UNITED
STATED
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K/A
Amendment No.
1
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T
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2008
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£
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
file number: 1-33472
TechTarget,
Inc.
(Exact
name of Registrant as Specified in Its Charter)
Delaware
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04-3483216
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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117
Kendrick Street, Suite 800
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02494
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Needham,
Massachusetts
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(Zip
Code)
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(Address
of Principal Executive Offices)
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Registrant's
telephone number, including area code: (781) 657-1000
Securities
registered pursuant to Section 12(b) of the Exchange Act:
None.
Securities
registered pursuant to Section 12(g) of the Exchange Act:
Common
Stock, $0.001 Par Value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes
£
No
T
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes
£
No
T
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
£
No
T
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K/A.
T
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer," "accelerated filer” and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large
Accelerated Filer
£
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Accelerated
Filer
T
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Non-Accelerated
Filer
£
(Do
not check if a smaller
reporting
company)
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Smaller
Reporting Company
£
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
£
No
T
The
aggregate market value of the registrant's common stock held by non-affiliates
of the registrant was approximately $131.2 million as of June 30, 2008 (based on
a closing price of $10.56 per share as quoted by the Nasdaq Global Market as of
such date). In determining the market value of non-affiliate common stock,
shares of the registrant's common stock beneficially owned by officers,
directors and affiliates have been excluded. The determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The
registrant
had
41,745,193 shares
of Common Stock, $0.001 par value per share,
outstanding as of June 30, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
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Explanatory Note
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4
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PART
I
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Item
1.
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5
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Item
1A.
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Item
1B.
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Item
2.
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Item
3.
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Item
4.
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PART
II
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Item
5.
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Item
6.
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Item
7.
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Item
7A.
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Item
8.
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Item
9.
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Item
9A.
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Item
9B.
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PART
III
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Item
10.
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Item
11.
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Item
12.
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Item
13.
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Item
14.
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PART
IV
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Item
15.
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This
Annual Report on Form 10-K/A contains forward-looking statements that are based
on the beliefs of management and assumptions made by and information currently
available to them. The words “expect,” “anticipate,” “believe,” “may,”
“estimate,” “intend” and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements involve risks,
uncertainties and assumptions including those described in “Risk Factors,” which
could cause our actual results to be materially different from results expressed
or implied by such forward-looking statements.
EXPLANATORY NOTE
On July
16, 2009, TechTarget, Inc. ("the Company", "we", "us" or similar pronouns)
filed its Annual Report on Form 10-K for the year ended December 31,
2008 and related exhibits. The Company mistakenly included with this
filing an old form of the certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. As a result, the Company is hereby filing
this amendment to the Form 10-K to amend and restate the 10-K in its
entirety, including all exhibits and new certifications pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
On June
10, 2009, the Company filed a Form 8-K which informed the public that the
Company determined that its previously-issued consolidated financial statements
should not be relied upon due to the Company’s review of its revenue recognition
policies, and that the Company would be restating its consolidated financial
statements as of and for the years ended December 31, 2004, 2005, 2006 and 2007,
within its December 31, 2008 Form 10-K/A filing, and as of and for the quarter
and year to date periods ended March 31, 2008 and 2007, June 30, 2008 and 2007,
and September 30, 2008 and 2007, within its respective Form 10-Q/A
filings. In this Form 10-K/A, the Company is restating its
consolidated balance sheet as of December 31, 2007, and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
fiscal years ended December 31, 2007 and 2006. This Form 10-K/A also
reflects the restatement of “Selected Consolidated Financial Data” in Item 6 as
of and for the fiscal years ended December 31, 2007, 2006, 2005 and 2004, and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7 for the fiscal years ended December 31, 2007 and
2006.
In
connection with the Company’s financial statement close process for the
year ended December 31, 2008, the Company concluded that its methodology for
determining the timing of recognizing webcast revenues was improper. The Company
had been recognizing the majority of the revenue in the month in which the
webcast occurred. The Company concluded that the webcast revenues should have
been recognized ratably over the period in which the webcasts were available on
the websites of the Company and its partners. In connection with this finding,
the Company performed a comprehensive review of its business processes
pertaining to all of its service revenue offerings and the related application
of accounting policies and procedures to those business processes. The Company
identified additional errors in the recognition of revenue relating to its
whitepaper, promotional emails and sponsorship offerings. In addition, the
Company identified errors in its assessment of whether or not it had verifiable
objective evidence of fair value for undelivered elements in its advertising
campaigns. As a result, the Company determined that verifiable objective
evidence of fair value did not exist for elements in its advertising
campaigns with multiple elements. Instead of allocating revenue to separate
units of accounting based upon verifiable objective evidence of fair value, all
deliverables in multiple element arrangements should have been combined as
a single unit of accounting and revenue should have been recognized for the
entire arrangement over the service period. The Company had historically
concluded that its revenue arrangements with multiple elements could be divided
into separate units of accounting under the guidance prescribed in Financial
Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) Issue No.
00-21,
Revenue Arrangements
With Multiple Deliverables.
The restatement is to correct errors in
the amounts of its revenues, deferred revenues and provision for income
taxes. The restatement for the error resulted in an increase
(decrease) to revenues of ($2,415,000) and $187,000, a decrease to the
provision for income taxes of ($794,000) and ($153,000), and an increase
(decrease) to net income of ($1,621,000) and $340,000 for the years ended
December 31, 2007 and 2006, respectively.
PART
I
Item 1.
Business
Overview
TechTarget,
Inc. was incorporated in Delaware on September 14, 1999. We are a
leading provider of specialized online content that brings together buyers and
sellers of corporate IT products. We sell customized marketing programs that
enable IT vendors to reach corporate IT decision makers who are actively
researching specific IT purchases. We operate a network of over 60 websites,
each of which focuses on a specific IT sector, such as storage, security or
networking.
IT
professionals rely on our websites for key decision support information tailored
to their specific areas of responsibility. We complement our online offerings
with targeted in-person events that enable advertisers to engage buyers at
critical stages of their decision-making process for IT purchases. We work with
our advertiser customers to develop customized marketing programs, often
providing them with multiple offerings in order to more effectively target their
desired audience. Our service offerings address both lead generation and
branding objectives of our advertising customers. The majority of our 2008
revenues are associated with lead generation advertising campaigns.
As IT
professionals have become increasingly specialized, they have come to rely on
our sector-specific websites for purchasing decision support. Our content
strategy enables IT professionals to navigate the complex and rapidly changing
IT landscape where purchasing decisions can have significant financial and
operational consequences. Our content strategy includes three primary sources of
content which IT professionals use to assist them in their pre-purchase
research: independent content, vendor generated content and user
generated content. As of December 31, 2008, we employed over 100
full-time editors who create original content tailored for specific audiences,
which we complement with content through our association with outside industry
experts. In addition to utilizing our independent content, registered members
are able to conduct their pre-purchase research by accessing vendor content such
as white papers, webcasts, videocasts, virtual events and podcasts, across our
network of websites. Our network of websites also allows users to seamlessly
interact and contribute content which is highly valued by IT professionals
during their research process.
We have a
large and growing base of registered members, which totaled approximately 7.5
million as of December 31, 2008. The targeted nature of our user base enables IT
vendors to reach a specialized audience efficiently because our content is
highly segmented and aligned with the IT vendors’ specific products. Since our
founding in 1999, we have developed a broad customer base. During 2008 we
delivered advertising campaigns for approximately 1,400 customers. No
one customer represented more than 10% of revenues and the quarterly renewal
rate of our top 100 customers has consistently exceeded 90%. We
generated revenues of approximately $105 million in 2008, up from approximately
$92 million in 2007. Over the same period, our Adjusted EBITDA
decreased from approximately $22 million in 2007 to approximately $21 million in
2008. Revenues and Adjusted EBITDA for the year ended December 31,
2007 represent restated amounts as further described in Note 2 to the
consolidated financial statements.
Available
Information
Our
website address is www.techtarget.com. We make available free of charge through
our website our Annual Reports on Form 10-K/A, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and amendments to these reports, as soon as
reasonably practicable after we electronically file such material with, or
furnish such material to, the Securities and Exchange Commission (SEC). Our
reports filed with the SEC are also available at the SEC’s website at
www.sec.gov. Our Code of Business Conduct and Ethics, and any amendments to our
Code of Business Conduct and Ethics Corporate Governance Guidelines and Board
Committee Charters, are also available on our website. We are not including the
information contained on our website as part of, or incorporating it by
reference into, this Annual Report on Form 10-K/A.
Industry
Background
The
ongoing shift from traditional print and broad-based advertising to targeted
online advertising that the media business has been experiencing continues to
accelerate. We believe the three major trends driving this shift continue to
be:
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Targeted
Content Channels Lead to Greater Efficiency for
Advertisers
. The desire of advertisers to reach
customers efficiently has led to the development and proliferation of
market-specific content channels throughout all forms of media. Targeted
content channels increase advertising efficiency by enabling advertisers
to market specifically to the audience they are trying to reach. Content
providers are finding new ways, such as specialized cable television
channels, magazines and events, to offer increasingly targeted content to
their audience and advertisers. The Internet has enabled even more
market-specific content offerings, and the proliferation of
market-specific websites provides advertisers with efficient and targeted
media to reach their customers.
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The
Internet Improves Advertisers’ Ability to Increase and Measure Return on
Investment
. Advertisers are increasingly focused on
measuring and improving their return on investment, or ROI. Before the
advent of Internet-based marketing, there were limited tools for
accurately measuring the results of marketing campaigns in a timely
fashion. The Internet has enabled advertisers to track individual user
responses to their marketing programs. With the appropriate technology,
vendors now have the ability to assess and benchmark the efficacy of their
online advertising campaigns cost-effectively and in real-time. As a
result, advertisers are now increasingly demanding a measurable ROI across
all forms of media.
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The
Internet Is Increasingly Critical in Researching Large, Complex and Costly
Purchases.
The Internet has improved the efficiency and
effectiveness of researching purchases. The vast quantity of information
available on the Internet, together with search engines and directories
that facilitate information discovery, enables potential purchasers to
draw information from many sources, including independent experts, peers
and vendors, in an efficient manner. These benefits are most apparent in
the research of complex and costly purchases which require information
from a variety of sources. By improving the efficiency of product
research, the Internet enables potential purchasers to save significant
time and review a wider range of product
selections.
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Corporate
IT Purchasing
The
trends toward targeted content channels, increased focus on ROI by advertisers
and Internet-based product research are evident in the corporate IT market. Over
the past two decades, corporate IT purchases have grown in size and
complexity. The corporate IT market is comprised of multiple, large
sectors, such as storage, security and networking. Each of these sectors can, in
turn, be further divided into sub-sectors that contain products addressing the
areas of specialization within an enterprise’s IT environment. For example,
within the multi-billion dollar storage sector, there are numerous sub-sectors
such as storage area networks, storage management software and backup software.
Furthermore, the products in each sub-sector may service entirely independent
markets. For example, backup software for use in Windows environments can be
distinct from that designed for use in Linux environments.
In view
of the complexities, high cost and importance of IT decision-making, corporate
IT purchasing decisions are increasingly being researched by teams of functional
experts with specialized knowledge in their particular areas, rather than by one
central IT professional, such as a chief information officer. The corporate IT
purchasing process typically requires a lengthy sales cycle. The ‘‘sales cycle’’
is the sequence of stages that a typical customer goes through when deciding to
purchase a product or service from a particular vendor. Key stages of a sales
cycle typically consist of a customer recognizing or identifying a need;
identifying possible solutions and vendors through research and evaluation; and
finally, making a decision to purchase the product or service. Through various
stages of this sales cycle, IT professionals rely upon multiple inputs from
independent experts, peers and IT vendors. Although there is a vast amount of
information available, the aggregation and validation of these inputs from
various sources can be difficult and time-consuming.
The long
sales cycle for corporate IT purchases, as well as the need for information
support, require substantial investment on the part of IT vendors, which drives
the significant marketing expenditures in the corporate IT market. In addition,
technology changes at an accelerated pace and there are often multiple solutions
to a particular IT need. With each new product or product enhancement, IT
vendors implement new advertising campaigns and IT professionals must research
new technologies.
The
Opportunity
Corporate
IT professionals increasingly are demanding specialized websites and events
tailored to the sub-sectors of IT solutions that they purchase. Prior to
widespread Internet adoption, corporate IT buyers researching purchases relied
largely on traditional IT media, consisting of broad print publications and
large industry trade shows. As technology, vendors and IT professionals have all
become much more specialized, the Internet has emerged as a preferred purchase
research medium that has drastically reduced and improved research time. Despite
this, most traditional IT media remains general in nature and disproportionately
oriented towards print. Consequently, IT professionals continue to expend time
searching inefficiently for information that is appropriate to their more
specialized IT purchase requirements.
IT
advertisers seek high-ROI marketing platforms that provide access to the
specific sectors of IT buyers that align with the solutions they sell.
Traditional IT media companies with print-based revenue models service a large
circulation with broad content. This minimizes the likelihood of a vendor
reaching a buyer while he or she is actively researching the purchase of a
solution that falls within the vendor’s particular market sector. Although the
Internet now offers advertisers a superior means to reach IT buyers while they
are conducting research, the web properties operated by these traditional IT
media companies offer online content and audiences that are in many cases
derivative of their existing print efforts. Without a more targeted marketing
platform oriented to IT professionals’ need for decision support for specialized
IT purchases, traditional IT media companies have faced difficulty meeting the
ROI needs of IT marketers.
Our
Solution
Our
specialized content strategy enables IT vendors to reach corporate IT
professionals who are actively researching purchases in specific IT sectors. Our
online network of websites is complemented by conferences, seminars and other
in-person events. Prior to December 2008, we also published a limited number of
highly targeted print magazines in which IT vendors could reach IT
professionals. As of December 2008, we discontinued publishing all print
magazines and do not anticipate publishing any print magazines in the future. IT
professionals rely on our platform for decision support information tailored to
their specific purchasing needs. Our solution benefits from the following
competitive advantages:
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Large and Growing Community of
Registered Members.
We have built a registered member database with
detailed business information on approximately 7.5 million IT
professionals as of December 31, 2008. We have collected detailed business
and technology profiles with respect to our registered members, which
allows us to provide them with more specialized content and our
advertisers with highly targeted audiences and sales
leads.
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Strong Advertiser
Relationships.
Since our founding in 1999, we have developed a
broad customer base that now comprises approximately 1,400 active
advertisers and the quarterly renewal rate of our top 100 customers has
consistently exceeded 90%.
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Substantial Experience in
Online Media.
We have over nine years of experience in developing
our online media content, with a focus on providing targeted information
to IT professionals and a targeted audience to vendors. Our experience
enables us to develop new online properties rapidly, and to acquire and
efficiently integrate select properties that further serve IT
professionals. We have also developed an expertise in implementing
integrated, targeted marketing campaigns designed to maximize the
measurability of, and improvement in,
ROI.
