
|
·
|
For
the quarter ended September 30, 2009, our net income was $151,348 or $0.01
per share compared to a net loss of $3,690,263 for the quarter ended
September 30, 2008 as compared to net losses of $849,728 and $11,373,310
for the nine months ended September 30, 2009 and 2008, respectively; included
in the quarter ended September 30, 2009 net income was an accounting
charge of $150,514 to warrant derivative liability expense for common
shares issued in Q2 in order to eliminate round-down price protection on
certain warrants;
|
|
·
|
We
achieved positive earnings before interest, taxes, depreciation and
amortization, including stock-based compensation for four straight
quarters beginning with the fourth quarter of
2008;
|
|
·
|
We
increased our credit line to $7,000,000 in September 2009 to support the
growth of our business; and
|
|
·
|
Our
headcount increased to 69 people at September 30, 2009 from 64 people at
June 30, 2009.
|
Results
of Operations
The
following table presents our results of operations for the three months ended
September 30, 2009 and 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 Acquisition Sub, Inc.
(“Options”) as a discontinued operation.
|
|
For the
Three
Months Ended
September 30,
2009
|
|
|
For the Three
Months
Ended
September 30,
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
14,395,236
|
|
|
$
|
5,756,707
|
|
Cost
of revenues
|
|
|
7,141,926
|
|
|
|
4,011,020
|
|
Gross
profit
|
|
|
7,253,310
|
|
|
|
1,745,687
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
6,581,383
|
|
|
|
3,167,153
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations
|
|
|
671,927
|
|
|
|
(1,421,466
|
)
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(520,579
|
)
|
|
|
(313,081
|
)
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before equity investment
|
|
|
151,348
|
|
|
|
(1,734,547
|
)
|
|
|
|
|
|
|
|
|
|
Equity
in investee’s loss, net of income taxes
|
|
|
-
|
|
|
|
(404,103
|
)
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
151,348
|
|
|
|
(2,138,650
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
-
|
|
|
|
(1,551,613
|
)
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
151,348
|
|
|
$
|
(3,690,263
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share from continuing operations – basic and
diluted
|
|
$
|
0.01
|
|
|
$
|
(0.12
|
)
|
Loss
per share from discontinued operations – basic and diluted
|
|
|
-
|
|
|
|
(0.08
|
)
|
Net
earnings (loss) per share – basic and diluted
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – basic
|
|
|
20,628,042
|
|
|
|
18,904,118
|
|
Weighted
average shares outstanding – diluted
|
|
|
22,399,847
|
|
|
|
18,904,118
|
|
Three
Months Ended September 30, 2009 Compared with the Three Months Ended September
30, 2008.
Unless
otherwise indicated, the following discussion relates to our continuing
operations and does not include the operations of a company we sold in
2008. We acquired that business in January 2008 and sold it in June
2008 resulting in a net loss on sale of $3,571,682.
Revenues
Revenues
for the three months ended September 30, 2009 increased to $14,395,236 from
$5,756,707 for the three months ended September 30, 2008, an increase of 150%.
The increase is primarily attributable to growth of our advertiser base through
our expanded national sales force and through budget increases among existing
advertisers.
Seasonally,
the third quarter marks the start of the stronger half of the year in terms of
demand for cost per thousand (“CPM”) advertising
campaigns. interCLICK is particularly sensitive to this seasonality
effect given that the majority of its revenues are tied to CPM campaigns.
Despite the marked deterioration of the broader economy over the past twelve
months and in 2009, the overall U.S. Internet audience based on comScore data
expanded to 197,075,997 average monthly
viewers in the third quarter of 2009, an increase of 4.2%, as compared to
the third quarter of 2008. For the same period indicated, interCLICK
experienced growth of 7.4%.
Given the
continued overall growth in online advertising, coupled with other strategic
initiatives undertaken by interCLICK, including the continued enhancement of our
behavioral targeting system and our continued ability to acquire top tier
publishing inventory, we expect to continue to increase our advertising customer
base and revenues on a year-over-year basis.
Revenues
from branded advertisers continue to account for the substantial majority of our
revenues. During the three months ended September 30, 2009, revenues from such
advertisers accounted for more than 95% of revenues.
Cost
of Revenues and Gross Profit
Cost of
revenues for the three months ended September 30, 2009 increased to $7,141,926
from $4,011,020 for the three months ended September 30, 2008, an increase of
78.1%. The increase is primarily attributable to the growth in advertising
campaigns requiring the purchase of appropriate levels of inventory from
publishers and higher data fees. Cost of revenues is comprised of the amounts we
paid to website publishers on interCLICK’s online advertising network, amounts
paid to third-party data providers, and ad serving and rich media expenses
directly associated with a given campaign. Cost of revenues
represented 49.6% of revenues for the three months ended September 30, 2009
compared to 69.7% of revenues for the three months ended September 30,
2008. The decrease is primarily attributable to: (1) improvements in
our supply chain management platform, resulting in a better match between
acquired publisher inventory and advertising campaign demand and (2) targeting
efficiencies achieved through our proprietary technology platform.
Gross
profit for the three months ended September 30, 2009 increased to $7,253,310
from $1,745,687 for the three months ended September 30, 2008, an increase of
315%. Our gross margin was 50.4 % for the three months ended
September 30, 2009 compared to 30.3% for the three months ended September 30,
2008.
Operating
Expenses:
The
following discussion of our costs reflects the reclassification of our expense
categories we implemented with the third quarter of 2009; all prior periods have
been retroactively adjusted.
General
and Administrative
General
and administrative expenses consist primarily of executive, administrative,
operations and product support compensation (including non-cash stock based
compensation), facilities costs, insurance, depreciation, professional fees,
investor relations fees and bad debt expense. General and
administrative expenses for the three months ended September 30, 2009 increased
to $3,383,752 from $1,881,513 for the three months ended September 30, 2008, an
increase of 79.8%. The increase is primarily attributable to headcount
expansion over the 12-month period. We hired five employees, net
of terminations, in the third quarter of 2009 to meet the expected growth
trajectory of our business, growing our employee base from 64 as of June 30,
2009 to 69 employees, for which a portion of related expenses are classified as
general and administrative. We expect to continue hiring new
employees for the balance of 2009, at a slightly faster pace than in the third
quarter. General and administrative expenses represented 23.5% of
revenues for the three months ended September 30, 2009 compared to 32.7% of
revenues for the three months ended September 30, 2008.
Sales
and Marketing
Sales and
marketing expenses consist primarily of compensation (including non-cash stock
based compensation) for sales and marketing and related support resources, sales
commissions and trade show expenses. Sales and marketing expenses for the three
months ended September 30, 2009 increased to $2,317,245 from $886,511 for the
three months ended September 30, 2008, an increase of 161%. The
increase is primarily attributable to our national sales force
expansion. Sales and marketing expenses represented 16.1% of revenues
for the three months ended September 30, 2009 compared to 15.4% of revenues for
the three months ended September 30, 2008.