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Significant Brand Recognition
Among Advertisers and IT Professionals.
Our brand is
well-recognized by advertisers who value our integrated marketing
capabilities and high-ROI advertising programs. At the same time, our
sector-specific websites command brand recognition among IT professionals,
who rely on these websites because of their specificity and depth of
content.
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Favorable Search Engine
Rankings
. Due to our long history of using a targeted approach
toward online publishing, our network of websites has produced a large
repository of archived content that allows us to appear on search result
pages when users perform targeted searches on search engines such as
Google. We are successful in attracting traffic from search engines,
which, in turn, increases our registered
membership.
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Proprietary Lead Management
Technology.
Our proprietary lead management technology enables IT
vendors to prioritize and manage efficiently the leads we provide,
improving the efficacy of their sales teams and optimizing the ROI on
their marketing expenditures with
us.
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Our
solution increases efficiency for both IT professionals and IT vendors. It
facilitates the ability of IT professionals to find specific information related
to their purchase decisions, while enabling IT vendors to reach IT buyers that
are actively researching specific solutions related to vendors’ products and
services. Set forth below are several ways our solution benefits IT
professionals and IT vendors:
Benefits
to IT Professionals
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Provides Access to Integrated,
Sector-Specific Content.
Our websites provide IT professionals with
sector-specific content from the three fundamental sources they value in
researching IT purchasing decisions: industry experts, peers and vendors.
Our staff of editors creates content specific to the sectors we serve and
the key sub-sectors within them. This content is integrated with other
content generated by our network of third-party industry experts,
member-generated content and content from IT vendors. The reliability,
breadth and depth, and accessibility of our content offering enable IT
professionals to make more informed
purchases.
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Increases Efficiency of
Purchasing Decisions.
By accessing targeted and specialized
information, IT professionals are able to research important purchasing
decisions more effectively. Our integrated content offering minimizes the
time spent searching for and evaluating content, and maximizes the time
available for consuming quality content. Furthermore, we provide this
specialized, targeted content through a variety of media that together
address critical stages of the purchase decision
process.
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Benefits
to IT Vendors
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Targets Active Buyers
Efficiently.
Our highly targeted content attracts specific,
targeted audiences that are actively researching purchasing decisions.
Using our registered member database, we are able to target further those
registered members most likely to be of value to IT vendors. Advertising
to a targeted audience minimizes advertiser expenditures on irrelevant
audiences, increasing advertising
efficiency.
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Generates Measurable, High
ROI.
Our targeted online content offerings enable us to generate
and collect valuable business information about each user and his or her
technology preferences. This information is provided by users prior to
accessing specific content and can be further customized to advertisers’
needs to support their advertising programs. As users access sponsored
content, we register and process this information, and deliver qualified
actionable leads in real-time. As a result, our advertisers are able to
measure and improve the ROI on their advertising expenditures with
us.
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Generates and Prioritizes
Qualified Sales Leads.
Our IT vendors also use our detailed member
database and integrated advertising campaigns to identify and market to
the audience members they consider to have the highest potential value.
Once the leads have been delivered, our proprietary lead management
technology enables customers to categorize, prioritize and market more
effectively to these leads.
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Maximizes Awareness and
Shortens the Sales Cycle.
As a leading distributor of
vendor-provided IT white papers, webcasts, videocasts, virtual events, and
podcasts, we offer IT vendors the opportunity to educate IT professionals
during the research process, prior to any direct interaction with vendor
salespeople. By distributing proprietary content and reaching their target
audiences via our platform, IT vendors can educate audiences, demonstrate
their product capabilities and proactively brand themselves as specific
product leaders. As a result, an IT professional is knowledgeable about
the vendors’ specifications and product by the time he or she engages with
the vendor, which reduces time and cost expended by the vendor’s sales
force.
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Reaches IT Professionals at
Critical Stages of the Purchase Decision Process.
Because our
content platform includes online and event offerings, IT vendors can
market to IT professionals at critical stages of the purchase decision
process through multiple touch points. In addition to targeting IT
professionals as they conduct purchase research on our website, IT vendors
can have face-to-face interactions with qualified buyers seeking to
finalize purchase decisions at our in-person
events.
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Our
Strategy
Our goal
is to deliver superior performance by enhancing our position as a leading
provider of specialized content that connects IT professionals with IT vendors
in the sectors and sub-sectors that we serve. In order to achieve this goal, we
intend to:
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Continue to Develop Our
Content Platform and Service Offerings.
We intend to continue to
launch additional websites and develop our platform in order to capitalize
on the ongoing shift from traditional broad-based media toward more
focused online content that increases the efficiency of advertising
spending. We intend to capture additional revenues from existing and new
customers by continuing to develop our content and to segment it to
deliver an increasingly specialized audience to the IT vendors who
advertise across our media. We also intend to continue to deliver a highly
engaged and growing audience to advertisers and to develop innovative
marketing programs.
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Expand into Complementary
Sectors.
We intend to complement our current offerings by
continuing to expand our business in order to capitalize on strategic
opportunities in existing, adjacent, or new sectors that we believe to be
well-suited to our business model and core competencies. Based on our
experience, we believe we are able to capitalize rapidly and
cost-effectively on new market
opportunities.
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Expand Our International
Presence.
We intend to expand our addressable market by increasing
our presence in countries outside the United States. Having launched our
own websites in the United Kingdom in 2008, we expect to penetrate foreign
markets further by directly launching additional sector specific websites
in the UK and in additional foreign markets, as well as by licensing our
content in new foreign territories and if deemed appropriate making
strategic acquisitions and investments in overseas
entities. During 2008, less than 5% of our revenues
were derived from international customers. We believe many of the current
trends contributing to our domestic online revenue opportunity also are
occurring in international markets and therefore present
a future revenue
opportunity.
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Selectively Acquire or Partner
with Complementary Businesses.
We have used acquisitions as a means
of rapidly expanding our content and service offerings, web traffic and
registered members. Historically, our acquisitions can be classified into
three categories; content-rich blogs or other individually published
sites, typically generating less than one million dollars in revenues;
early stage revenue sites, typically generating between one and five
million dollars in annual revenues; and later stage revenue sites,
typically generating greater than five million dollars in annual revenues.
We intend to continue to pursue selected acquisition or partnership
opportunities in our core markets and in adjacent markets for products
with similar characteristics.
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Platform
& Content
Our
integrated content platform consists of a network of websites that we complement
with targeted in-person events. At critical stages of the purchase decision
process, these content offerings meet IT professionals’ needs for expert, peer
and IT vendor information, and provide a platform on which IT vendors can launch
targeted marketing campaigns that generate measurable, high ROI.
The
diagram below provides a representation of the media services provided by our
platform and the media groups we currently use to categorize our content
offerings:
Media
Groups
Based
upon the logical clustering of our users’ respective job responsibilities and
the marketing focus of the products that our customers are advertising, we
currently categorize our content offerings across ten distinct media groups.
Each of these media groups services a wide range of IT vendor sectors and
sub-sectors and is driven by the key areas of IT professionals’ interests
described below:
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Security.
Every aspect
of enterprise computing now depends on secure connectivity, data and
applications. The security sector is constantly growing to adapt to new
forms of threats and to secure new technologies such as mobile devices and
wireless networks. Compliance regulations along with highly
publicized identity and intellectual property thefts are driving interest
and investment in increasingly sophisticated security solutions that
supplement common perimeter security solutions such as firewalls and
antivirus software. Our online properties in this sector,
SearchSecurity.com, SearchFinancialSecurity.com,
SearchMidMarketSecurity.com and SearchSecurity.co.UK offer navigable and
structured guides on IT vendor and technology solutions in key sub-sectors
such as network security, intrusion defense, identity management and
authentication, data and application security, and security information
management software. Our annual Security Decisions conference anchors a
calendar of topically-focused regional seminars on issues such as
compliance monitoring and data
protection.
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Networking.
Broadly
defined, the networking market includes the hardware, software and
services involved in the infrastructure and management of both Enterprise
and Carrier voice and data networks. As new sub-sectors of
networking have emerged and grown in importance, IT networking
professionals have increasingly focused their investments in such
technologies as VoIP, wireless and mobile computing, and telecommunication
technologies. Our online properties in this sector, SearchNetworking.com,
SearchEnterpriseWAN.com, SearchUnifiedCommunications.com,
SearchMobileComputing.com and SearchTelecom.com aim to address the
specialized needs of these IT networking professionals by offering content
targeted specifically to these emerging growth areas as well as key
initiatives such as network security and access control, application
visibility and performance monitoring, WAN acceleration and optimization,
voice/data/video convergence, and remote office management and
connectivity.
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Storage
. The storage
sector consists of the market for disk storage systems and tape hardware
and software that store and manage data. Growth is fueled by trends
inherent in the industry, such as the ongoing need to maintain and
supplement data stores, and by external factors, such as expanded
compliance regulations and increased focus on disaster recovery solutions.
These latter trends have driven overall storage growth and led to new
specialized solutions such as remote replication software and information
life cycle management solutions. At the same time, established storage
sub-sectors, such as backup and SANs have been invigorated by new
technologies such as disk-based backup, continuous data protection and
storage virtualization. Our online properties in this sector,
SearchStorage.com, SearchDataBackup.com, SearchSMBStorage.com,
SearchDisasterRecovery.com and SearchStorage.co.UK address IT
professionals seeking solutions in key sub-sectors such as fibre channel
SANs, IP & iSCSI SANs, NAS, backup hardware and software, and storage
management software. The audiences at our in-person Storage Decision
conferences are comprised almost exclusively of storage decision makers
from within IT organizations. These events are supplemented by regional
seminars on topics such as backup and disaster
recovery.
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Data Center and
Virtualization Technologies.
Data centers house the
systems and components, such as servers, storage devices, routers and
switches, utilized in large-scale, mission-critical computing
environments. A variety of trends and new technologies have
reinvigorated the data center as a priority among IT professionals.
Technologies, such as blade servers and server virtualization, have driven
renewed investment in data center-class computing solutions. Server
consolidation is now a focus, driven by the decline in large-scale
computing prices relative to distributed computing models. These trends
have put pressure on existing data center infrastructure and are driving
demand for solutions that address this. For example, the deployment of
high-density servers has led to increased heat output and energy
consumption in data centers. Power and cooling have thus become a
significant cost in IT budgets, making data center energy efficiency a
priority. Our key online properties in this sector provide
targeted information on the IT vendors, technologies and solutions that
serve these sub-sectors. Our properties in this
sector include SearchDataCenter.com, covering
disaster recovery, power and cooling, mainframe and UNIX servers, systems
management, and server consolidation; SearchEnterpriseLinux.com, focused
on Linux migration and infrastructures; Search400.com, covering mid-range
computing; and SearchServerVirtualization.com (both
server/data center-class sites) covering the decision points and
alternatives for implementing server virtualization and SearchVMware.com,
focusing on managing and building out virtualized environments on the most
widely-installed server virtualization platform. The solutions and
sub-sectors addressed at Data Center Decisions, our event hosting key
decision makers from large data center computing environments, mirror
those covered on our sites. Our Data Center Decisions regional seminars
cover server virtualization implementation and related
issues. We also cover servers, application and desktop
solutions deployed in distributed computing environments. The dominant
platform there, the Windows platform no longer represents an offering of
discrete operating systems, but rather a diverse computing environment
with its own areas of specialization around IT functions such as database
administration and security. As Windows servers have become more stable
and scalable, they have taken share in data centers, and currently
represent one of the largest server sub-sectors. Given the
breadth of the Windows market, we have segmented our Windows-focused media
based on IT professionals’ infrastructure responsibilities and purchasing
focus. Our online properties in this sector include SearchWinServer.com,
covering servers, storage, and systems
management; SearchSQLServer.com, SearchDomino.com,
SearchExchange.com and SearchWinIT.com, each targeted toward senior
management for distributed computing environments. This network of sites
provides resources and advice to IT professionals pursuing solutions
related to such topics as Windows backup and storage, server
consolidation, and upgrade planning. SearchEnterpriseDesktop.com,
SearchDesktopVirtualization.com, BrianMadden.com and LabMice.net all focus
on the deployment and management of end-user computing environments.
Combined with our two properties that focus on server virtualization,
SearchDesktopVirtualization.com and BrianMadden.com, each focusing on
desktop virtualization, give us a comprehensive offering addressing the in
fast-growing area of virtualization technologies. Our online
offerings in this sector are supplemented by in-person regional
seminars.
Our
BriForum conference focuses on desktop virtualization and related
technologies.
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CIO/IT Strategy Media Group.
Our CIO/IT Strategy media group provides content targeted at Chief
Information Officers, or CIOs, and senior IT executives, enabling them to
make informed IT purchases throughout the critical stages of the purchase
decision process. CIOs’ areas of interest generally align with the major
sectors of the IT market; however, CIOs increasingly are focused on the
alignment between IT and their businesses’ operations. Because businesses’
IT strategies vary significantly based upon company size, we have
segmented the CIO market by providing specific guidance to CIOs of large
enterprises, mid-market enterprises and SMBs. Data center
consolidation, compliance, ITIL/ IT service management, disaster
recovery/business continuity, risk management and outsourcing (including
software-as-a-service and cloud computing) have all drawn the attention of
IT executives who need to understand the operational and strategic
implications of these issues and technologies on their businesses.
Accordingly, our targeted information resources for senior IT executives
focus on ROI, implementation strategies, best practices and comparative
assessment of vendor solutions related to these initiatives. Our online
properties in this sector include SearchCIO-Midmarket.com which targets IT
managers at small to medium-sized businesses. SearchCIO.com provides CIOs
in large enterprises with strategic information focused on critical
purchasing decisions. SearchCompliance.com provides advice on this
strategic topic to IT and business executives and other senior IT
managers.
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Enterprise
Applications.
Our Enterprise Applications media group focuses on
mission critical software for mid-sized and large companies such as
databases and data management applications, enterprise resource planning,
and customer facing applications such as CRM software. Because
these applications are critical to the overall success of the businesses
that use them, there is a high demand for specialized information by IT
and business professionals involved in their purchase, implementation, and
ongoing support. Our properties in this sector include SearchCRM.com,
SearchDataManagement.com, SearchOracle.com, SearchSAP.com and
SearchManufacturingERP.com, which are leading online resources that
provide this specialized information to support mission critical business
applications. They cover CRM, business intelligence, data management,
sales force automation, databases and ERP
software.
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Vertical
Software.
The SMB market supports a high degree of
specialization by software vendors, as applications are offered that
address the business requirements of specific industry verticals such as
construction, manufacturing, and many others. The purchase of these
applications requires extensive up-front research by companies that, in
many cases, may not have large or highly specialized IT staffs. Our web
site 2020software.com helps decision-makers from small to mid-sized
companies evaluate specialized business applications by providing
side-by-side comparisons of the leading software providers in categories
such as manufacturing, human resources, financial and accounting, and
construction software. Users of the site can request further information
and trial software downloads from multiple vendors in a single
transaction, simplifying their research process.
ConstructionSoftwareReview.com assists companies in evaluating and
selecting construction software.
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Application
Development.
The application development sector is comprised of a
broad landscape of tools and languages that enable developers to build,
customize and integrate software for their businesses. Our application
development online properties focus on development in enterprise
environments, the underlying languages such as .NET, Java and XML as well
as related application development tools and integrated development
environments or IDEs. Several trends have had a profound impact on this
sector and are driving growth. The desire for more flexible and
interoperable applications architecture continues to propel interest in
SOA and web services technologies. Application integration, application
testing and security, as well as AJAX and rich Internet applications, are
also key areas of continuing focus for vendors and developers. Our online
properties in this sector include TheServerSide.com and TheServerSide.NET
which host independent communities of developers and architects using Java
and .NET, respectively, Ajaxian.com which serves developers of
rich internet applications, SearchWinDevelopment.com serving Windows
developers, SearchSoftwareQuality.com which offers content focused on
application testing and quality assurance, SearchSOA.com which serves
developers and architects building out service oriented architectures and
working with related technologies. Our online properties are supplemented
by domestic and international conferences on enterprise development
technologies.
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Channel.
Our Channel
properties address the information needs of channel companies—classified
as resellers, value added resellers, solution providers, systems
integrators, managed service providers, and consultants—in the IT market.
As IT professionals have become more specialized, IT vendors actively have
sought resellers with specific expertise in the vendors’ sub-sectors. Like
IT professionals, channel solution providers now require more focused
technical content in order to operate successfully in their
sectors. The resulting dynamics in the channel are well-suited
to our integrated, targeted content strategy. Our online
properties in this sector include SearchITchannel.com,
SearchStorageChannel.com, SearchSecurityChannel.com,
SearchNetworkingChannel.com and SearchSystemsChannel.com. As channel
companies resell service and support hardware, software and services from
vendors in a particular IT sector, the key areas of focus tend to parallel
those for the sub-sectors addressed by our IT-focused properties: for
storage, backup, storage virtualization and network storage solutions such
as fibre channel SANs, NAS, IP SANs; for security, intrusion defense,
compliance and identity management; for networking, wireless, network
security and VoIP; for systems, blade servers, consolidation and server
virtualization. Our online properties are supplemented by in-person
regional seminars.
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TechnologyGuide.com
operates a portfolio of Internet content sites that provide product
reviews, price comparisons and user forums for technology products such as
laptops, desktops and smartphones including NotebookReview.com™,
Brighthand.com™ (covering smartphones) and TabletPCReview.com™,
PrinterComparison.com, DesktopReview. com and DigitalCameraReview.com.
These sites represent an ideal complement to our enterprise-IT-focused
TechTarget sites because IT professionals purchase a large volume of
laptops, desktops, smartphones and mobile computing devices. Thus, these
sites offer additional, complementary, in-depth content for our IT
audience, as well as access for our advertisers to the broader audiences
that visit these sites for
information.
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User
Generated Content and Vendor Content
ITKnowledgeExchange.com
is a site devoted entirely to user generated content, and represents our most
concentrated emphasis to date on facilitating peer to peer interaction amongst
our users. The site incorporates a number of important Web 2.0
features, such as the use of tag-based navigation that allows users to
self-classify content, and wiki-based Q&A functionality that allows them to
collaborate with each other to respond to inquiries submitted by other
users.
Bitpipe.com
and KnowledgeStorm.com are sites that we operate and that host vendor-provided
content such as white papers, software downloads, videocasts and
webcasts. Maintaining centralized collections of this vendor content
helps our users conduct pre-purchase research more easily, and allows us to
maximize the ability of this content to be found by search
engines. We provide contextually relevant inclusion of vendor content
from Bitpipe.com and KnowledgeStorm.com on the other sites in our
network.
Media
Offerings
We use
the following online and event offerings to provide IT vendors with numerous
touch points to reach key IT decision makers and to provide IT professionals
with highly specialized content across multiple forms of media. We are
experienced in assisting advertisers to develop custom advertising programs that
maximize branding and ROI. The following is a description of the services we
offer:
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Online.
Our network of
websites forms the core of our content platform. Our websites provide IT
professionals with comprehensive decision support information tailored to
their specific areas of responsibility and purchasing decisions. Through
our websites, we offer a variety of online media offerings to connect IT
vendors to IT professionals. Our lead generation offerings allow IT
vendors to maximize ROI by capturing qualified sales leads from the
distribution and promotion of content to our audience of IT professionals.
Our branding offerings provide IT vendors exposure to targeted audiences
of IT professionals actively researching information related to their
product and services. Our branding offerings include banners and
e-newsletters. Banner advertising can be purchased on specific websites
within our network. We also offer the ability to advertise in
e-newsletters focused on key site sub-topics. These offerings give IT
vendors the ability to increase their brand awareness to highly
specialized IT sectors.
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Our lead
generation offerings include the following:
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White Papers.
White
papers are technical documents created by IT vendors to describe business
or technical problems which are addressed by the vendors’ products or
services. IT vendors pay us to have their white papers distributed to our
users and receive targeted promotion on our relevant websites. Prior to
viewing white papers, our registered members and visitors supply their
corporate contact information and agree to receive further information
from the vendor. The corporate contact and other qualification information
for these leads are supplied to the vendor in real time through our
proprietary lead management
software.
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Webcasts, Podcasts and
Videocasts.
IT vendors pay us to sponsor and host webcasts,
podcasts, and videocasts that bring informational sessions directly to
attendees’ desktops and, in the case of podcasts, directly to their mobile
devices. As is the case with white papers, our users supply their
corporate contact and qualification information to the webcast, podcast or
videocast sponsor when they view or download the content. Sponsorship
includes access to the registrant information and visibility before,
during and after the event.
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Software Package
Comparisons.
Through our 2020software.com website, IT vendors pay
us to post information and specifications about their software packages,
typically organized by application category. Users can request further
information, which may include downloadable trial software from multiple
software providers in sectors such as CRM, accounting software and
business analytics. IT vendors, in turn, receive qualified leads based
upon the users who request their
information.
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Promotional E-mails.
IT
vendors pay us to further target the promotion of their white papers,
webcasts, podcasts or downloadable trial software by including their
content in our periodic e-mail updates to registered users of our
websites. Users who have voluntarily registered on our websites receive an
e-mail update from us when vendor content directly related to their
interests is listed on our sites.
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List Rentals.
We also
offer IT vendors the ability to message relevant registered members on
topics related to their interests. IT vendors can rent our e-mail and
postal lists of registered members using specific criteria such as company
size, geography or job title.
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Contextual Advertising.
Our contextual advertising programs associate IT vendor white papers,
webcasts or other content on a particular topic with our related
sector-specific content. IT vendors have the option to purchase exclusive
sponsorship of content related to their product or
category.
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Third Party Revenue Sharing
Arrangements.
We have arrangements with certain third
parties, including for the licensing of our online content, for the
renting of our database of opted-in email subscribers and for which
advertising from customers of certain third parties is made available to
our website visitors. In each of these arrangements we are paid a share of
the resulting revenue.
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Events.
Our in-person
events bring together IT professionals to hear from industry experts and
to talk to IT vendors about key topics of interest in the sectors we
serve. The majority of our events are free to IT professionals and
sponsored by IT vendors. Attendees are pre-screened based on
event-specific criteria such as sector-specific budget size, company size,
or job title. Our sponsors value the ability to meet with an audience of
qualified IT decision makers who all have been pre-screened to determine a
high level of buying interest and the ability to execute a purchase
decision. We offer three types of events: multi-day conferences, seminars
and custom events. Multi-day conferences provide independent expert
content for our attendees, and allow vendors to purchase exhibit space and
other sponsorship offerings that enable interaction with the attendees. We
also hold single-day seminars on various topics in major cities. These
seminars provide independent content on key sub-topics in the sectors we
serve, are free to qualified attendees and offer multiple vendors the
ability to interact with specific, targeted audiences actively focused on
buying decisions. Our custom events differ from our seminars in that they
are exclusively sponsored by a single IT vendor, and the content is driven
primarily by the sole sponsor.
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Customers
We market
to IT vendors targeting a specific audience within an IT sector or sub-sector.
We maintain multiple points of contact with our customers in order to provide
support throughout a given organization and during critical stages of the sales
cycle. As a result, individual customers often run multiple advertising programs
with us in order to reach discrete portions of our targeted
audience. Our services are generally delivered under short-term
contracts that run for the length of a given advertising program, typically less
than 6 months in length. Since our founding in 1999, we have developed a broad
customer base that now comprises approximately 1,400 active advertisers. During
2008, no one customer represented more than 10% of revenues and the quarterly
renewal rate of our top 100 customers has consistently exceeded
90%.
Sales
and Marketing
Since our
inception in 1999, we have maintained an internal direct sales department that
works closely with existing and potential customers to develop customized
marketing programs that provide highly targeted access to IT professionals. We
organize the sales force by the sector-specific media groups that we operate, as
well as a national accounts team that works with our largest advertisers. We
believe that our sector-specific sales organization and integrated approach to
our service offerings allows our sales personnel to develop a high level of
expertise in the specific sectors they cover, and to create effective marketing
programs tailored to the customer’s specific objectives. As of December 31,
2008, our sales and marketing staff consisted of 206 people. The majority
of our sales staff is located in our Needham, Massachusetts headquarters and our
office in San Francisco, California.
We pursue
a variety of marketing initiatives designed to support our sales activities by
building awareness of our brand to IT vendors, and positioning ourselves as a
‘‘thought leader’’ in ROI-based marketing. These initiatives include purchasing
online and event sponsorships in media vehicles that target the technology
advertising market, as well as engaging in direct communications with the
database of advertising contacts we have built since inception. Examples of our
direct communications include selected direct mail updates on new product
launches and initiatives. We also produce in-person events, videocasts and white
papers for technology marketers where we provide information on the latest best
practices in the field of online marketing.
Additionally
we publish a blog for marketers entitled “My Educated Guess”, which we use as a
thought leadership vehicle to promote our ideas and viewpoints on a myriad of
online subjects.
Online
User Acquisition
Our
primary source of traffic to our websites is through non-paid traffic sources,
such as our existing registered member base and organic search engine traffic.
Organic search engine traffic is also the primary source of new registered
members for our sites. Because our sites focus on specific sectors of the IT
market, our content is highly targeted and is an effective means for attracting
search engine traffic and resulting members. We also make user-focused marketing
expenditures designed to supplement our non-paid traffic and registered members.
We employ a variety of online marketing vehicles such as keyword advertising on
the major search engines and targeted list rentals of opt-in e-mail subscribers
from a variety of targeted media sources.
Technological
Infrastructure
We have
developed an expandable operations infrastructure using hardware and software
systems from established IT vendors to maintain our websites and online
offerings. Our system hardware is co-located at an offsite data center. All of
the critical components of the system are redundant, allowing us to withstand
unexpected component failure and to undergo maintenance and upgrades. Our
infrastructure is scalable, enabling us to make incremental additions that fit
into the existing environment as our system requirements grow based on traffic
and member growth. Our critical data is copied to backup tapes daily, which are
sent to an off-site storage facility. We maintain a quality assurance process to
monitor constantly our servers, processes and network connectivity. We have
implemented these various redundancies and backup systems in order to minimize
the risk associated with damage from fire, power loss, telecommunications
failure, break-ins, computer viruses and other events beyond our control. We
believe that continued development of our technological infrastructure is
critical to our success. We have made, and expect to continue to make,
technological improvements in this infrastructure to improve our ability to
service our users and customers.
Competition
We
compete for potential advertisers with a number of different types of companies,
including: broad-based media outlets, such as television, newspapers and
business periodicals that are designed to reach a wide audience; general purpose
portals and search engines; and offline and online offerings of media companies
that produce content specifically for IT professionals. The market for
advertisers is highly competitive, and in each of the sectors we serve as well
as across the services we offer, our primary competitors are the media companies
that produce content specifically for IT professionals. Our three primary
competitors for advertisers, each of which possess substantial resources to
compete, are United Business Media, International Data Group and Ziff Davis
Enterprise, Inc. In the online market we generally compete on the basis of
target audience, quality and uniqueness of information content, ease of use of
our websites for IT professionals, and the quality and quantity of sales leads
generated for advertisers. Our events generally compete on the basis of the
quality and integrity of our content offerings, the quality of our attendees,
and the ability to provide events that meet the needs of particular sector
segments. As with the competition for advertisers, we compete for the users who
comprise our target audiences primarily with the media companies that produce
content specifically for IT professionals such as United Business Media,
International Data Group and Ziff Davis Enterprise, Inc.
User
Privacy
We gather
in-depth business information about our registered members who elect to provide
us information through one or more of the online registration forms displayed on
our websites, as well as through tracking certain behavioral activity of users
of our sites. We post our privacy policy on our websites so that our users can
access and understand the terms and conditions applicable to the collection and
use of that information. Our privacy policy also discloses the types of
information we gather, how we use it, and how a user can correct or change this
information. Our privacy policy also explains the circumstances under which we
share this information and with whom. Users who register for our websites have
the option of indicating specific areas of interest in which they are willing to
receive offers via e-mail or postal mail; these offers contain content created
either by us or our third-party IT vendor customers. To protect our disclosures
and obligations to our users, we impose constraints that are generally
consistent with our commitments to our user community on the customers to whom
we provide user data. Additionally, when we provide lists to third parties,
including to our advertiser customers, it is under contractual terms that are
generally consistent with our obligations to our users and with applicable laws
and regulations.
Consumer
Protection Regulation
General.
Advertising and
promotional activities presented to visitors on our websites are subject to
federal and state consumer protection laws that regulate unfair and deceptive
practices. We are also subject to various other federal and state consumer
protection laws, including the ones described below.
CAN-SPAM Act.
Effective
January 1, 2004, the Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or the CAN-SPAM Act, became effective. The CAN-SPAM Act
regulates commercial e-mails and provides a right on the part of the recipient
to request the sender to stop sending messages, and establishes penalties for
the sending of e-mail messages that are intended to deceive the recipient as to
source or content. Under the CAN-SPAM Act, senders of commercial e-mails (and
other persons who initiate those e-mails) are required to make sure that those
e-mails do not contain false or misleading transmission information. Commercial
e-mails are required to include a valid return e-mail address and other subject
heading information so that the sender and the Internet location from which the
message has been sent are accurately identified. Recipients must be furnished
with an electronic method of informing the sender of the recipient’s decision
not to receive further commercial e-mails. In addition, the e-mail must include
a postal address of the sender and notice that the e-mail is an advertisement.