Technology
Support
Technology
support consists primarily of compensation (including non-cash stock based
compensation) of technology support and related
resources. Technology support and related resources have been
directed primarily towards continued enhancement of our proprietary behavioral
targeting platform, including integration of third party data providers,
upgrades to our optimization system, and ongoing maintenance and improvement of
our technology infrastructure. Technology support expenses for the three
months ended September 30, 2009 increased to $830,626 from $294,558 for the
three months ended September 30, 2008, an increase of 182%. The increase is
primarily attributable to expenditures necessary to support interCLICK’s
increased business as well as expected increases in revenues. Technology support
expenses represented 5.8% of revenues for the three months ended September 30,
2009 compared to 5.1% of revenues for the three months ended September 30,
2008.
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, 2009 decreased to $49,760 from $104,571 for the three months
ended September 30, 2008, a decrease of 52.4%. The decrease is
primarily attributable to the accelerated amortization applicable to acquired
customer relationships in prior periods. Amortization of intangible
assets represented 0.3% of revenues for the three months ended September 30,
2009 compared to 1.8% of revenues for the three months ended September 30,
2008.
Stock-Based
Compensation
Based upon our unvested stock options
at September 30, 2009, we expect that our stock-based compensation for the
fourth quarter of 2009 and the full year of 2010 will be approximately $0.8
million and $2.6 million, respectively. To the extent employees leave
in a manner different than we estimated or we grant new options, these amounts
will change.
Net
Loss From Discontinued Operations
There was
no net loss from discontinued operations for the three months ended September
30, 2009 as compared to a net loss of $1,053,059 for the three months ended
September 30, 2008. There was no loss on sale of discontinued
operations for the three months ended September 30, 2009 as compared to $498,554
for the three months ended September 30, 2008.
Net
Income (Loss)
Net
income for the three months ended September 30, 2009 increased to $151,348 from
a net loss of $3,690,263 for the three months ended September 30,
2008. The increase was attributable to strong revenue and gross
profit growth, partially offset by higher operating expenses which grew at a
slower pace than revenue, and partially offset by higher other expenses
including an accounting charge of $150,514 to warrant derivative liability
expense for common shares issued in order in Q2 to eliminate round-down price
protection on certain warrants. Furthermore, the 2008 comparable
period loss included loss from discontinued operations, net of income taxes, of
$1,551,613, and equity in investee’s loss, net of income taxes, of
$404,103.
The
following table presents our results of operations for the nine months ended
September 30, 2009 and 2008.
|
|
For the
Nine
Months Ended
September 30,
2009
|
|
|
For the Nine
Months
Ended
September 30,
2008
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
33,467,213
|
|
|
$
|
13,992,303
|
|
Cost
of revenues
|
|
|
17,498,860
|
|
|
|
10,330,018
|
|
Gross
profit
|
|
|
15,968,353
|
|
|
|
3,662,285
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
15,787,611
|
|
|
|
9,710,655
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations
|
|
|
180,742
|
|
|
|
(6,048,370
|
)
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(1,029,250
|
)
|
|
|
(1,559,942
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before equity investment
|
|
|
(848,508
|
)
|
|
|
(7,608,312
|
)
|
|
|
|
|
|
|
|
|
|
Equity
in investee’s loss, net of income taxes
|
|
|
-
|
|
|
|
(653,231
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(848,508
|
)
|
|
|
(8,261,543
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(1,220
|
)
|
|
|
(3,111,767
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(849,728
|
)
|
|
$
|
(11,373,310
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per share from continuing operations – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.45
|
)
|
Loss
per share from discontinued operations – basic and diluted
|
|
|
-
|
|
|
|
(0.17
|
)
|
Loss
per share – basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – basic and diluted
|
|
|
19,578,110
|
|
|
|
18,450,209
|
|
Nine
Months Ended September 30, 2009 Compared with The Nine Months Ended September
30, 2008.
Unless
otherwise indicated, the following discussion relates to our continuing
operations and does not include the operations of a company we sold in 2008. We
acquired that business in January 2008 and sold it in June 2008 resulting in a
net loss on sale of $3,571,682.
Revenues
Revenues
for the nine months ended September 30, 2009 increased to $33,467,213 from
$13,992,303 for the nine months ended September 30, 2008, an increase of 139%.
The increase is primarily attributable to growth of our advertiser base through
our expanded national sales force and through budget increases among existing
advertisers.
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. Despite the marked deterioration of the broader
economy over the past twelve months and in 2009, the overall U.S. Internet
audience based on comScore data expanded to 197,075,997 average monthly viewers
in the third quarter of 2009, an increase of 4.2%, as compared to the third
quarter of 2008. For the same period indicated, interCLICK experienced
growth of 7.4%.
Revenues
from branded advertisers continue to account for the substantial majority of our
revenues. During the nine months ended September 30, 2009, revenues from such
advertisers accounted for more than 95% of revenues.
Cost
of Revenues and Gross Profit
Cost of
revenues for the nine months ended September 30, 2009 increased to $17,498,860
from $10,330,018 for the nine months ended September 30, 2008, an increase of
69.4%. The increase is primarily attributable to the growth in advertising
campaigns requiring the purchase of appropriate levels of inventory from
publishers and higher data fees. Cost of revenues is comprised of the amounts we
paid to website publishers on interCLICK’s online advertising network, amounts
paid to third-party data providers, and ad serving and rich media expenses
directly associated with a given campaign. Cost of revenues
represented 52.3% of revenues for the nine months ended September 30, 2009
compared to 73.8% of revenues for the nine months ended September 30, 2008. The
decrease is primarily attributable to: (1) improvements in our supply chain
management platform, resulting in a better match between acquired publisher
inventory and advertising campaign demand and (2) targeting efficiencies
achieved through our proprietary technology platform.
Gross
profit for the nine months ended September 30, 2009 increased to $15,968,353
from $3,662,285 for the nine months ended September 30, 2008, an increase of
336%. Our gross margin was 47.7% for the nine months ended September
30, 2009 compared to 26.2% for the nine months ended September 30,
2008.
Operating
Expenses:
The
following discussion of our costs reflects the reclassification of our expense
categories we implemented with the third quarter of 2009; all prior periods have
been retroactively adjusted.
General and Administrative
General
and administrative expenses consist primarily of executive, administrative,
operations and product support compensation (including non-cash stock based
compensation), facilities costs, insurance, depreciation, professional fees,
investor relations fees and bad debt expense. General and
administrative expenses for the nine months ended September 30, 2009 increased
to $8,021,106 from $6,113,362 for the nine months ended September 30, 2008, an
increase of 31.2%. The increase is primarily attributable to
headcount expansion over the period. We expect to continue hiring new
employees for the balance of 2009, at a slightly faster pace than in the third
quarter. General and
administrative expenses represented 24.0% of revenues for the nine months ended
September 30, 2009 compared to 43.7% of revenues for the nine months ended
September 30, 2008.
Sales
and Marketing
Sales and
marketing expenses consist primarily of compensation (including non-cash stock
based compensation) for sales and marketing and related support resources, sales
commissions and trade show expenses. Sales and marketing expenses for the nine
months ended September 30, 2009 increased to $5,468,122 from $2,443,776 for the
nine months ended September 30, 2008, an increase of 124%. The
increase is primarily attributable to our national sales-force
expansion. Sales and marketing expenses represented 16.3% of revenues
for the nine months ended September 30, 2009 compared to 17.5% of revenues for
the nine months ended September 30, 2008.