The CAN-SPAM Act may apply to the e-newsletters that our websites distribute to
registered members and to some of our other commercial e-mail communications.
However, on May 12, 2008, the FTC issued additional regulations related to the
CAN-SPAM Act, including interpretations of the Act that indicate that
e-newsletters, such as those we distribute to our registered members, would be
exempt from most of the provisions of the CAN-SPAM Act. At this time, we are
applying the CAN-SPAM requirements to these e-mail communications, and believe
that our e-mail practices comply with the requirements of the CAN-SPAM
Act.
Other Consumer Protection
Regulation.
The FTC and many state attorneys general are applying federal
and state consumer protection laws to require that the online collection, use
and dissemination of data, and the presentation of Web site content, comply with
certain standards for notice, choice, security and access. Courts may
also adopt these developing standards. In many cases, the specific
limitations imposed by these standards are subject to interpretation by courts
and other governmental authorities. In addition, on December 20,
2007, the FTC published for public comment proposed principles to address
consumer privacy issues that may arise from so-called “behavioral targeting”
(i.e. the tracking of a user’s online activities in order to deliver advertising
tailored to his or her interests) and to encourage industry self-regulation. On
February 12, 2009, following public comment, the FTC released a Staff Report
with its revised principles for self-regulation of behavioral
targeting. Although the FTC excluded from the principles both
“first-party” behavioral advertising and contextual advertising, with
respect to other types of behavioral targeting that include the storage of more,
and potentially sensitive, data or that collects information outside of the
“traditional Web site context” (such as through a mobile device or by an ISP),
the FTC has stated that it will continue to evaluate self-regulatory programs.
We believe that we are in compliance with the consumer protection standards that
apply to us, but a determination by a state or federal agency or court that any
of our practices do not meet these standards could create liability to us,
result in adverse publicity and affect negatively our businesses. New
interpretations of these standards could also require us to incur additional
costs and restrict our business operations.
In
addition, several foreign governmental bodies, including the European Union, the
United Kingdom and Canada have regulations dealing with the collection and use
of personal information obtained from their citizens, some of which we may be
subject to as a result of the expansion of our business
internationally. We believe that we are in compliance with the
regulations that apply to us, however, such laws may be modified and new laws
may be enacted in the future. Any such developments (or developments stemming
from enactment or modification of other laws) or the failure to anticipate
accurately the application or interpretation of these laws could create
liability to us, result in adverse publicity and affect negatively our
businesses.
Intellectual
Property
We regard
our copyrights, domain names, trademarks, trade secrets and similar intellectual
property as critical to our success, and rely upon copyright, trademark and
trade secrets laws, as well as confidentiality agreements with our employees and
others, and protective contractual provisions to protect the proprietary
technologies and content that we have developed. We pursue the registration of
our material trademarks in the United States and elsewhere. Currently, our
TechTarget trademark and logo, as well as the KnowledgeStorm and certain other
marks and logos are registered federally in the United States and selected
foreign jurisdictions and we have applied for U.S. and foreign registrations for
various other marks. In addition, we have registered over 1000 domain names that
are or may be relevant to our business, including ‘‘www.techtarget.com,’’
“www.knowledgestorm.com,” ‘‘www.bitpipe.com,’’ “www.technologyguide.com” and
those leveraging the ‘‘search’’ prefix used in the branding of many of our
websites. We also incorporate a number of third-party software products into our
technology platform pursuant to relevant licenses. Some of this software is
proprietary and some is open source. We use third-party software to maintain and
enhance, among other things, the content generation and delivery, and support
our technology infrastructure. We are not substantially dependent upon these
third-party software licenses and we believe the licensed software is generally
replaceable, by either licensing or purchasing similar software from another
vendor or building the software functions ourselves.
Employees
As of
December 31, 2008, we had approximately 527 employees. Our current employees are
not represented by a labor union and are not the subject of a collective
bargaining agreement. We believe that we have a good relationship with our
employees.
Item 1A.
Risk Factors
The
following discussion highlights certain risks which may affect future operating
results and share price. These are the risks and uncertainties we believe are
most important for our existing and potential stockholders to consider.
Additional risks and uncertainties not presently known to us, which we currently
deem immaterial or which are similar to those faced by other companies in our
industry or business in general, may also impair our business operations. If any
of the following risks or uncertainties actually occurs, our business, financial
condition and operating results would likely suffer.
Risks
Related to Our Business
The
current economic recession and declining general economic, business, or industry
conditions may continue to adversely affect the business of the Company, as well
as our ability to forecast financial results.
The
domestic and international economies continue to experience a significant
recession. This recession has been magnified by the tightening of the
availability and cost of credit, inflation, volatile energy costs, geopolitical
issues, a declining U.S. real estate market, decreased business and consumer
confidence and increased unemployment. These and other macro-economic conditions
have contributed to increased volatility and diminished expectations for the
global economy and expectations of future global economic growth. If the
economic climate in the U.S. and abroad does not improve or continues to
deteriorate, our customers or potential customers could reduce or delay their
purchases of our offerings, which would adversely impact our revenues and our
ability to sell our offerings, collect customer receivables and, ultimately, our
profitability. Additionally, future economic conditions currently have an
increased degree of inherent uncertainty. As a result, it is more difficult to
estimate the level of growth or contraction for the economy as a whole, as well
as for the various sectors of the economy, such as the IT market. Because all
components of our budgeting and forecasting are dependent upon estimates of
growth or contraction in the IT market and demand for our offerings, the
prevailing economic uncertainties render accurate estimates of future income and
expenditures very difficult to make. We cannot predict the effect or
duration of this economic slowdown or the timing or strength of a subsequent
economic recovery, worldwide or in the IT industry. Further adverse changes may
occur as a result of soft global, domestic or regional economic conditions,
wavering consumer confidence, unemployment, declines in stock markets,
contraction of credit availability, or other factors affecting economic
conditions generally. These changes may negatively affect the sales of our
offerings, increase exposure to losses from bad debts, increase the cost and
decrease the availability of financing, or increase the risk of loss on
investments.
Financial
market instability and continued uncertain conditions in the United States and
global economies have in the past and could in the future adversely affect our
revenues and operating results.
We
believe that the instability affecting the financial markets and a further
deterioration in the current business climate within the United States and/or
other geographic regions in which we do business have had, and could continue to
have, a negative impact on our revenue and operating results. Because
all of our clients are in the IT industry, the success of our business is
intrinsically linked to the health, and subject to market conditions, of the IT
industry. Regional, domestic and global economic weakness and uncertainty, and
the limited access to sources of traditional capital and/or debt have resulted
in some companies reassessing their spending, including for technology projects.
In turn, many of our customers have reassessed and will, for the foreseeable
future, be likely to continue to scrutinize their spending on advertising
campaigns. Prior market downturns in the IT industry have resulted
in declines in advertising spending, which can cause longer sales
cycles, deferral or delay of purchases by IT vendors and generally reduced
expenditures for advertising and related services. Our revenues and
profitability depend on the overall demand for advertising services from our
customers. We believe that demand for our offerings has been in the past, and
could be in the future, disproportionately affected by fluctuations,
disruptions, instability or downturns in the economy and the IT industry, which
may cause customers and potential customers to exit the industry or delay,
cancel or reduce any planned expenditures for our advertising offerings.
Furthermore, competitors may respond to market conditions by lowering prices and
attempting to lure away our customers and prospects to lower cost
offerings. In addition, a slowdown in the formation of new IT
companies, or a decline in the growth of existing IT companies, would cause a
decline in demand for our offerings.
Because
we depend on our ability to generate revenues from the sale of advertising,
fluctuations in advertising spending could have an adverse effect on our
operating results.
The
primary source of our revenues is the sale of advertising to our customers. We
believe that advertising spending on the Internet, as in traditional media,
fluctuates significantly as a result of a variety of factors, many of which are
outside of our control. These factors include:
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variations
in expenditures by advertisers due to budgetary
constraints;
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the
cancellation or delay of projects by
advertisers;
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the
cyclical and discretionary nature of advertising
spending;
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general
economic conditions, as well as economic conditions specific to the
Internet and online and offline media industry;
and
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the
occurrence of extraordinary events, such as natural disasters,
international or domestic terrorist attacks or armed
conflict.
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Because
all of our customers are in the IT industry, our revenues are subject to
characteristics of the IT industry that can affect advertising spending by IT
vendors.
The IT
industry is characterized by, among other things, volatile quarterly results,
uneven sales patterns, short product life cycles, rapid technological
developments and frequent new product introductions and enhancements. As a
result, our customers’ advertising budgets, which are often viewed as
discretionary expenditures, may increase or decrease significantly over a short
period of time. In addition, the advertising budgets of our customers may
fluctuate as a result of:
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weakness
in corporate IT spending resulting in a decline in IT advertising
spending;
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increased
concentration in the IT industry as a result of consolidations, leading to
a decrease in the number of current and prospective customers, as well as
an overall reduction in
advertising;
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spending
by combined entities following such
consolidations;
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the
timing of advertising campaigns around new product introductions and
initiatives; and
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economic
conditions specific to the IT
industry.
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Our
quarterly operating results are subject to fluctuations, and these fluctuations
may adversely affect the trading price of our common stock.
We have
experienced and expect to experience fluctuations in our quarterly revenues and
operating results. Our quarterly revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, many of which are outside of
our control. In addition to the factors described elsewhere in this ‘‘Risk
Factors’’ section, these factors include:
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the
spending priorities and advertising budget cycles of specific
advertisers;
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the
addition or loss of advertisers;
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the
addition of new sites and services by us or our competitors;
and
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seasonal
fluctuations in advertising
spending.
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Due to
such risks, you should not rely on quarter-to-quarter comparisons of our results
of operations as an indicator of our future results. Due to the foregoing
factors, it is also possible that our results of operations in one or more
quarters may fall below the expectations of investors and/or securities
analysts. In such an event, the trading price of our common stock is likely to
decline.
Our
revenues are primarily derived from short-term contracts that may not be
renewed.
The
primary source of our revenues is the sale of advertising to our customers, and
we expect that this will continue to be the case for the foreseeable future. Our
advertising contracts are primarily short-term, typically less than 6 months,
and are generally subject to termination without substantial penalty by the
customer at any time, generally with minimal notice requirements. We cannot
assure you that our current customers will fulfill their obligations under their
existing contracts, continue to participate in our existing programs beyond the
terms of their existing contracts or enter into any additional contracts for new
programs that we offer. If a significant number of advertisers or a few large
advertisers decided not to continue advertising on our websites or conducting or
sponsoring events, we could experience a rapid decline in our revenues over a
relatively short period of time.
If
we are unable to deliver content and services that attract and retain users, our
ability to attract advertisers may be affected, which could in turn have an
adverse affect on our revenues.
Our
future success depends on our ability to deliver original and compelling content
and services to attract and retain users. Our user base is comprised of
corporate IT professionals who demand specialized websites and events tailored
to the sectors of the IT products for which they are responsible and that they
purchase. Our content and services may not be attractive to a sufficient number
of users to attract advertisers and generate revenues consistent with our
estimates. We also may not develop new content or services in a timely or
cost-effective manner. Our ability to develop and produce this specialized
content successfully is subject to numerous uncertainties, including our ability
to:
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anticipate
and respond successfully to rapidly changing IT developments and
preferences to ensure that our content remains timely and interesting to
our users;
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attract
and retain qualified editors, writers and technical
personnel;
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fund
new development for our programs and other
offerings;
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successfully
expand our content offerings into new platform and delivery mechanisms;
and
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promote
and strengthen the brands of our websites and our
name.
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If we are
not successful in maintaining and growing our user base, our ability to retain
and attract advertisers may be affected, which could in turn have an adverse
affect on our revenues.
Our
inability to sustain our historical advertising rates could adversely affect our
operating results.
The
market for advertising has fluctuated over the past few years. If we are unable
to maintain historical pricing levels for advertising on our websites and for
sponsorships at our events, our revenues could be adversely
affected.
Competition
for advertisers is intense, and we may not compete successfully which could
result in a material reduction in our market share, the number of our
advertisers and our revenues.
We
compete for potential advertisers with a number of different types of offerings
and companies, including: broad-based media outlets, such as television,
newspapers and business periodicals that are designed to reach a wide audience;
general purpose portals and search engines; and offline and online offerings of
media companies that produce content specifically for IT professionals,
including International Data Group, United Business Media and Ziff Davis
Enterprise. Advertisers may choose our competitors over us not only because they
prefer our competitors’ online and events offerings to ours, but also because
advertisers prefer to utilize other forms of advertising offered by our
competitors that are not offered by us. Although less than 5% of our revenues
for the year ended December 31, 2008 were derived from advertisers located
outside of North America, as we continue to expand internationally, as we have
in 2008 by operating our own websites in the United Kingdom, we expect to
compete with many of the competitors mentioned above, as well as with
established media companies based in particular countries or geographical
regions. Many of these foreign-based media companies will be larger than we are
and will have established relationships with local advertisers. Many of our
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we have. As a result, we could lose market
share to our competitors in one or more of our businesses and our revenues could
decline.
We
depend upon Internet search engines to attract a significant portion of the
users who visit our websites, and if we were listed less prominently in search
result listings, our business and operating results would be
harmed.
We derive
a significant portion of our website traffic from users who search for IT
purchasing content through Internet search engines, such as Google, MSN and
Yahoo! A critical factor in attracting users to our websites is whether we are
prominently displayed in response to an Internet search relating to IT content.
Search result listings are determined and displayed in accordance with a set of
formulas or algorithms developed by the particular Internet search engine. The
algorithms determine the order of the listing of results in response to the
user’s Internet search. From time to time, search engines revise these
algorithms. In some instances, these modifications may cause our websites to be
listed less prominently in unpaid search results, which will result in decreased
traffic from search engine users to our websites. Our websites may also become
listed less prominently in unpaid search results for other reasons, such as
search engine technical difficulties, search engine technical changes and
changes we make to our websites. In addition, search engines have deemed the
practices of some companies to be inconsistent with search engine guidelines and
have decided not to list their websites in search result listings at all. If we
are listed less prominently or not at all in search result listings for any
reason, the traffic to our websites likely will decline, which could harm our
operating results. If we decide to attempt to replace this traffic, we may be
required to increase our marketing expenditures, which also could harm our
operating results.
We
may not innovate at a successful pace, which could harm our operating
results.
Our
industry is rapidly adopting new technologies and standards to create and
satisfy the demands of users and advertisers. It is critical that we continue to
innovate by anticipating and adapting to these changes to ensure that our
content-delivery platforms and services remain effective and interesting to our
users, advertisers and partners. In addition, we may discover that we must make
significant expenditures to achieve these goals. If we fail to accomplish these
goals, we may lose users and the advertisers that seek to reach those users,
which could harm our operating results.