Technology
Support
Technology
support consists primarily of compensation (including non-cash stock based
compensation) of technology support and related resources. Technology support
and related support resources have been directed primarily towards continued
enhancement of our proprietary behavioral targeting platform, including
integration of third party data providers, upgrades to our optimization system,
and ongoing maintenance and improvement of our technology infrastructure.
Technology support expenses for the nine months ended September 30, 2009
increased to $2,149,103 from $839,579 for the nine months ended September 30,
2008, an increase of 156%. The increase is primarily attributable to
expenditures necessary to support interCLICK’s increased business and our
development of enhanced technology solutions. Technology support expenses
represented 6.4% of revenues for the nine months ended September 30, 2009
compared to 6.0% of revenues for the nine months ended September 30,
2008.
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 nine months
ended September 30, 2009 decreased to $149,280 from $313,938 for the nine months
ended September 30, 2008, a decrease of 52.4%. The decrease is
primarily attributable to the accelerated amortization applicable to acquired
customer relationships in prior periods. Amortization of
intangible assets represented 0.4% of revenues for the nine months ended
September 30, 2009 compared to 2.2% of revenues for the nine months ended
September 30, 2008.
Net
Loss From Discontinued Operations
Net loss
from discontinued operations for the nine months ended September 30, 2009 was $0
as compared to $1,998,232 for the nine months ended September 30, 2008. There was a loss on sale
of discontinued operations of $1,220 for the nine months ended September 30,
2009 as compared to $1,123,535 for the nine months ended September 30, 2008. The
loss from discontinued operations for the nine months ended September 30, 2008
also contains $1,122,529 of stock-based expense.
Net
Income (Loss)
Net loss
for the nine months ended September 30, 2009 decreased to $849,728 from a net
loss of $11,373,310 for the nine months ended September 30, 2008. The
decrease was attributable to strong revenue and gross profit growth, partially
offset by higher operating expenses which grew at a slower pace than
revenue. Furthermore, the 2008 comparable period loss included loss
from discontinued operations, net of income taxes, of $3,111,767, and equity in
investee’s loss, net of income taxes, of $653,231.
Net cash
used in operating activities during the nine months ended September 30, 2009
totaled $1,697,040 and resulted primarily from an increase in accounts
receivable of $7,268,876 and a net loss of $849,728, partially offset by an
increase in accounts payable of $2,219,724, stock-based compensation of
$1,953,884, an increase in accrued expenses of $1,377,328 and $506,786 of
warrant derivative liability expense.
Net cash
used in investing activities during the nine months ended September 30, 2009
totaled $65,422 and resulted from $86,851 of purchases of property and
equipment, offset by proceeds from the sale of Options Media Group Holdings,
Inc. (“OPMG”) stock of $21,429.
Net cash
provided by financing activities during the nine months ended September 30, 2009
was $3,757,685 and resulted primarily from net proceeds of $2,257,000 from a
private placement, $1,893,593 received under our credit facility (net of
repayments), partially offset by the repayment of $400,000 of notes
payable.
On
November 13, 2008, interCLICK entered into a revolving credit facility with
Crestmark Commercial Capital Lending, LLC to finance certain eligible accounts
receivables of interCLICK in an amount up to $3.5 million (subsequently
increased to $4.5 million on February 3, 2009, increased to $5.5 million on
April 30, 2009 and increased to $7.0 million on September 2,
2009). The line of credit expires on May 12, 2010 and is secured by
substantially all of the assets of interCLICK, except property and equipment
financed elsewhere.
At
September 30, 2009, interCLICK had $1,929,094 in cash and cash equivalents and
working capital of $2,699,017. As of November 6, 2009, interCLICK had
approximately $1,161,817 of cash and cash equivalents. As
its business has expanded, interCLICK has had positive earnings before interest,
taxes, depreciation and amortization, including stock-based
compensation for the last four quarters. interCLICK continues to
expand and had very strong year-over-year revenue growth in each quarter of
2009. Management anticipates that revenues will continue to increase
through at least 2010. In addition to our cash and cash equivalents,
the unused amount under the Crestmark line of credit available was $2,740,781 at
November 6, 2009. For all of these reasons, interCLICK expects that
it has sufficient cash and borrowing capacity to meet its working capital needs
for at least the next 12 months.
In the
next 12 months, we expect to acquire up to $2,000,000 in capital assets to
further enhance the features and scale of our technology assets, which
is necessary both to support the realization of growth objectives as well
as to advance interCLICK’s present competitive position. We expect these capital
assets will be acquired through conventional capital leases.
Related
Party Transactions
No
related party transactions had a material impact on our operating
results. See Note 13 to our unaudited condensed consolidated
financial statements.
New
Accounting Pronouncements
See Note
3 to our unaudited condensed consolidated financial statements included in this
report for discussion of recent accounting pronouncements.
Critical
Accounting Estimates
In
response to the SEC’s financial reporting release, FR-60, Cautionary Advice
Regarding Disclosure About Critical Accounting Policies, the Company has
selected its more subjective accounting estimation processes for purposes of
explaining the methodology used in calculating the estimate, in addition to the
inherent uncertainties pertaining to the estimate and the possible effects on
the interCLICK’s financial condition. The accounting estimates are discussed
below. These estimates involve certain assumptions that if incorrect could
create a material adverse impact on the interCLICK’s results of operations and
financial condition. See Note 3 to the unaudited condensed
consolidated financial statements.
With
the present economic recession, management is particularly attentive to the
potential for lengthening account receivable collection cycles and the attendant
possibility of an increase in bad debts. However, as collection performance
improved over the course of the first quarter of 2009 in part due to a major
retailer client receiving an $80,000,000 capital investment, management opted to
reduce bad debt reserves to $185,032, or 1.8% of gross accounts receivable at
June 30, 2009, from $216,532 or 2.5% of gross accounts receivable, at March 31,
2009. At September 30, 2009, bad debt reserves were $258,100 or 1.8%
of gross accounts receivable.
Management
is sensitive to the carrying value of the 7,285,715 OPMG shares held on the
balance sheet at $728,572 at September 30, 2009 that are valued based on
the shares we sold privately in May 2009, and further supported by a private
transaction in November 2009, rather than the quoted market price as of those
dates. Management concluded that OPMG shares do not trade in a
reliably active market and therefore management relied on the private
transaction values. See Notes 5 and 9 to the unaudited
condensed consolidated financial statements.
Forward-Looking
Statements
This
report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 including those relating to our beliefs
that we can achieve a better return on investment for our clients while still
being able to target the premium websites, our expectation that we will continue
to increase our advertising customer base and revenues on a year-over-year
basis, our expectations regarding hiring new employees for the balance of
2009, our management’s anticipation that revenues will continue to increase
through at least 2010, our expectation regarding having sufficient cash and
borrowing capacity to meet our working capital needs for at least the next 12
months, and our expectations regarding our capital
expenditures. Additionally, words such as “expects,” “anticipates,”
“intends,” “believes,” “will” and similar words are used to identify
forward-looking statements.