We
may be unable to continue to build awareness of our brands, which could
negatively impact our business and cause our revenues to decline.
Building
and maintaining recognition of our brands is critical to attracting and
expanding our online user base and attendance at our events. We intend to
continue to build existing brands and introduce new brands that will resonate
with our targeted audiences, but we may not be successful. In order to promote
these brands, in response to competitive pressures or otherwise, we may find it
necessary to increase our marketing budget, hire additional marketing and public
relations personnel or otherwise increase our financial commitment to creating
and maintaining brand loyalty among our clients. If we fail to promote and
maintain our brands effectively, or incur excessive expenses attempting to
promote and maintain our brands, our business and financial results may
suffer.
Given
the tenure and experience of our Chief Executive Officer and President, and
their guiding roles in developing our business and growth strategy since our
inception, our growth may be inhibited or our operations may be impaired if we
were to lose the services of either of them.
Our
growth and success depends to a significant extent on our ability to retain Greg
Strakosch, our Chief Executive Officer, and Don Hawk, our President, who founded
the company and have developed, engineered and stewarded the growth and
operation of our business since its inception. The loss of the services of
either of these persons could inhibit our growth or impair our operations and
cause our stock price to decline.
We
may not be able to attract, hire and retain qualified personnel
cost-effectively, which could impact the quality of our content and services and
the effectiveness and efficiency of our management, resulting in increased costs
and losses in revenues.
Our
success depends on our ability to attract, hire and retain at commercially
reasonable rates qualified technical editorial, sales and marketing, customer
support, financial and accounting, legal and other managerial personnel. The
competition for personnel in the industries in which we operate is intense. Our
personnel may terminate their employment at any time for any reason. Loss of
personnel may also result in increased costs for replacement hiring and
training. If we fail to attract and hire new personnel or retain and motivate
our current personnel, we may not be able to operate our businesses effectively
or efficiently, serve our customers properly or maintain the quality of our
content and services. In particular, our success depends in significant part on
maintaining and growing an effective sales force. This dependence involves a
number of challenges, including:
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the
need to hire, integrate, motivate and retain additional sales and sales
support personnel;
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the
need to train new sales personnel, many of whom lack sales experience when
they are hired; and
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competition
from other companies in hiring and retaining sales
personnel.
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We
may fail to identify or successfully acquire and integrate businesses, services
and technologies that would otherwise enhance our service offerings to our
customers and users, and as a result our revenues may decline or fail to
grow.
We have
acquired, and in the future may acquire or invest in, complementary businesses,
services or technologies. Acquisitions and investments involve numerous risks
including:
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difficulty
in assimilating the operations and personnel of acquired
businesses;
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potential
disruption of our ongoing businesses and distraction of our management and
the management of acquired
companies;
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difficulty
in incorporating acquired technology and rights into our offerings and
services;
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unanticipated
expenses related to technology and other
integration;
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potential
failure to achieve additional sales and enhance our customer bases through
cross marketing of the combined company’s services to new and existing
customers;
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potential
litigation resulting from our business combinations or acquisition
activities; and
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potential
unknown liabilities associated with the acquired
businesses.
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Our
inability to integrate any acquired business successfully, or the failure to
achieve any expected synergies, could result in increased expenses and a
reduction in expected revenues or revenue growth. As a result, our stock price
could fluctuate or decline. In addition, we cannot assure you that we will be
successful in expanding into complementary sectors in the future, which could
harm our business, operating results and financial condition.
The
costs associated with potential acquisitions or strategic partnerships could
dilute your investment or adversely affect our results of
operations.
In order
to finance acquisitions, investments or strategic partnerships, we may use
equity securities, debt, cash, or a combination of the foregoing. Any issuance
of equity securities or securities convertible into equity may result in
substantial dilution to our existing stockholders, reduce the market price of
our common stock, or both. Any debt financing is likely to have financial and
other covenants that could have an adverse impact on our business if we do not
achieve our projected results. In addition, the related increases in expenses
could adversely affect our results of operations.
We
have limited protection of our intellectual property and could be subject to
infringement claims that may result in costly litigation, the payment of damages
or the need to revise the way we conduct our business.
Our
success and ability to compete are dependent in part on the strength of our
proprietary rights, on the goodwill associated with our trademarks, trade names
and service marks, and on our ability to use U.S. and foreign laws to protect
them. Our intellectual property includes, among other things, our original
content, our editorial features, logos, brands, domain names, the technology
that we use to deliver our services, the various databases of information that
we maintain and make available by license, and the appearance of our websites.
We claim common law protection on certain names and marks that we have used in
connection with our business activities. Although we have applied for and
obtained registration of many of our marks in countries outside of the United
States where we do business, we have not been able to obtain registration of all
of our key marks in such jurisdictions, in some cases due to prior registration
or use by third parties employing similar marks. In addition to U.S. and foreign
laws, we rely on confidentiality agreements with our employees and third parties
and protective contractual provisions to safeguard our intellectual property.
Policing our intellectual property rights worldwide is a difficult task, and we
may not be able to identify infringing users. We cannot be certain
that third party licensees of our content will always take actions to protect
the value of our proprietary rights and reputation. Intellectual property laws
and our agreements may not be sufficient to prevent others from copying or
otherwise obtaining and using our content or technologies. In addition, others
may develop non-infringing technologies that are similar or superior to ours. In
seeking to protect our marks, copyrights, domain names and other proprietary
rights, or in defending ourselves against claims of infringement that may be
with or without merit, we could face costly litigation and the diversion of our
management’s attention and resources. These claims could result in the need to
develop alternative trademarks, content or technology or to enter into costly
royalty or licensing agreements, which could have a material adverse effect on
our business, results of operations and financial condition. We may not have, in
all cases, conducted formal evaluations to confirm that our technology and
services do not or will not infringe upon the intellectual property rights of
third parties. As a result, we cannot be certain that our technology, offerings,
services or online content do not or will not infringe upon the intellectual
property rights of third parties. If we were found to have infringed on a third
party’s intellectual property rights, the value of our brands and our business
reputation could be impaired, and our business could suffer.
Our
business could be harmed if we are unable to correspond with existing and
potential users by e-mail.
We use
e-mail as a significant means of communicating with our existing users. The laws
and regulations governing the use of e-mail for marketing purposes continue to
evolve, and the growth and development of the market for commerce over the
Internet may lead to the adoption of additional legislation and/or changes to
existing laws. If new laws or regulations are adopted, or existing laws and
regulations are interpreted and/or amended or modified, to impose additional
restrictions on our ability to send e-mail to our users or potential users, we
may not be able to communicate with them in a cost-effective manner. In addition
to legal restrictions on the use of e-mail, Internet service providers and
others typically attempt to block the transmission of unsolicited e-mail,
commonly known as ‘‘spam.’’ If an Internet service provider or software program
identifies e-mail from us as ‘‘spam,’’ we could be placed on a restricted list
that would block our e-mail to users or potential users who maintain e-mail
accounts with these Internet service providers or who use these software
programs. If we are unable to communicate by e-mail with our users and potential
users as a result of legislation, blockage or otherwise, our business, operating
results and financial condition could be harmed.
Changes
in laws and standards relating to data collection and use practices and the
privacy of Internet users and other data could impair our efforts to maintain
and grow our audience and thereby decrease our advertising revenue.
We
collect information from our users who register on our websites or for services,
or respond to surveys. Subject to each user’s permission (or right to decline,
which we refer to as an ‘‘opt-out’’), we may use this information to inform our
users of services that they have indicated may be of interest to them. We may
also share this information with our advertising clients for registered members
who have elected to receive additional promotional materials and have granted us
permission to share their information with third parties. The U.S. federal and
various state governments have adopted or proposed limitations on the
collection, distribution and use of personal information of Internet users.
Several foreign jurisdictions, including the European Union, the United Kingdom
and Canada, have adopted legislation (including directives or regulations) that
may increase the requirements for collecting, or limit our collection and use
of, information from Internet users in these jurisdictions. In addition, growing
public concern about privacy, data security and the collection, distribution and
use of personal information has led to self-regulation of these practices by the
Internet advertising and direct marketing industry, and to increased federal and
state regulation. Because many of the proposed laws or regulations are in their
early stages, we cannot yet determine the impact these regulations may have on
our business over time. Although, to date, our efforts to comply with applicable
federal and state laws and regulations have not hurt our business, additional,
more burdensome laws or regulations, including consumer privacy and data
security laws, could be enacted or applied to us or our customers. Such laws or
regulations could impair our ability to collect user information that helps us
to provide more targeted advertising to our users, thereby impairing our ability
to maintain and grow our audience and maximize advertising revenue from our
advertising clients. Additionally, the US Federal Trade Commission (the “FTC”)
and many state attorneys general are applying federal and state consumer
protection laws to require that the online collection, use and dissemination of
data, and the presentation of Web site content, comply with certain standards
for notice, choice, security and access. Courts may also adopt these
developing standards. In many cases, the specific limitations imposed
by these standards are subject to interpretation by courts and other
governmental authorities. In addition, on December 20, 2007, the FTC
published for public comment proposed principles to address consumer privacy
issues that may arise from so-called “behavioral targeting” (i.e. the tracking
of a user’s online activities in order to deliver advertising tailored to his or
her interests) and to encourage industry self-regulation. On February 12, 2009,
following public comment, the FTC released a Staff Report with its revised
principles for self-regulation of behavioral targeting. Although the FTC
currently appears to be less concerned with the “first-party” behavioral and
contextual advertising than other types of behavioral targeting that include the
storage of more, and potentially sensitive, data or that collects information
outside of the “traditional Web site context” (such as through a mobile device
or by an ISP), the FTC has stated that it will continue to evaluate
self-regulatory programs. In the event of additional legislation in this area,
our ability to effectively target our users may be limited. We believe that we
are in compliance with the consumer protection standards that apply to us, but a
determination by a state or federal agency or court that any of our practices do
not meet these standards could create liability to us, result in adverse
publicity and affect negatively our businesses. New interpretations
of these standards could also require us to incur additional costs and restrict
our business operations. In addition, several foreign governmental
bodies, including the European Union, the United Kingdom and Canada have
regulations dealing with the collection and use of personal information obtained
from their citizens, some of which we may be subject to as a result of the
expansion of our business internationally. We believe that we are in compliance
with the regulations that apply to us, however, such laws may be modified and
new laws may be enacted in the future. Any such developments (or developments
stemming from enactment or modification of other laws) or the failure to
anticipate accurately the application or interpretation of these laws could
create liability to us, result in adverse publicity and affect negatively our
businesses.
There
are a number of risks associated with expansion of our business internationally
that could adversely affect our business.
We have
over 11 license and other arrangements in various countries and maintain direct
presences in the United Kingdom and India. In addition to facing many of the
same challenges we face domestically, there are additional risks and costs
inherent in expanding our business in international markets,
including:
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limitations
on our activities in foreign countries where we have granted rights to
existing business partners;
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the
adaptation of our websites and advertising programs to meet local needs
and to comply with local legal regulatory
requirements;
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varied,
unfamiliar and unclear legal and regulatory restrictions, as well as
unforeseen changes in, legal and regulatory
requirements;
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more
restrictive data protection regulation, which may vary by
country;
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difficulties
in staffing and managing multinational
operations;
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difficulties
in finding appropriate foreign licensees or joint venture
partners;
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distance,
language and cultural differences in doing business with foreign
entities;
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foreign
political and economic uncertainty;
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less
extensive adoption of the Internet as an information source and increased
restriction on the content of
websites;
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currency
exchange-rate fluctuations; and
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potential
adverse tax requirements.
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As a
result, we may face difficulties and unforeseen expenses in expanding our
business internationally and even if we attempt to do so, we may be
unsuccessful, which could harm our business, operating results and financial
condition.
Changes
in regulations could adversely affect our business and results of
operations.
It is
possible that new laws and regulations or new interpretations of existing laws
and regulations in the United States and elsewhere will be adopted covering
issues affecting our business, including:
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privacy,
data security and use of personally identifiable
information;
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copyrights,
trademarks and domain names; and
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marketing
practices, such as e-mail or direct
marketing.
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Increased
government regulation, or the application of existing laws to online activities,
could:
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decrease
the growth rate of the Internet;
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increase
our operating expenses; or
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expose
us to significant liabilities.
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Furthermore,
the relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is still evolving. Therefore, we might
be unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary rights. Any
impairment in the value of these important assets could cause our stock price to
decline. We cannot be sure what effect any future material noncompliance by us
with these laws and regulations or any material changes in these laws and
regulations could have on our business, operating results and financial
condition.
As
a creator and a distributor of content over the Internet, we face potential
liability for legal claims based on the nature and content of the materials that
we create or distribute.
Due to
the nature of content published on our online network, including content placed
on our online network by third parties, and as a creator and distributor of
original content and research, we face potential liability based on a variety of
theories, including defamation, negligence, copyright or trademark infringement,
or other legal theories based on the nature, creation or distribution of this
information. Such claims may also include, among others, claims that
by providing hypertext links to websites operated by third parties, we are
liable for wrongful actions by those third parties through these websites.
Similar claims have been brought, and sometimes successfully asserted, against
online services. It is also possible that our users could make claims against us
for losses incurred in reliance on information provided on our networks. In
addition, we could be exposed to liability in connection with material posted to
our Internet sites by third parties. For example, many of our sites offer users
an opportunity to post unmoderated comments and opinions. Some of this
user-generated content may infringe on third party intellectual property rights
or privacy rights or may otherwise be subject to challenge under copyright laws.
Such claims, whether brought in the United States or abroad, could divert
management time and attention away from our business and result in significant
cost to investigate and defend, regardless of the merit of these claims. In
addition, if we become subject to these types of claims and are not successful
in our defense, we may be forced to pay substantial damages. Our insurance may
not adequately protect us against these claims. The filing of these claims may
also damage our reputation as a high quality provider of unbiased, timely
analysis and result in client cancellations or overall decreased demand for our
services.
We
may be liable if third parties or our employees misappropriate our users’
confidential business information.
We
currently retain confidential information relating to our users in secure
database servers. Although we observe security measures throughout our
operations, we cannot assure you that we will be able to prevent individuals
from gaining unauthorized access to these database servers. Any unauthorized
access to our servers, or abuse by our employees, could result in the theft of
confidential user information. If confidential information is compromised, we
could lose customers or become subject to liability or litigation and our
reputation could be harmed, any of which could materially and adversely affect
our business and results of operations.
Our
business, which is dependent on centrally located communications and computer
hardware systems, is vulnerable to natural disasters, telecommunication and
systems failures, terrorism and other problems, which could reduce traffic on
our networks or websites and result in decreased capacity for advertising
space.
Our
operations are dependent on our communications systems and computer hardware,
all of which are located in data centers operated by third
parties.
These systems could be damaged by fire, floods,
earthquakes, power loss, telecommunication failures and similar events. Our
insurance policies have limited coverage levels for loss or damages in these
events and may not adequately compensate us for any losses that may occur. In
addition, terrorist acts or acts of war may cause harm to our employees or
damage our facilities, our clients, our clients’ customers and vendors, or cause
us to postpone or cancel, or result in dramatically reduced attendance at, our
events, which could adversely impact our revenues, costs and expenses and
financial position. We are predominantly uninsured for losses and interruptions
to our systems or cancellations of events caused by terrorist acts and acts of
war.
Our
systems may be subject to slower response times and system disruptions that
could adversely affect our revenues.
Our
ability to attract and maintain relationships with users, advertisers and
strategic partners will depend on the satisfactory performance, reliability and
availability of our Internet infrastructure. Our Internet advertising revenues
relate directly to the number of advertisements and other marketing
opportunities delivered to our users. System interruptions or delays that result
in the unavailability of Internet sites or slower response times for users would
reduce the number of advertising impressions and leads delivered. This could
reduce our revenues as the attractiveness of our sites to users and advertisers
decreases. Our insurance policies provide only limited coverage for service
interruptions and may not adequately compensate us for any losses that may occur
due to any failures or interruptions in our systems. Further, we do not have
multiple site capacity for all of our services in the event of any such
occurrence.
We may
experience service disruptions for the following reasons:
|
·
|
occasional
scheduled maintenance;
|
|
·
|
volumes
of visits to our websites that exceed our infrastructure’s capacity;
and
|
|
·
|
natural
disasters, telecommunications failures, power failures, other system
failures, maintenance, viruses, hacking or other events outside of our
control.
|
In
addition, our networks and websites must accommodate a high volume of traffic
and deliver frequently updated information. They have experienced in the past,
and may experience in the future, slower response times or decreased traffic for
a variety of reasons. There have been instances where our online networks as a
whole, or our websites individually, have been inaccessible. Also, slower
response times, which have occurred more frequently, can result from general
Internet problems, routing and equipment problems involving third party Internet
access providers, problems with third party advertising servers, increased
traffic to our servers, viruses and other security breaches, many of which
problems are out of our control. In addition, our users depend on Internet
service providers and online service providers for access to our online networks
or websites. Those providers have experienced outages and delays in the past,
and may experience outages or delays in the future. Moreover, our Internet
infrastructure might not be able to support continued growth of our online
networks or websites. Any of these problems could result in less traffic to our
networks or websites or harm the perception of our networks or websites as
reliable sources of information. Less traffic on our networks and websites or
periodic interruptions in service could have the effect of reducing demand for
advertising on our networks or websites, thereby reducing our advertising
revenues.
Our
networks may be vulnerable to unauthorized persons accessing our systems,
viruses and other disruptions, which could result in the theft of our
proprietary information and/or disrupt our Internet operations making our
websites less attractive and reliable for our users and
advertisers.
Internet
usage could decline if any well-publicized compromise of security occurs.
‘‘Hacking’’ involves efforts to gain unauthorized access to information or
systems or to cause intentional malfunctions or loss or corruption of data,
software, hardware or other computer equipment. Hackers, if successful, could
misappropriate proprietary information or cause disruptions in our service. We
may be required to expend capital and other resources to protect our websites
against hackers. Our online networks could also be affected by computer viruses
or other similar disruptive problems, and we could inadvertently transmit
viruses across our networks to our users or other third parties. Any of these
occurrences could harm our business or give rise to a cause of action against
us. Providing unimpeded access to our online networks is critical to servicing
our customers and providing superior customer service. Our inability to provide
continuous access to our online networks could cause some of our customers to
discontinue purchasing advertising programs and services and/or prevent or deter
our users from accessing our networks. Our activities and the activities of
third party contractors involve the storage and transmission of proprietary and
personal information. Accordingly, security breaches could expose us to a risk
of loss or litigation and possible liability. We cannot assure that contractual
provisions attempting to limit our liability in these areas will be successful
or enforceable, or that other parties will accept such contractual provisions as
part of our agreements.
We
will continue to incur significant costs as a result of operating as a public
company, and our management will be required to devote substantial time to new
compliance initiatives.
We will
continue to incur significant legal, accounting and other expenses as a public
company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the SEC and the Nasdaq Stock Market, or Nasdaq, has imposed
various new requirements on public companies, including requiring changes in
corporate governance practices. Our management and other personnel will need to
continue to devote a substantial amount of time to these compliance initiatives.
Moreover, these rules and regulations have increased our legal and financial
compliance costs and will make some activities more time-consuming and costly.
For example, these rules and regulations may require us to incur substantial
costs to maintain the same or similar director and officer liability insurance
coverage.
In
addition, the Sarbanes-Oxley Act requires, among other things, that we maintain
effective internal controls for financial reporting and disclosure controls and
procedures. In particular, although we have completed our system and process
evaluation and testing of our internal controls over financial reporting to
allow management and our independent registered public accounting firm to report
on the effectiveness of our internal controls over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act, ongoing compliance with
Section 404 requires that we continue to incur substantial accounting expense
and expend significant management efforts. We currently do not have an internal
audit group, and have engaged outside accounting and advisory services with
appropriate public company experience and technical accounting knowledge to
assist with these ongoing compliance efforts. If we or our independent
registered public accounting firm identifies future deficiencies in our internal
controls over financial reporting that are deemed to be material weaknesses, as
was the case for the year-end audit of 2008, the market price of our stock could
decline and we could be subject to sanctions or investigations by Nasdaq, the
SEC or other regulatory authorities, which would require additional financial
and management resources.
If
we do not maintain proper and effective disclosure controls and procedures and
internal controls over financial reporting, our ability to produce accurate
financial statements could be impaired, which could adversely affect our
operating results, our ability to operate our business and investors’ views of
us.
Ensuring
that we have adequate disclosure controls and procedures, including internal
financial and accounting controls and procedures, in place to help ensure that
we can produce accurate financial statements on a timely basis is a costly and
time-consuming effort that needs to be re-evaluated frequently. On an ongoing
basis, both we and our independent auditors will be documenting and testing our
internal controls and procedures in connection with the requirements of Section
404 of the Sarbanes-Oxley Act and, as part of that documentation and testing,
identifying areas for further attention and improvement. Implementing any
appropriate changes to our internal controls may entail substantial costs in
order to modify our existing accounting systems, take a significant period of
time to complete and distract our officers, directors and employees from the
operation of our business. These changes may not, however, be effective in
maintaining the adequacy of our internal controls, and any failure to maintain
that adequacy, or consequent inability to produce accurate financial statements
on a timely basis, could increase our operating costs and could materially
impair our ability to operate our business. In addition, investors’ perceptions
that our internal controls are inadequate or that we are unable to produce
accurate financial statements may seriously affect our stock price. Due to the
internal financial and accounting controls and procedures deficiencies detailed
elsewhere herein, we have also concluded that our disclosure controls and
procedures are inadequate. Also, as detailed elsewhere herein, we have
undertaken remediation efforts to address the deficiencies in our internal
financial and accounting controls and procedures and expect that as a result of
implementing those remedial steps that are disclosure controls will be
adequate.
Our
ability to raise capital in the future may be limited.
Our
business and operations may consume resources faster than we anticipate. In the
future, we may need to raise additional funds to expand our sales and marketing
and service development efforts or to make acquisitions. Additional financing
may not be available on favorable terms, if at all. If adequate funds are not
available on acceptable terms, we may be unable to fund the expansion of our
sales and marketing and research and development efforts or take advantage of
acquisition or other opportunities, which could seriously harm our business and
operating results. If we incur debt, the debt holders would have rights senior
to common stockholders to make claims on our assets and the terms of any debt
could restrict our operations, including our ability to pay dividends on our
common stock. Furthermore, if we issue additional equity securities,
stockholders will experience dilution, and the new equity securities could have
rights senior to those of our common stock. Because our decision to issue
securities in any future offering will depend on market conditions and other
factors beyond our control, we cannot predict or estimate the amount, timing or
nature of our future offerings. Thus, our stockholders bear the risk of our
future securities offerings reducing the market price of our common stock and
diluting their interest.
The
impairment of a significant amount of goodwill and intangible assets on our
balance sheet could result in a decrease in earnings and, as a result, our stock
price could decline.
In the
course of our operating history, we have acquired assets and businesses. Some of
our acquisitions have resulted in the recording of a significant amount of
goodwill and/or intangible assets on our financial statements. We had
approximately $106 million of goodwill and net intangible assets as of December
31, 2008. The goodwill and/or intangible assets were recorded because the fair
value of the net tangible assets acquired was less than the purchase price. We
may not realize the full value of the goodwill and/or intangible assets. As
such, we evaluate goodwill and other intangible assets with indefinite useful
lives for impairment on an annual basis or more frequently if events or
circumstances suggest that the asset may be impaired. We evaluate other
intangible assets subject to amortization whenever events or changes in
circumstances indicate that the carrying amount of those assets may not be
recoverable. If goodwill or other intangible assets are determined to be
impaired, we will write off the unrecoverable portion as a charge to our
earnings. If we acquire new assets and businesses in the future, as we intend to
do, we may record additional goodwill and/or intangible assets. The possible
write-off of the goodwill and/or intangible assets could negatively impact our
future earnings and, as a result, the market price of our common stock could
decline.
We
will record substantial expenses related to our issuance of stock-based
compensation which may have a material negative impact on our operating results
for the foreseeable future.
Effective
January 1, 2006, we adopted the Statement of Financial Accounting Standards, or
SFAS, No. 123(R),
Accounting
for Stock-Based Compensation,
as amended by SFAS No. 148,
Accounting for Stock-
Based Compensation—Transition and
Disclosure
for stock-based employee compensation. Our stock-based
compensation expenses are expected to be significant in future periods, which
will have an adverse impact on our operating income and net income. SFAS No.
123(R) requires the use of highly subjective assumptions, including the option’s
expected life and the price volatility of the underlying stock. Changes in the
subjective input assumptions can materially affect the amount of our stock-based
compensation expense. In addition, an increase in the competitiveness of the
market for qualified employees could result in an increased use of stock-based
compensation awards, which in turn would result in increased stock-based
compensation expense in future periods.
The
trading value of our common stock may be volatile and decline substantially;
Current Nasdaq non-Compliance.
The
trading price of our common stock is likely to be volatile and could be subject
to wide fluctuations in response to various factors, some of which are beyond
our control. In addition to the factors discussed in this ‘‘Risk Factors’’
section and elsewhere in this prospectus, these factors include:
|
·
|
our
operating performance and the operating performance of similar
companies;
|
|
·
|
the
overall performance of the equity
markets;
|
|
·
|
announcements
by us or our competitors of acquisitions, business plans or commercial
relationships;
|
|
·
|
threatened
or actual litigation;
|
|
·
|
changes
in laws or regulations relating to the provision of Internet
content;
|
|
·
|
any
major change in our board of directors or
management;
|
|
·
|
publication
of research reports about us, our competitors or our industry, or positive
or negative recommendations or withdrawal of research coverage by
securities analysts;
|
|
·
|
our
sale of common stock or other securities in the
future;
|
|
·
|
large
volumes of sales of our shares of common stock by existing stockholders;
and
|
|
·
|
general
political and economic conditions.
|
In
addition, the stock market in general, and historically the market for
Internet-related companies in particular, has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of those companies. Securities class action litigation has
often been instituted against companies following periods of volatility in the
overall market and in the market price of a company’s securities. This
litigation, if instituted against us, could result in substantial costs, divert
our management’s attention and resources and harm our business, operating
results and financial condition.
We are
also currently not in compliance with the filing requirements under Nasdaq
Marketplace Rule 4310(c)(14) due to our failure to timely file periodic reports
with the Securities and Exchange Commission. Based on our
correspondence with Nasdaq, we understand that we will not be delisted from the
Nasdaq Global Market as long as we regain compliance with these filing
requirements on or prior to September 28, 2009. If we are unable to
regain compliance with these filing requirements, or if Nasdaq otherwise
determines to delist us from the Nasdaq Global Market, then trading in our
common stock could become more volatile and the volume of trading could decline
substantially.
Provisions
of our certificate of incorporation, bylaws and Delaware law could deter
takeover attempts.
Various
provisions in our certificate of incorporation and bylaws could delay, prevent
or make more difficult a merger, tender offer, proxy contest or change of
control. Our stockholders might view any transaction of this type as being in
their best interest since the transaction could result in a higher stock price
than the then-current market price for our common stock. Among other things, our
certificate of incorporation and bylaws:
|
·
|
authorize
our board of directors to issue preferred stock with the terms of each
series to be fixed by our board of directors, which could be used to
institute a ‘‘poison pill’’ that would work to dilute the share ownership
of a potential hostile acquirer, effectively preventing acquisitions that
have not been approved by our
board;
|
|
·
|
divide
our board of directors into three classes so that only approximately
one-third of the total number of directors is elected each
year;
|
|
·
|
permit
directors to be removed only for
cause;
|
|
·
|
prohibit
action by less than unanimous written consent of our stockholders;
and
|
|
·
|
specify
advance notice requirements for stockholder proposals and director
nominations. In addition, with some exceptions, the Delaware General
Corporation Law restricts or delays mergers and other business
combinations between us and any stockholder that acquires 15% or more of
our voting stock.
|
Future
sales of shares of our common stock by existing stockholders could depress the
market price of our common stock.
If our
existing stockholders sell, or indicate an intent to sell, substantial amounts
of our common stock in the public market, the trading price of our common stock
could decline significantly. A large portion of our outstanding shares of common
stock are held by our officers, directors and affiliates. Two of our affiliates
are venture capital funds, which are typically structured to have a finite life.
As these venture capital funds approach or pass the life of the fund, their
decision to sell or hold our stock may be based not only on the underlying
investment merits of our stock, but also on the requirements of their internal
fund structure. Our directors, executive officers and affiliates beneficially
own approximately 29 million shares of our common stock, which represents 69% of
our shares outstanding as of June 30, 2009. If these additional shares are sold,
or if it is perceived that they will be sold, in the public market, the trading
price of our common stock could decline substantially
.
A
limited number of stockholders will have the ability to influence the outcome of
director elections and other matters requiring stockholder
approval.
Our
directors, executive officers and affiliates beneficially own approximately
69% of our outstanding common stock. These stockholders, if they act together,
could exert substantial influence over matters requiring approval by our
stockholders, including the election of directors, the amendment of our
certificate of incorporation and bylaws and the approval of mergers or other
business combination transactions. This concentration of ownership may
discourage, delay or prevent a change in control of our company, which could
deprive our stockholders of an opportunity to receive a premium for their stock
as part of a sale of our company and might reduce our stock price. These actions
may be taken even if they are opposed by other stockholders.