Some or
all of the results anticipated by these forward-looking statements may not
occur. Important factors, uncertainties and risks that may cause
actual results to differ materially from these forward-looking statements
include, but are not limited to, the Risk Factors in Part II, Item 1A, of this
report on Form 10-Q, the impact of intense competition, the continuation or
worsening of current economic conditions and the condition of the domestic and
global credit and capital markets. Additionally, these forward-looking
statements are presented as of the date this Form 10-Q is filed with the
Securities and Exchange Commission. We do not intend to update any of these
forward-looking statements.
Item 3.
|
Quantitative and Qualitative
Disclosures About Market
Risk.
|
Not
applicable to smaller reporting companies
Item 4.
|
Controls and
Procedures.
|
Not
applicable to smaller reporting companies
Item 4T.
|
Controls and
Procedures.
|
Disclosure
Controls
We
carried out an evaluation required by Rule 13a-15 or Rule 15d-15 of the
Securities Exchange Act of 1934 (the “Exchange Act”) under the supervision and
with the participation of our management, including our Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures.
Disclosure
controls and procedures are designed with the objective of ensuring that (i)
information required to be disclosed in an issuer's reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and (ii) information is accumulated
and communicated to management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.
The
evaluation of our disclosure controls and procedures included a review of our
objectives and processes and effect on the information generated for use in this
report. This type of evaluation is done quarterly so that the conclusions
concerning the effectiveness of these controls can be reported in our periodic
reports filed with the SEC. We intend to maintain these controls as processes
that may be appropriately modified as circumstances warrant.
Based on
their evaluation, our Principal Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures are effective
in timely alerting them to material information which is required to be included
in our periodic reports filed with the SEC as of the filing of this
report.
Changes in Internal Controls
Over Financial Reporting
There
were no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II – OTHER INFORMATION
Item 1.
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Legal
Proceedings.
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None
Investing
in our common stock involves a high degree of risk. You should
carefully consider and evaluate all of the information included in this Form
10-Q, including the risk factors below before deciding whether to invest in
interCLICK. Additional risks and uncertainties not presently known to us, or
that we currently deem immaterial, may also impair our business operations or
our financial condition. If any of the events discussed in the risk factors
below occur, our business, consolidated financial condition, results of
operations or prospects could be materially and adversely affected. In such
case, the value and marketability of the common stock could decline, and you
might lose all or part of your investment.
Risks
Relating to the Company
Because
we have a limited operating history to evaluate our company, the likelihood of
our success must be considered in light of the problems, expenses, difficulties,
complications and delay frequently encountered by an early-stage
company.
Since we
have a limited operating history it will make it difficult for investors and
securities analysts to evaluate our business and prospects. You must consider
our prospects in light of the risks, expenses and difficulties we face as an
early stage company with a limited operating history. Investors should evaluate
an investment in our company in light of the uncertainties encountered by
early-stage companies in an intensely competitive industry. There can be no
assurance that our efforts will be successful or that we will be able to
maintain profitability.
Because
we expect to need additional capital to fund our growing operations, we may not
be able to obtain sufficient capital and may be forced to limit the scope of our
operations.
We expect
that as our business continues to grow we will need additional working capital.
In addition to the proceeds we received from our June 2009 private placement, we
are currently relying on our accounts receivable factoring line of credit with a
commercial lender which expires in May 2010. This lender recently
expanded our line to $7,000,000. This lender is
privately-held and we have no access to any information about its financial
condition. Because of the severe impact that the recession has had on
the financial service sector, we may be adversely affected in our ability to
draw on our line of credit, replace this line of credit or increase the amount
we can borrow. The slowdown in the global economy, the freezing of the credit
markets and decline in the stock market may adversely affect our ability to
raise capital. If adequate additional debt and/or equity financing is not
available on reasonable terms or at all, we may not be able to continue to
expand our business, and we will have to modify our business plans accordingly.
These factors would have a material and adverse effect on our future operating
results and our financial condition.
Even if
we secure additional working capital, we may not be able to negotiate terms and
conditions for receiving the additional capital that are acceptable to us. Any
future equity capital investments will dilute existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our common
stock. We cannot give you any assurance that any additional financing will be
available to us, or if available, will be on terms favorable to us.
Because
of the severity of the global economic recession, our customers may delay in
paying us or not pay us at all. This would have a material and adverse effect on
our future operating results and financial condition.
One of
the effects of the severe global economic recession is that businesses are
tending to maintain their cash resources and delay in paying their creditors
whenever possible. As a trade creditor, we lack leverage unlike secured lenders
and providers of essential services. Should the economy further deteriorate, we
may find that either advertisers, their representative agencies or both may
delay in paying us. Additionally, we may find that advertisers will reduce
Internet advertising which would reduce our future revenues. These events will
result in a number of adverse effects upon us including increasing our borrowing
costs, reducing our gross profit margins, reducing our ability to borrow under
our line of credit, and reducing our ability to grow our business. These events
would have a material and adverse effect upon us.
If
advertising on the Internet loses its appeal, our revenue could
decline.
Our
business model may not continue to be effective in the future for a number of
reasons, including the following: click and conversion rates have always been
low and may decline as the number of advertisements and ad formats on the Web
increases; Web users can install "filter" software programs which allow them to
prevent advertisements from appearing on their computer screens or in their
email boxes; Internet advertisements are, by their nature, limited in content
relative to other media; companies may be reluctant or slow to adopt online
advertising that replaces, limits or competes with their existing direct
marketing efforts; companies may prefer other forms of Internet advertising we
do not offer, including certain forms of search engine placements; companies may
reject or discontinue the use of certain forms of online promotions that may
conflict with their brand objectives; companies may not utilize online
advertising due to concerns of "click-fraud", particularly related to search
engine placements; regulatory actions may negatively impact certain business
practices that we currently rely on to generate a portion of our revenue and
profitability; and, perceived lead quality. If the number of companies who
purchase online advertising from us does not continue to grow, we may experience
difficulty in attracting publishers, and our revenue could decline.
If
we make acquisitions, it could divert management’s attention, cause ownership
dilution to our shareholders and be difficult to integrate.
Following
our acquisition of Desktop in August 2007, we have grown rapidly and we expect
to continue to evaluate and consider future acquisitions. Acquisitions generally
involve significant risks, including difficulties in the assimilation of
operations, services, technologies, and corporate culture of the acquired
companies, diversion of management's attention from other business concerns,
overvaluation of the acquired companies, and the acceptance of the acquired
companies’ products and services by our customers. Acquisitions may
not be successful, which can have a number of adverse effects upon us including
adverse financial effects and may seriously disrupt our management’s time. The
integration of our acquired operations, products and personnel may place a
significant burden on management and our internal resources. The diversion of
management attention and any difficulties encountered in the integration process
could harm our business.
If we fail to
manage our existing publishing inventory and third party data partnerships
effectively, our profit margins could decline and should we fail to acquire
additional publishing inventory our growth could be impeded.
Our
success depends in part on our ability to manage our existing publishing
inventory and third party data partnerships effectively. Our
publishers are not bound by long-term contracts that ensure us a consistent
supply of advertising space, which we refer to as inventory. In
addition, publishers can change the amount of inventory they make available to
us at any time. If a publisher decides not to make publishing
inventory from its websites available to us, we may not be able to replace this
inventory with that from other publishers with comparable traffic patterns and
user demographics quickly enough to fulfill our advertisers’ requests, thus
resulting in potentially lost revenues. Additionally, if a
third-party data provider stopped offering their data to us, we may not be able
to replace this data with another data provider of equal or better
effectiveness. Our ability to maintain our existing data partnerships, as well
as attract new data partners, will depend on various factors, some of which are
beyond our control.
We expect
that our advertiser customers’ requirements will become more sophisticated as
the Internet continues to mature as an advertising medium. If we fail to manage
our existing publisher inventory effectively to meet our advertiser customers’
changing requirements, our revenues could decline. Our growth depends on our
ability to expand our publisher inventory. To attract new customers, we must
maintain a consistent supply of attractive publisher inventory. We intend to
expand our inventory by selectively adding to our network new publishers that
offer attractive demographics, innovative and quality content and growing web
user traffic. Our ability both to retain current as well as to attract new
publishers to our network will depend on various factors, some of which are
beyond our control. These factors include, but are not limited to: our ability
to introduce new and innovative services, our efficiency in managing our
existing publisher inventory and our pricing policies. We cannot assure you that
the size of our publisher inventory will increase or remain constant in the
future.
If
the technology that we currently use to target the delivery of online
advertisements and to prevent fraud on our network is restricted or becomes
subject to regulation, our expenses could increase and we could lose customers
or advertising inventory.
Recently,
the Federal Trade Commission or FTC issued guidelines recommending that
companies like interCLICK that engage in behavioral targeting engage in
self-regulation in order to protect the privacy of consumers who use the
Internet. If notwithstanding this report, the FTC were in the future
to issue regulations, it may adversely affect what we perceive to be a
competitive advantage. This could increase our costs and reduce our
future revenues.
If
we cannot manage our growth effectively, we may not maintain
profitability.
Businesses
which grow rapidly often have difficulty managing their growth. If our business
continues to grow as rapidly as we have since August 2007 and as we anticipate,
we will need to expand our management by recruiting and employing experienced
executives and key employees capable of providing the necessary
support.
We cannot
assure you that our management will be able to manage our growth effectively or
successfully. Our failure to meet these challenges could cause us to continue to
lose money, which will reduce our stock price.
It
may be difficult to predict our financial performance because our quarterly
operating results may fluctuate.
Our
revenues, operating results and valuations of certain assets and liabilities may
vary significantly from quarter to quarter due to a variety of factors, many of
which are beyond our control. You should not rely on period-to-period
comparisons of our results of operations as an indication of our future
performance. Our results of operations may fall below the expectations of market
analysts and our own forecasts. If this happens, the market price of
our common stock may fall significantly. The factors that may affect our
quarterly operating results include the following:
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fluctuations
in demand for our advertising solutions or changes in customer
contracts;
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fluctuations
in the amount of available advertising space on our
network;
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the
timing and amount of sales and marketing expenses incurred to attract new
advertisers;
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the
impact of our recent substantial increase in headcount to meet expected
increases in revenue for the balance of 2009 and
2010;
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fluctuations
in our average ad rates (i.e., the amount of advertising sold at higher
rates rather than lower rates);
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fluctuations
in the cost of online advertising and in the cost and/or amount of data
available for behavioral targeting
campaigns;
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seasonal
patterns in Internet advertisers’
spending;
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worsening
economic conditions which cause advertisers to reduce Internet spending
and consumers to reduce their
purchases;
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changes
in the regulatory environment, including regulation of advertising or the
Internet, that may negatively impact our marketing
practices;
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the
timing and amount of expenses associated with litigation, regulatory
investigations or restructuring activities, including settlement costs and
regulatory penalties assessed related to government enforcement
actions;
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Any
changes we make in our Critical Accounting Estimates described in
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in
this report;
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the
adoption of new accounting pronouncements, or new interpretations of
existing accounting pronouncements, that impact the manner in which we
account for, measure or disclose our results of operations, financial
position or other financial measures;
and
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costs
related to acquisitions of technologies or
businesses.
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Expenditures
by advertisers also tend to be cyclical, reflecting overall economic conditions
as well as budgeting and buying patterns. Any decline in the economic prospects
of advertisers or the economy generally may alter advertisers’ current or
prospective spending priorities, or may increase the time it takes us to close
sales with advertisers, and could materially and adversely affect our business,
results of operations and financial condition.
If
we fail to retain our key personnel, we may not be able to achieve our
anticipated level of growth and our business could suffer.
Our
future depends, in part, on our ability to attract and retain key personnel and
the continued contributions of our executive officers, each of whom may be
difficult to replace. In particular, Michael Mathews, Chief Executive Officer,
Michael Katz, President, Andrew Katz, Chief Technology Officer, Roger Clark,
Chief Financial Officer, Jason Lynn, Vice President of Product Development, and
Dave Myers, Vice President of Operations are important to the management of our
business and operations and the development of our strategic direction. The loss
of the services of Messrs. Mathews, Michael Katz, Andrew Katz, Clark, Lynn and
Myers and the process to replace any key personnel would involve significant
time and expense and may significantly delay or prevent the achievement of our
business objectives.
Our
two largest shareholders can exert significant control over our business and
affairs and may have actual or potential interests that may depart from those of
our other shareholders.
Our two
largest shareholders and Co-Chairmen of the Board own a substantial number of
shares of our common stock. The interests of such persons may differ
from the interests of other shareholders. As a result, in addition to their
positions with us, such persons will have significant influence over and control
all corporate actions requiring shareholder approval, irrespective of how our
other shareholders may vote, including their ability to:
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elect
or defeat the election of our
directors;
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amend
or prevent amendment of our certificate of incorporation or
bylaws;
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effect
or prevent a merger, sale of assets or other corporate transaction;
and
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control
the outcome of any other matter submitted to the shareholders for
vote.
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Their
power to control the designation of directors gives them the ability to exert
influence over day-to-day operations.
In
addition, such persons’ stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us, which in
turn could reduce our stock price or prevent our shareholders from realizing a
premium over our stock price.
Because
government regulation of the Internet may subject us to additional operating
restrictions and regulations, our business and operating results may be
adversely affected.
Companies engaging in online search,
commerce and related businesses face uncertainty related to future government
regulation of the Internet. Due to the rapid growth and widespread use of the
Internet, federal and state governments are enacting and considering various
laws and regulations relating to the Internet. Furthermore, the application of
existing laws and regulations to Internet companies remains somewhat unclear.
Our business and operating results may be negatively affected by new laws, and
such existing or new regulations may expose us to substantial compliance costs
and liabilities and may impede the growth in use of the Internet.
Additionally, our third party data partners may be adversely affected by any new
or existing laws.
The application of these statutes and
others to the Internet search industry is not entirely settled. Further, several
existing and proposed federal laws could have an impact on our business and our
third party data partners’ business:
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The Digital Millennium Copyright Act and its related safe harbors, are
intended to reduce the liability of online service providers for listing or
linking to third-party websites that include materials that infringe copyrights
or other rights of others.