Item 1B. Unresolved
Staff Comments
None.
Item 2.
Properties
Our
corporate headquarters are located in Needham, Massachusetts, where we currently
lease 93,069 square feet of office space 75,326 square feet of which expires in
December 2009 and 17,743 square feet expires in March 2010. We also
lease 12,995 square feet of office space in San Francisco, California which
expires January 2013, 7,861 square feet of office space in Westborough,
Massachusetts which expires in December 2009, and 25,762 square feet of office
space in Alpharetta, Georgia which expires in November, 2010. We do
not own any real property. We believe that our leased facilities are,
in general, in good operating condition and adequate for our current operations
and that additional leased space can be obtained if needed.
Item
3. Legal Proceedings
We are
not currently a party to any material litigation and we are not aware of any
pending or threatened litigation against us that could have a material adverse
effect on our business, operating results or financial condition.
Item 4.
Submission of Matters to a Vote of Security
Holders
No matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year ended December 31, 2008 through the solicitation of proxies or
otherwise.
PART
II
Item
5. Ma
rket for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Our
common stock is listed on the Nasdaq Global Market under the trading symbol
“TTGT”. The following table sets forth the high and low sales prices of our
common stock, as reported by the Nasdaq Global Market, for each quarterly period
since our initial public offering:
|
|
High
|
|
|
Low
|
|
Fiscal
2008
|
|
|
|
|
|
|
Quarter
ended March 31, 2008
|
|
$
|
15.23
|
|
|
$
|
10.49
|
|
Quarter
ended June 30, 2008
|
|
$
|
15.11
|
|
|
$
|
10.56
|
|
Quarter
ended September 30, 2008
|
|
$
|
10.45
|
|
|
$
|
6.00
|
|
Quarter
ended December 31, 2008
|
|
$
|
6.67
|
|
|
$
|
2.31
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2007
|
|
|
|
|
|
|
|
|
Quarter
ended June 30, 2007 (since May 16, 2007)
|
|
$
|
16.20
|
|
|
$
|
12.50
|
|
Quarter
ended September 30, 2007
|
|
$
|
18.69
|
|
|
$
|
11.00
|
|
Quarter
ended December 31, 2007
|
|
$
|
17.81
|
|
|
$
|
11.69
|
|
The
closing sale price of our common stock, as reported by the Nasdaq Global Market,
was $4.00 on June 30, 2009.
Holders
As
of June 30, 2009 there were approximately 158 stockholders of
record of our common stock based on the records of our transfer
agent.
Dividends
We did
not declare or pay any cash dividends on our common stock during the three most
recent fiscal years. We currently intend to retain earnings, if any, to fund the
development and growth of our business and do not anticipate paying other cash
dividends on our common stock in the foreseeable future. Our payment of any
future dividends will be at the discretion of our board of directors after
taking into account various factors, including our financial condition,
operating results, cash needs and growth plans.
Recent
Sales of Unregistered Securities
Since
January 1, 2006, we have issued the following securities that were not
registered under the Securities Act:
(a)
Issuances of Capital Stock
As of
November 2006, there were outstanding options to purchase 17,456 shares of our
common stock at an exercise price of $2.36 per share, the issuance of which may
not have been exempt from registration or certain qualification requirements
under federal or state securities laws. To address this issue, we made a
rescission offer that was completed in December 2006 to all holders of these
options pursuant to which we offered to repurchase these options for cash or
shares of our common stock. In connection with the completion of the rescission
offer, we issued 10,726 shares and paid out $6,561 in cash, which included
statutory interest. The sales of securities pursuant to the rescission offer
were made in reliance upon the exemption from registration provided by Section
3(b) of the Securities Act of 1933 for transactions by an issuer not involving a
public offering. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
(b)
Grants and Exercises of Stock Options.
During
2007, prior to our initial public offering, we granted stock options to purchase
75,000 shares of our common stock with an exercise price of $13.00 per share to
a director. During 2007, prior to our initial public offering,
pursuant to our 1999 Stock Option Plan, we issued and sold 333,636 shares of our
common stock upon the exercise of stock options for aggregate consideration of
$211,938.
During
2006, pursuant to our 1999 Stock Option Plan, we granted stock options to
purchase 4,243,500 shares of common stock with a weighted average exercise price
of $7.36 per share to our employees. During 2006, 371,634 options were exercised
for aggregate consideration of $553,659.
The
issuance of common stock upon exercise of the options was exempt either pursuant
to Rule 701, as a transaction pursuant to a compensatory benefit plan, or
pursuant to Section 4(2), as a transaction by an issuer not involving a public
offering.
(c)
Exercises of Warrants
During
2008, we issued 6,886 shares of our common stock upon the cashless exercise of
warrants. We did not receive any consideration from the cashless
exercises apart from the surrender of the underlying warrants.
During
2007, we issued 52,764 shares of our common stock upon the cashless exercise of
warrants. We did not receive any consideration from the cashless
exercises apart from the surrender of the underlying warrants.
During
2006, we issued and sold 184,233 shares of our common stock upon the exercise of
a warrant for aggregate consideration of $338,988.
The
issuances of common stock upon the exercise of the warrants were made in
reliance upon the exemption from registration proved by Section 4(2) of the
Securities Act for transactions by an issuer not involving a public offering.
All of the foregoing securities are deemed restricted securities for purposes of
the Securities Act.
Use
of Proceeds from Public Offering of Common Stock
In May
2007, we completed our initial public offering (IPO) pursuant to a registration
statement on Form S-1 (File No. 333-140503) that was declared effective by the
SEC on May 16, 2007. Under the registration statement, we registered
the offering and sale of an aggregate of 7,700,000 shares of our common stock,
$0.001 par value, of which 6,427,152 shares were sold by the Company and
1,272,848 were sold by certain selling stockholders. All of the
shares of common stock issued pursuant to the registration statement, including
the shares sold by the selling stockholders, were sold at a price to the public
of $13.00 per share.
As a
result of the IPO, we raised a total of $83.2 million in net proceeds after
deducting underwriting discounts and commissions of approximately $6.4 million
and offering expenses of approximately $2.3 million. In May 2007 we
repaid $12.0 million that we had borrowed against our revolving credit facility
in conjunction with the acquisition of TechnologyGuide.com in April
2007. In November 2007 we acquired KnowledgeStorm, Inc. for
approximately $58 million, consisting of approximately $52 million in cash and
359,820 shares of unregistered common stock of TechTarget valued at $6.0
million. In November 2008 we acquired The Brian Madden Company LLC
for approximately $1.3 million in cash.
We have
applied the remaining net proceeds from the IPO to our working capital for
general corporate purposes. We have no current agreements or
commitments with respect to any material acquisitions. We have
invested the remaining net proceeds in cash, cash equivalents and short-term
investments, in accordance with our investment policy. None of the
remaining net proceeds were paid, directly or indirectly, to directors,
officers, persons owning ten percent or more of our equity securities, or any of
our other affiliates.
Equity
Compensation Plan Information
Information
relating to compensation plans under which our equity securities are authorized
for issuance is set forth under “Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters” in Item 12 below.
Stock
Performance Graph
The
following graph compares the cumulative total return to stockholders of our
common stock for the period from May 16, 2007, the date of our initial public
offering, to December 31, 2008, to the cumulative total return of the Russell
2000 Index and the S&P 500 Media Industry Index for the same
period. This graph assumes the investment of $100.00 on May 16, 2007
in our common stock, the Russell 2000 Index and the S&P 500 Media Industry
Index and assumes any dividends are reinvested.
COMPARATIVE
STOCK PERFORMANCE
Among
TechTarget, Inc.
The
Russell 2000 Index and
The
S&P 500 Media Industry Index
|
|
May 17,
2007
|
|
|
June 30,
2007
|
|
|
September 30,
2007
|
|
|
December 31,
2007
|
|
|
March 31,
2008
|
|
|
June 30,
2008
|
|
|
September 30,
2008
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TechTarget
Inc
|
|
$
|
100.00
|
|
|
$
|
98.85
|
|
|
$
|
130.00
|
|
|
$
|
113.69
|
|
|
$
|
109.00
|
|
|
$
|
81.23
|
|
|
$
|
53.85
|
|
|
$
|
33.23
|
|
Russell
2000 Index
|
|
$
|
100.00
|
|
|
$
|
101.82
|
|
|
$
|
98.67
|
|
|
$
|
94.15
|
|
|
$
|
84.83
|
|
|
$
|
85.33
|
|
|
$
|
84.38
|
|
|
$
|
62.34
|
|
S&P
500 Media Industry Index
|
|
$
|
100.00
|
|
|
$
|
98.57
|
|
|
$
|
91.61
|
|
|
$
|
83.67
|
|
|
$
|
77.97
|
|
|
$
|
74.62
|
|
|
$
|
68.44
|
|
|
$
|
52.44
|
|
The
information included under the heading “Stock Performance Graph” in Item 5 of
this Annual Report on Form 10-K/A is “furnished” and not “filed” and shall not
be deemed to be “soliciting material” or subject to Regulation 14A, shall not be
deemed “filed” for purposes of Section 18 of the Securities Act of 1934, as
amended, or otherwise subject to the liabilities of that section, nor shall it
be deemed incorporated by reference in any filing under the Securities Act of
1933, as amended, or the Securities Act of 1934, as amended.
Item
6. S
elected Consolidated Financial Data
The
consolidated balance sheet as of December 31, 2007 and the consolidated
statements of operations for the fiscal years ended December 31, 2007 and 2006
have been restated as set forth in this 2008 Form 10-K/A. The data for the
consolidated balance sheets as of December 31, 2006, 2005 and 2004 and the
consolidated statements of operations for the fiscal years ended December 31,
2005 and 2004 have been restated to reflect the impact of the revenue and
provision for income tax adjustments, but such restated data have not been
audited and is derived from the books and records of the Company. The
information set forth below is not necessarily indicative of results of future
operations, and should be read in conjunction with Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the consolidated financial statements and related notes thereto included in
Item 8 of this Form 10-K/A to fully understand factors that may affect
the comparability of the information presented below. The information presented
in the following tables has been adjusted to reflect the restatement of the
Company’s financial results, which is more fully described in the “Explanatory
Note” immediately preceding Part I, Item 1 and in Note 2, “Restatement
of Previously Issued Financial Statements” in the Notes to the Consolidated
Financial Statements of this Form 10-K/A.
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
(in
thousands, except share and per share data)
|
|
Consolidated
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
77,373
|
|
|
$
|
61,353
|
|
|
$
|
51,372
|
|
|
$
|
43,715
|
|
|
$
|
29,723
|
|
Events
|
|
|
22,786
|
|
|
|
24,254
|
|
|
|
19,708
|
|
|
|
14,595
|
|
|
|
9,647
|
|
Print
|
|
|
4,385
|
|
|
|
6,643
|
|
|
|
8,119
|
|
|
|
8,501
|
|
|
|
5,915
|
|
Total
revenues
|
|
|
104,544
|
|
|
|
92,250
|
|
|
|
79,199
|
|
|
|
66,811
|
|
|
|
45,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
(1)
|
|
|
21,404
|
|
|
|
15,575
|
|
|
|
12,988
|
|
|
|
10,476
|
|
|
|
7,632
|
|
Events
(1)
|
|
|
9,531
|
|
|
|
8,611
|
|
|
|
6,493
|
|
|
|
6,202
|
|
|
|
5,948
|
|
Print
(1)
|
|
|
2,156
|
|
|
|
3,788
|
|
|
|
5,339
|
|
|
|
5,322
|
|
|
|
3,073
|
|
Total
cost of revenues
|
|
|
33,091
|
|
|
|
27,974
|
|
|
|
24,820
|
|
|
|
22,000
|
|
|
|
16,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
71,453
|
|
|
|
64,276
|
|
|
|
54,379
|
|
|
|
44,811
|
|
|
|
28,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
(1)
|
|
|
33,481
|
|
|
|
28,048
|
|
|
|
20,305
|
|
|
|
18,174
|
|
|
|
15,138
|
|
Product
development
(1)
|
|
|
10,995
|
|
|
|
7,320
|
|
|
|
6,295
|
|
|
|
5,756
|
|
|
|
4,111
|
|
General
and administrative
(1)
|
|
|
14,663
|
|
|
|
12,592
|
|
|
|
8,756
|
|
|
|
7,617
|
|
|
|
11,756
|
|
Depreciation
|
|
|
2,406
|
|
|
|
1,610
|
|
|
|
1,144
|
|
|
|
1,792
|
|
|
|
1,168
|
|
Amortization
of intangible assets
|
|
|
5,306
|
|
|
|
4,740
|
|
|
|
5,029
|
|
|
|
5,172
|
|
|
|
1,304
|
|
Restructuring
charge
|
|
|
1,494
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
68,345
|
|
|
|
54,310
|
|
|
|
41,529
|
|
|
|
38,511
|
|
|
|
33,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
3,108
|
|
|
|
9,966
|
|
|
|
12,850
|
|
|
|
6,300
|
|
|
|
(4,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
1,440
|
|
|
|
1,831
|
|
|
|
321
|
|
|
|
(30
|
)
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for (benefit from) income taxes
|
|
|
4,548
|
|
|
|
11,797
|
|
|
|
13,171
|
|
|
|
6,270
|
|
|
|
(4,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for (benefit from) income taxes
|
|
|
2,784
|
|
|
|
5,252
|
|
|
|
5,658
|
|
|
|
(4,036
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,764
|
|
|
$
|
6,545
|
|
|
$
|
7,513
|
|
|
$
|
10,306
|
|
|
$
|
(4,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
(0.42
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(1.53
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
|
$
|
(0.42
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(1.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,424,920
|
|
|
|
28,384,303
|
|
|
|
7,824,374
|
|
|
|
7,370,680
|
|
|
|
7,594,470
|
|
Diluted
|
|
|
43,439,619
|
|
|
|
31,346,738
|
|
|
|
7,824,374
|
|
|
|
7,370,680
|
|
|
|
7,594,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA (unaudited)
(3)
|
|
$
|
20,985
|
|
|
$
|
22,150
|
|
|
$
|
20,273
|
|
|
$
|
13,342
|
|
|
$
|
3,910
|
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
(restated)
|
|
|
2006
(restated)
|
|
|
2005
(restated)
|
|
|
2004
(restated)
|
|
|
|
(in
thousands)
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and investments
|
|
$
|
69,568
|
|
|
$
|
62,001
|
|
|
$
|
30,830
|
|
|
$
|
46,879
|
|
|
$
|
7,214
|
|
Total
assets
|
|
|
210,012
|
|
|
|
202,488
|
|
|
|
94,156
|
|
|
|
96,516
|
|
|
|
92,920
|
|
Total
liabilities
|
|
|
19,075
|
|
|
|
25,155
|
|
|
|
24,309
|
|
|
|
36,269
|
|
|
|
43,295
|
|
Total
redeemable convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
136,766
|
|
|
|
126,004
|
|
|
|
115,383
|
|
Total
stockholders' equity (deficit)
|
|
|
190,937
|
|
|
|
177,334
|
|
|
|
(66,919
|
)
|
|
|
(65,756
|
)
|
|
|
(65,758
|
)
|
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands)
|
|
(1)
Amounts
include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of online revenue
|
|
$
|
407
|
|
|
$
|
189
|
|
|
$
|
87
|
|
|
$
|
-
|
|
|
$
|
78
|
|
Cost
of events revenue
|
|
|
91
|
|
|
|
53
|
|
|
|
31
|
|
|
|
-
|
|
|
|
236
|
|
Cost
of print revenue
|
|
|
6
|
|
|
|
15
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
Selling
and marketing
|
|
|
4,813
|
|
|
|
2,999
|
|
|
|
606
|
|
|
|
-
|
|
|
|
1,025
|
|
Product
development
|
|
|
473
|
|
|
|
334
|
|
|
|
90
|
|
|
|
-
|
|
|
|
7
|
|
General
and administrative
|
|
|
2,881
|
|
|
|
2,244
|
|
|
|
424
|
|
|
|
78
|
|
|
|
4,937
|
|
Total
|
|
$
|
8,671
|
|
|
$
|
5,834
|
|
|
$
|
1,250
|
|
|
$
|
78
|
|
|
$
|
6,283
|
(a)
|
|
(a)
|
In
May 2004, we offered to repurchase for cash (i) up to 100% of the issued
and outstanding shares of our series A preferred stock; and (ii) up to 45%
of the aggregate issued and outstanding shares of common stock and/or
options to purchase the same (provided the option holder had either
completed four years of service with us as of May 1, 2004, or had held the
option for at least four years as of May 1, 2004), effected to provide
certain stockholders and option holders with liquidity. We recorded
stock-based compensation expense of $6,012,382 related to the purchase of
1,429,157 options.