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The CAN-SPAM Act of 2003 and certain state laws are intended to regulate
interstate commerce by imposing limitations and penalties on the transmission of
unsolicited commercial electronic mail via the Internet.
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There have been several bills introduced in the Congress in recent years
relating to protecting privacy. As with any change in Presidential
administration, especially to one more likely to protect privacy, new
legislation in this area may be enacted.
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Adopted and pending consumer protection and privacy legislation,
including the Federal Trade Commission Online Behavioral Advertising Principles
referred to in a prior risk factor.
With respect to the subject matter of
each of these laws, courts may apply these laws in unintended and unexpected
ways. As a company
that provides services over the Internet, we may be subject to an action brought
under any of these or future laws governing online services. We may also be
subject to costs and liabilities with respect to privacy issues. Several
Internet companies have incurred costs and paid penalties for violating their
privacy policies. Further, it is anticipated that new legislation may be
adopted by federal and state governments with respect to user privacy.
Additionally, foreign governments may pass laws which could negatively impact
our business or may prosecute us for our products and services based upon
existing laws. The restrictions imposed by and cost of complying with,
current and possible future laws and regulations related to our business could
harm our business and operating results. Further, any such laws
that affect our third party data partners could indirectly harm our business and
operating results.
If
we are subject to legal claims, and/or government enforcement actions and held
liable for our or our customers’ failure to comply with federal, state and
foreign laws, regulations or policies governing consumer privacy, it could
materially harm our business and damage our reputation.
Recent
growing public concern regarding privacy and the collection, distribution and
use of information about Internet users has led to increased federal, state and
foreign scrutiny and legislative and regulatory activity concerning data
collection and use practices. The United States Congress currently has pending
legislation regarding privacy and data security measures (e.g., S. 495, the
"Personal Data Privacy and Security Act of 2007"). Any failure by us to comply
with applicable federal, state and foreign laws and the requirements of
regulatory authorities may result in, among other things, indemnification
liability to our customers and the advertising agencies we work with,
administrative enforcement actions and fines, class action lawsuits, cease and
desist orders, and civil and criminal liability. Recently, class action lawsuits
have been filed alleging violations of privacy laws by Internet service
providers. The European Union's directive addressing data privacy limits our
ability to collect and use information regarding Internet users. These
restrictions may limit our ability to target advertising in most European
countries. Our failure to comply with these or other federal, state or foreign
laws could result in liability and materially harm our business.
In
addition to government activity, privacy advocacy groups and the technology and
direct marketing industries are considering various new, additional or different
self-regulatory standards. This focus, and any legislation, regulations or
standards promulgated, may impact us adversely. Governments, trade associations
and industry self-regulatory groups may enact more burdensome laws, regulations
and guidelines, including consumer privacy laws, affecting our customers and us.
Since many of the proposed laws or regulations are just being developed, and a
consensus on privacy and data usage has not been reached, we cannot yet
determine the impact these proposed laws or regulations may have on our
business. However, if the gathering of profiling information were to be
curtailed, Internet advertising would be less effective, which would reduce
demand for Internet advertising and harm our business.
Third
parties may bring class action lawsuits against us relating to online privacy
and data collection. We disclose our information collection and dissemination
policies, and we may be subject to claims if we act or are perceived to act
inconsistently with these published policies. Any claims or inquiries could be
costly and divert management's attention, and the outcome of such claims could
harm our reputation and our business.
Our
customers are also subject to various federal and state laws concerning the
collection and use of information regarding individuals. These laws include the
Children's Online Privacy Protection Act, the Federal Drivers Privacy Protection
Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the Federal
CAN-SPAM Act of 2003, as well as other laws that govern the collection and use
of consumer credit information. We cannot assure you that our customers are
currently in compliance, or will remain in compliance, with these laws and their
own privacy policies. We may be held liable if our customers use our
technologies in a manner that is not in compliance with these laws or their own
stated privacy policies.
If
we are not able to protect our intellectual property from unauthorized use, it
could diminish the value of our products and services, weaken our competitive
position and reduce our revenue.
Our
success depends in large part on our proprietary demographic, behavioral,
contextual, geographic and retargeting technologies. In addition, we believe
that our trademarks are key to identifying and differentiating our products and
services from those of our competitors. We may be required to spend significant
resources to monitor and police our intellectual property rights. If we fail to
successfully enforce our intellectual property rights, the value of our products
and services could be diminished and our competitive position may
suffer.
We rely
on a combination of copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. Third-party software providers could copy or otherwise obtain and use
our technologies without authorization or develop similar technologies
independently, which may infringe upon our proprietary rights. We may not be
able to detect infringement and may lose competitive position in the market
before we do so. In addition, competitors may design around our technologies or
develop competing technologies. Intellectual property protection may also be
unavailable or limited in some foreign countries.
We
generally enter into confidentiality or license agreements with our employees,
consultants, vendors, customers, and corporate partners, and generally control
access to and distribution of our technologies, documentation and other
proprietary information. Despite these efforts, unauthorized parties may attempt
to disclose, obtain or use our products and services or technologies. Our
precautions may not prevent misappropriation of our products, services or
technologies, particularly in foreign countries where laws or law enforcement
practices may not protect our proprietary rights as fully as in the United
States.
If
we become involved in lawsuits relating to our intellectual property rights, it
could be expensive and time consuming, and an adverse result could result in
significant damages and/or force us to make changes to our
business.
We rely
on trade secrets to protect our intellectual property rights. If we are sued by
a third party which alleges we are violating its intellectual property rights or
if we sue a third party for violating our rights, intellectual property
litigation is very expensive and can divert our limited resources. We may not
prevail in any litigation. An adverse determination of any litigation brought by
us could materially and adversely affect our future results of operations by
either reducing future revenues or increasing future
costs. Additionally, an adverse award of money damages could affect
our financial condition.
Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation.
In addition, during the course of this kind of litigation, there could be public
announcements of the results of hearings, motions or other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
these results to be negative, it could have an adverse effect on the trading
price of our common stock.
If
we are not able to respond to the rapid technological change characteristic of
our industry, our services may not be competitive.
The
market for our services is characterized by rapid change in business models and
technological infrastructure, and we will need to constantly adapt to changing
markets and technologies to provide competitive services. We believe that our
future success will depend, in part, upon our ability to develop our services
for both our target market and for applications in new markets. We may not,
however, be able to successfully do so, and our competitors may develop
innovations that render our services obsolete or uncompetitive.
If
our computer systems fail to operate effectively in the future, we may incur
significant costs to remedy these failures and may sustain reduced
revenues.
Our
success depends on the continuing and uninterrupted performance of our computer
systems. Sustained or repeated system failures that interrupt our ability to
provide services to customers, including failures affecting our ability to
deliver advertisements quickly and accurately and to process visitors’ responses
to advertisements, would reduce significantly the attractiveness of our
solutions to advertisers and publishers. Our business, results of operations and
financial condition could also be materially and adversely affected by any
systems damage or failure that impacts data integrity or interrupts or delays
our operations. Our computer systems are vulnerable to damage from a variety of
sources, including telecommunications failures, power outages and malicious or
accidental human acts. Any of the above factors could substantially harm our
business resulting in increased costs. Moreover, despite network security
measures, our servers are potentially vulnerable to physical or electronic
break-ins, computer viruses and similar disruptive problems in part because we
cannot control the maintenance and operation of our third-party data centers.
Any of these occurrences could cause material interruptions or delays in our
business, result in the loss of data, render us unable to provide services to
our customers, and expose us to material risk of loss or litigation and
liability. If we fail to address these issues in a timely manner, it
may materially damage our reputation and business causing our revenues to
decline.
Computer viruses could damage our
business.
Computer viruses, worms and similar programs may cause
our systems to incur delays or other service interruptions and could damage our
reputation and ability to provide our services and expose us to legal liability,
all of which could have a material adverse effect on our business, results of
operations, financial condition and the trading price of our common
stock.
Our
revenue and results of operations could be negatively impacted if Internet usage
and the development of internet infrastructure do not continue to
grow.
Our
business and financial results will depend on continued growth in the use of the
Internet. Internet usage may be inhibited for a number of reasons, such as:
inadequate network infrastructure; security concerns; inconsistent quality of
service; governmental regulation; and, unavailability of cost-effective,
high-speed service.
If
Internet usage continues to grow, our infrastructure may not be able to support
the demands placed on it, and our performance and reliability may decline. In
addition, websites have experienced interruptions in their service as a result
of outages and other delays occurring throughout the Internet network
infrastructure, and as a result of sabotage, such as electronic attacks designed
to interrupt service on many websites. The Internet could lose its viability as
a commercial medium due to reasons including increased governmental regulation
or delays in the development or adoption of new technologies required to
accommodate increased levels of Internet activity. If use of the Internet does
not continue to grow, or if the Internet infrastructure does not effectively
support our growth, our revenue and results of operations could be materially
and adversely affected.
Because
our third-party servers are located in South Florida, in the event of a
hurricane our operations could be adversely affected.
We rely
upon servers owned by third parties which are located in South Florida where our
technology offices are located. Because South Florida is in a
hurricane-sensitive area, we are susceptible to the risk of damage to our
servers. This damage can interrupt our ability to provide services.
If damage caused to our servers were to cause them to be inoperable for any
amount of time, we would be forced to switch hosting facilities which could be
more costly. We are not insured against any losses or expenses that
arise from a disruption or any short-term outages from to our business due to
hurricanes or tropical storms.
Since
we rely on third-party co-location providers, a failure of service by these
providers could adversely affect our business and reputation.
We rely
upon third party co-location providers to host our main servers. In the event
that these providers experience any interruption in operations or cease
operations for any reason or if we are unable to agree on satisfactory terms for
continued hosting relationships, we would be forced to enter into a relationship
with other service providers or assume hosting responsibilities ourselves. If we
are forced to switch hosting facilities, we may not be successful in finding an
alternative service provider on acceptable terms or in hosting the computer
servers ourselves. We may also be limited in our remedies against these
providers in the event of a failure of service. In the past, short-term outages
have occurred in the service maintained by co-location providers which could
recur. We also rely on third-party providers for components of our technology
platform. A failure or limitation of service or available capacity by any of
these third-party providers could adversely affect our business and
reputation.
If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent fraud and our business may
be harmed and our stock price may be adversely impacted.
Effective
internal controls are necessary for us to provide reliable financial reports and
to effectively prevent fraud. Any inability to provide reliable financial
reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of
2002 requires management to evaluate and assess the effectiveness of our
internal control over financial reporting. We determined that our internal
control over financial reporting was effective as of the date of this report. In
order to continue to comply with the requirements of the Sarbanes-Oxley Act, we
are required to continuously evaluate and, where appropriate, enhance our
policies, procedures and internal controls. If we fail to maintain the adequacy
of our internal controls, we could be subject to litigation or regulatory
scrutiny and investors could lose confidence in the accuracy and completeness of
our financial reports. We cannot assure you that in the future we will be able
to fully comply with the requirements of the Sarbanes-Oxley Act or that
management will conclude that our internal control over financial reporting is
effective. If we fail to fully comply with the requirements of the
Sarbanes-Oxley Act, our business may be harmed and our stock price may
decline.
Risks
Relating to our Common Stock
Due
to factors beyond our control, our stock price may be volatile.
Any of
the following factors could affect the market price of our common
stock:
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Actual
or anticipated variations in our quarterly results of
operations;
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Our
failure to meet financial analysts’ performance
expectations;
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Our
failure to achieve and maintain
profitability;
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Short
selling activities;
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The
loss of major advertisers, publishers or data
providers;
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Announcements
by us or our competitors of significant contracts, new products,
acquisitions, commercial relationships, joint ventures or capital
commitments;
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The
departure of key personnel;
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Regulatory
developments;
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Changes
in market valuations of similar companies;
or
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The
sale of a large amount of common stock by our shareholders including those
who invested prior to commencement of
trading.
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In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs and
divert our management’s time and attention, which would otherwise be used to
benefit our business.
Because
almost all of our outstanding shares are freely tradable, sales of these shares
could cause the market price of our common stock to drop significantly, even if
our business is performing well.
As of the
date of this report, we had outstanding 20,667,707 shares of common stock of
which our directors and executive officers own 5,701,398 shares which are
subject to the limitations of Rule 144 under the Securities Act of 1933 or the
Securities Act. All of the remaining outstanding shares are freely
tradable, except for approximately 471,000 shares. These later restricted shares
will eligible for sale under Rule 144 on various dates beginning November 29,
2009 through January 20, 2010.
In
general, Rule 144 provides that any non-affiliate of ours, who has held
restricted common stock for at least six-months, is entitled to sell their
restricted stock freely, provided that we stay current in our filings with the
Securities and Exchange Commission or the SEC.
An
affiliate of interCLICK may sell after six months with the following
restrictions:
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we
are current in our filings,
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|
(ii)
|
certain
manner of sale provisions,
|
|
(iii)
|
filing
of Form 144, and
|
|
(iv)
|
volume
limitations limiting the sale of shares within any three-month period to a
number of shares that does not exceed the greater of 1% of the total
number of outstanding shares or, the average weekly trading volume during
the four calendar weeks preceding the filing of a notice of
sale.
|
Because
almost all of our outstanding shares are freely tradable and the shares held by
our affiliates may be freely sold (subject to the Rule 144 limitations), sales
of these shares could cause the market price of our common stock to drop
significantly, even if our business is performing well.
Delaware law contains anti-takeover
provisions that could deter takeover attempts that could beneficial to our
stockholders.
Provisions
of Delaware law could make it more difficult for a third-party to acquire us,
even if doing so would be beneficial to our stockholders. Section 203 of the
Delaware General Corporation Law may make the acquisition of the Company and the
removal of incumbent officers and directors more difficult by prohibiting
stockholders holding 15% or more of our outstanding voting stock from acquiring
the Company, without our board of directors' consent, for at least three years
from the date they first hold 15% or more of the voting stock.
Item 2.
|
Unregistered Sales of Equity
Securities and Use of
Proceeds.
|
In
addition to those unregistered securities previously disclosed in reports filed
with the SEC, we have sold securities without registration under the Securities
Act of 1933 in reliance upon the exemption provided in Section 4(2) and
Rule 506 thereunder as described below. All numbers have been adjusted to
give effect to a one-for-two reverse stock split effective in the fourth quarter
2009.
Name or Class of
Investor (1)
|
|
Date Sold
|
|
No. of Securities
|
|
Reason for Issuance
|
|
|
|
|
|
|
|
Employee
|
|
July 1, 2009
|
|
3,750
five-year stock options exercisable at $2.38 per share
|
|
Employment
|
Employee
|
|
July 6, 2009
|
|
10,000
five-year stock options exercisable at $2.36 per share
|
|
Employment
|
Executive
|
|
August 7, 2009
|
|
10,000
shares of common stock and 250,000 five-year stock options exercisable at
$3.20 per share
|
|
Employment
|
Employee
|
|
August 10, 2009
|
|
10,000
five-year stock options exercisable at $3.86 per share
|
|
Employment
|
Employee
|
|
August 24, 2009
|
|
10,000
five-year stock options exercisable at $3.76 per share
|
|
Employment
|
Employees
|
|
August 25, 2009
|
|
70,000
five-year stock options exercisable at $3.80 per share
|
|
Employment
|
Employee
|
|
September 9, 2009
|
|
5,000
five-year stock options exercisable at $3.70 per share
|
|
Employment
|
Employees
|
|
September 28, 2009
|
|
157,500
five-year stock options exercisable at $4.00 per share
|
|
Employment
|
(1) While
the SEC only requires disclosure when options issued under an employee stock
option plan become exercisable, the Company has elected to disclose the issuance
as a matter of convenience. All of these options were granted under
the 2007 Incentive Stock and Award Plan.
Item 3.
|
Defaults Upon Senior
Securities.
|
None
Item 4.
|
Submission of Matters to a Vote
of Security Holders.
|
Incorporated
herein by reference is the information disclosed under Item 8.01 on Form 8-K
filed by the Company on October 23, 2009.
Item 5.
|
Other
Information.
|
None
No.
|
|
Description
|
|
|
|
|
|
|
|
2.1
|
|
Agreement of Merger and Plan of
Reorganization, by and among Customer Acquisition Network
Holdings, Inc., Customer Acquisition Network, Inc. and CAN
Acquisition Sub, Inc.*
|
|
Contained
in Form 8-K filed September 4, 2007
|
2.2
|
|
Agreement and Plan of Merger, by
and among Customer Acquisition Network Holdings,
Inc., Customer Acquisition Network, Inc., Desktop Acquisition Sub, Inc.,
Desktop Interactive, Inc. and Michael Katz, Brandon Guttman and
Stephen Guttman*
|
|
Contained
in Form 8-K filed September 4, 2007
|
2.3
|
|
Certificate of Merger, merging
Customer Acquisition Sub, Inc. with and into Customer
Acquisition Network Inc.
|
|
Contained
in Form 8-K filed September 4, 2007
|
2.4
|
|
Certificate of Merger, merging
Desktop Interactive, Inc. with and into Desktop Acquisition Sub,
Inc.
|
|
Contained
in Form 8-K filed September 4, 2007
|
2.5
|
|
Agreement of Merger and Plan of
Reorganization, by and among Options Media Group Holdings,
Inc., Options Acquisition Corp., Options Acquisition Sub, Inc. and
Customer Acquisition Network Holdings, Inc.*
|
|
Contained
in Form 8-K filed June 27, 2008
|
3.1
|
|
Amended
and Restated Certificate of Incorporation
|
|
Contained
in Form 8-K filed August 30, 2007
|
3.2
|
|
Certificate
of Amendment to the Certificate of Incorporation
|
|
Contained
in Form 8-K filed July 7, 2008
|
3.3
|
|
Certificate
of Amendment to the Certificate of Incorporation
|
|
Contained
in Form 8-A filed November 4, 2009
|
3.3
|
|
Amended
and Restated Bylaws
|
|
Contained
in Form 8-A filed November 4, 2009
|
10.1
|
|
Accounts Receivable Financing
Agreement with Crestmark Commercial Capital Lending
LLC
|
|
Contained
in Form 10-K filed March 31, 2009
|
10.2
|
|
Amendment to the Accounts
Receivable Financing Agreement with Crestmark Commercial Capital
Lending LLC
|
|
Contained
in Form 10-K filed March 31, 2009
|
10.3
|
|
Letter
Agreement with Crestmark Commercial Capital Lending LLC increasing Line of
Credit dated February 3, 2009
|
|
Contained
in Form 10-K filed March 31, 2009
|
10.4
|
|
Second Amendment to the Accounts
Receivable Financing Agreement with Crestmark
Commercial Capital Lending LLC
|
|
Contained
in Form 10-K filed March 31, 2009
|
10.5
|
|
Letter
Agreement with Crestmark Commercial Capital Lending LLC increasing Line of
Credit dated August 31, 2009
|
|
Contained
in this Form 10-Q
|
10.6
|
|
Third
Amendment to the Accounts Receivable Financing Agreement with Crestmark
Commercial Capital Lending LLC
|
|
Contained
in this Form 10-Q
|
10.7
|
|
Roger
Clark Employment Agreement
|
|
Contained
in Form 8-K filed August 13, 2009
|
31.1
|
|
Certification
of Principal Executive Officer (Section 302)
|
|
Contained
in this Form 10-Q
|
31.2
|
|
Certification
of Principal Financial Officer (Section 302)
|
|
Contained
in this Form 10-Q
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer
(Section 906)
|
|
Furnished
with this Form 10-Q
|
*The
confidential disclosure schedules are not filed in accordance with SEC Staff
policy, but will be provided to the Staff upon request. Certain
material agreements contain representations and warranties, which are qualified
by the following factors:
|
(i)
|
the
representations and warranties contained in any agreements filed with this
report were made for the purposes of allocating contractual risk between
the parties and not as a means of establishing
facts;
|
|
(ii)
|
the
agreement may have different standards of materiality than standards of
materiality under applicable securities
laws;
|
|
(iii)
|
the
representations are qualified by a confidential disclosure schedule that
contains nonpublic information that is not material under applicable
securities laws;
|
|
(iv)
|
facts
may have changed since the date of the agreements;
and
|
|
(v)
|
only
parties to the agreements and specified third-party beneficiaries have a
right to enforce the agreements.
|
Notwithstanding
the above, any information contained in a schedule that would cause a reasonable
investor (or that a reasonable investor would consider important in making a
decision) to buy or sell our common stock has been included. We have been
further advised by our counsel that in all instances the standard of materiality
under the federal securities laws will determine whether or not information has
been omitted; in other words, any information that is not material under the
federal securities laws may be omitted. Furthermore, information which may have
a different standard of materiality will nonetheless be disclosed if material
under the federal securities laws.
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.
|
|
|
|
November
16, 2009
|
|
/s/ Michael
Mathews
|
|
|
Michael
Mathews
|
|
|
Chief
Executive Officer
(Principal
Executive Officer)
|
|
|
|
November
16, 2009
|
|
/s/ Roger
Clark
|
|
|
Roger
Clark
|
|
|
Chief
Financial Officer
(Principal
Financial Officer)
|