|
(2)
|
Basic
and diluted net income (loss) per common share is computed by dividing the
net income (loss) applicable to common stockholders by the basic and
diluted weighted-average number of common shares outstanding for the
fiscal period. See "Note 3 of our Notes to Consolidated
Financial Statements."
|
(3)
|
The
following table reconciles net income (loss) to Adjusted EBITDA for the
periods presented and is unaudited:
|
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
(restated)
|
|
|
2006
(restated)
|
|
|
2005
(restated)
|
|
|
2004
(restated)
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,764
|
|
|
$
|
6,545
|
|
|
$
|
7,513
|
|
|
$
|
10,306
|
|
|
$
|
(4,734
|
)
|
Interest
income (expense), net
|
|
|
1,440
|
|
|
|
1,831
|
|
|
|
321
|
|
|
|
(30
|
)
|
|
|
143
|
|
Provision
for (benefit from) income taxes
|
|
|
2,784
|
|
|
|
5,252
|
|
|
|
5,658
|
|
|
|
(4,036
|
)
|
|
|
32
|
|
Depreciation
|
|
|
2,406
|
|
|
|
1,610
|
|
|
|
1,144
|
|
|
|
1,792
|
|
|
|
1,168
|
|
Amortization
of intangible assets
|
|
|
5,306
|
|
|
|
4,740
|
|
|
|
5,029
|
|
|
|
5,172
|
|
|
|
1,304
|
|
EBITDA
|
|
|
10,820
|
|
|
|
16,316
|
|
|
|
19,023
|
|
|
|
13,264
|
|
|
|
(2,373
|
)
|
Stock-based
compensation
|
|
|
8,671
|
|
|
|
5,834
|
|
|
|
1,250
|
|
|
|
78
|
|
|
|
6,283
|
(a)
|
Restructuring
charge
|
|
|
1,494
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted
EBITDA
|
|
$
|
20,985
|
|
|
$
|
22,150
|
|
|
$
|
20,273
|
|
|
$
|
13,342
|
|
|
$
|
3,910
|
|
|
(a)
|
In
May 2004, we offered to repurchase for cash (i) up to 100% of the issued
and outstanding shares of our series A preferred stock; and (ii) up to 45%
of the aggregate issued and outstanding shares of common stock and/or
options to purchase the same (provided the option holder had either
completed four years of service with us as of May 1, 2004, or had held the
option for at least four years as of May 1, 2004), effected to provide
certain stockholders and option holders with liquidity. We recorded
stock-based compensation expense of $6,012,382 related to the purchase of
1,429,157 options.
|
Adjusted
EBITDA is a metric used by management to measure operating performance. EBITDA
represents net income (loss) before interest income (expense) net, provision for
(benefit from) income taxes, depreciation and amortization. Adjusted EBITDA
represents EBITDA as further adjusted to exclude stock-based compensation and
restructuring charges. We present Adjusted EBITDA as a supplemental performance
measure because we believe it facilitates operating performance comparisons from
period to period and company to company by backing out potential differences
caused by variations in capital structures (affecting interest expense), tax
positions (such as the impact on periods or companies of changes in effective
tax rates or net operating losses), the age and book depreciation of fixed
assets (affecting relative depreciation expense), and the impact of non-cash
stock-based compensation expense costs. Because Adjusted EBITDA facilitates
internal comparisons of operating performance on a more consistent basis, we
also use Adjusted EBITDA in measuring our performance relative to that of our
competitors. We also use Adjusted EBITDA in connection with our compensation of
our executive officers and senior management. Adjusted EBITDA is not a
measurement of our financial performance under GAAP and should not be considered
as an alternative to net income, operating income or any other performance
measures derived in accordance with GAAP or as an alternative to cash flow from
operating activities as a measure of our profitability or liquidity. We
understand that although Adjusted EBITDA is frequently used by securities
analysts, lenders and others in their evaluation of companies, Adjusted EBITDA
has limitations as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our results as reported under
GAAP. Some of these limitations are:
·
Adjusted
EBITDA does not reflect our cash expenditures, or future requirements for
capital expenditures or contractual commitments;
·
Adjusted
EBITDA does not reflect changes in, or cash requirements for, our working
capital needs;
·
Adjusted
EBITDA does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on our
debts;
·
Although
depreciation and amortization are non-cash charges, the assets being depreciated
and amortized will often have to be replaced in the future, and Adjusted EBITDA
does not reflect any cash requirements for such replacements; and
·
Other
companies in our industry may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.
Item 7. Management's
Discussion and Analysis of Financial
Condition and Results of Operations
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and accompanying notes included elsewhere in this Annual Report on
Form 10-K/A. In this discussion and analysis, dollar, share and per
share amounts are not rounded to thousands unless otherwise
indicated. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and
elsewhere in this Annual Report on Form 10-K/A particularly under the heading
"Risk Factors."
The
following information has been adjusted to reflect the restatement of our
financial results, which is more fully described in the “Explanatory Note”
immediately preceding Part I, Item 1 and in Note 2, “Restatement of Previously
Issued Financial Statements” in Notes to the Consolidated Financial Statements
of this Form 10-K/A.
Overview
Background
We are a
leading provider of specialized online content that brings together buyers and
sellers of corporate IT products. We sell customized marketing programs that
enable IT vendors to reach corporate IT decision makers who are actively
researching specific IT purchases.
Our
integrated content platform consists of a network of websites that we complement
with targeted in-person events. Prior to December 2008, we also published a
limited number of highly targeted print magazines in which IT vendors could
reach IT professionals. As of December 2008, we discontinued publishing all
print magazines and do not anticipate publishing any print magazines in the
future. Throughout the critical stages of the purchase decision process, our
content offerings meet IT professionals' needs for expert, peer and IT vendor
information, and provide a platform on which IT vendors can launch targeted
marketing campaigns that generate measurable, high ROI. As IT professionals have
become increasingly specialized, they have come to rely on our sector-specific
websites for purchasing decision support. Our content enables IT professionals
to navigate the complex and rapidly changing IT landscape where purchasing
decisions can have significant financial and operational consequences. Based
upon the logical clustering of our users' respective job responsibilities and
the marketing focus of the products that our customers are advertising, we
currently categorize our content offerings across ten distinct media groups:
Application Development; Channel; CIO/IT Strategy; Data Center and
Virtualization; Enterprise Applications; Networking; Security; Storage;
TechnologyGuide.com; and Vertical Software.
During
December 2008, in response to the then-current and anticipated future economic
uncertainties, we implemented an expense reduction program that included a
reduction in workforce, a reduction in a certain office lease, the elimination
of our two print publications, and a continuation of strict controls on
discretionary spending. During the twenty-four month period
immediately preceding the announced workforce reduction, we had hired
approximately 150 employees to support existing and anticipated growth. The
reduction in workforce resulted in a decrease of our employees by approximately
76 full-time positions, representing approximately 12% of our total workforce.
As a result of the expense reduction program, we incurred a pre-tax charge of
$1,494,000 in the fourth quarter of 2008.
Sources
of Revenues
We sell
advertising programs to IT vendors targeting a specific audience within a
particular IT sector or sub-sector. We maintain multiple points of contact with
our customers to provide support throughout their organizations and the sales
cycle. As a result, our customers often run multiple advertising programs with
us in order to reach discrete portions of our targeted audience. There are
multiple factors that can impact our customers' advertising objectives and
spending with us, including but not limited to, product launches, increases or
decreases to their advertising budgets, the timing of key industry marketing
events, responses to competitor activities and efforts to address specific
marketing objectives such as creating brand awareness or generating sales leads.
Our services are generally delivered under short-term contracts that run for the
length of a given advertising program, typically less than 6 months in
length.
We
generate substantially all of our revenues from the sale of targeted advertising
campaigns that we deliver via our network of websites, events and print
publications.
Online.
The
majority of our revenue is derived from the delivery of our online offerings
from our media groups. Online revenue represented 74%, 67%, and 65%
of total revenues for the years ended December 31, 2008, 2007 and 2006,
respectively. We expect the majority of our revenues to be derived through the
delivery of online offerings for the foreseeable future. As a result of our
customers' advertising objectives and preferences, the specific allocation of
online advertising offerings sold and delivered by us, on a period by period
basis, can fluctuate.
Through
our websites we sell a variety of online media offerings to connect IT vendors
to IT professionals. Our lead generation offerings allow IT vendors to capture
qualified sales leads from the distribution and promotion of content to our
audience of IT professionals. Our branding offerings provide IT vendors exposure
to targeted audiences of IT professionals actively researching information
related to their products and services.
Our
branding offerings include banners and e-newsletters. Banner advertising can be
purchased on specific websites within our network. We also offer the ability to
advertise in e-newsletters focused on key site sub-topics across our portfolio
of websites. These offerings give IT vendors the ability to increase their brand
awareness to highly specialized IT sectors.
Our lead
generation offerings include the following:
|
·
|
White
Papers.
White papers are technical documents created by
IT vendors to describe business or technical problems that are addressed
by the vendors' products or services. IT vendors pay us to have their
white papers distributed to our users and receive targeted promotions on
our relevant websites. Prior to viewing white papers, our registered
members and visitors supply their corporate contact and qualification
information and agree to receive further information from the vendor. The
corporate contact and other qualification information for these leads are
supplied to the vendor in real time through our proprietary lead
management software.
|
|
·
|
Webcasts, Podcasts and
Videocasts.
IT vendors pay us to sponsor and host
webcasts, podcasts and videocasts that bring informational sessions
directly to attendees' desktops and, in the case of podcasts, directly to
their mobile devices. As is the case with white papers, our users supply
their corporate contact and qualification information to the webcast,
podcast or videocast sponsor when they view or download the content.
Sponsorship includes access to the registrant information and visibility
before, during and after the event.
|
|
·
|
Software Package
Comparisons.
Through our 2020software.com website, IT
vendors pay us to post information and specifications about their software
packages, typically organized by application category. Users can request
further information, which may include downloadable trial software from
multiple software providers in sectors such as customer relationship
management, or CRM, accounting, and business analytics. IT vendors, in
turn, receive qualified leads based upon the users who request their
information.
|
|
·
|
Promotional
E-mails.
IT vendors pay us to further target the
promotion of their white papers, webcasts, videocasts, podcasts or
downloadable trial software by including their content in our periodic
e-mail updates to registered users of our websites. Users who have
voluntarily registered on our websites receive an e-mail update from us
when vendor content directly related to their interests is listed on our
sites.
|
|
·
|
List
Rentals.
We also offer IT vendors the ability to message
relevant registered members on topics related to their interests. IT
vendors can rent our e-mail and postal lists of registered members using
specific criteria such as company size, geography or job
title.
|
|
·
|
Contextual
Advertising.
Our contextual advertising programs
associate IT vendor white papers, webcasts, podcasts or other content on a
particular topic with our related sector-specific content. IT vendors have
the option to purchase exclusive sponsorship of content related to their
product or category.
|
|
·
|
Third Party Revenue Sharing
Arrangements.
We have arrangements with certain third
parties, including for the licensing of our online content, for the
renting of our database of opted-in email subscribers and for which
advertising from customers of certain third parties is made available to
our website visitors. In each of these arrangements we are paid a share of
the resulting revenue.
|
Events.
Events
revenue represented 22%, 26%, and 25% of total revenues for the years ended
December 31, 2008, 2007 and 2006, respectively. Most of our media groups operate
revenue generating events. The majority of our events are free to IT
professionals and are sponsored by IT vendors. Attendees are pre-screened based
on event-specific criteria such as sector-specific budget size, company size, or
job title. We offer three types of events: multi-day conferences, single-day
seminars and custom events. Multi-day conferences provide independent expert
content for our attendees and allow vendors to purchase exhibit space and other
sponsorship offerings that enable interaction with the attendees. We also hold
single-day seminars on various topics in major cities. These seminars provide
independent content on key sub-topics in the sectors we serve, are free to
qualified attendees, and offer multiple vendors the ability to interact with
specific, targeted audiences actively focused on buying decisions. Our custom
events differ from our conferences and seminars in that they are exclusively
sponsored by a single IT vendor, and the content is driven primarily by the sole
sponsor.
Print.
Print
revenue represented 4%, 7%, and 10% of total revenues for the years ended
December 31, 2008, 2007 and 2006, respectively. During certain
portions of those three fiscal years we published monthly three
controlled-circulation magazines that were free to subscribers and generated
revenue solely based on advertising fees. We began publishing
Storage
magazine in 2002,
Information Security
magazine in 2003; and
CIO Decisions
magazine in 2005. We discontinued publishing
CIO Decisions
magazine
in November 2007 and both
Storage
and
Information Security
magazines in December 2008.
Cost
of Revenues, Operating Expenses and Other
Expenses
consist of cost of revenues, selling and marketing, product development, general
and administrative, depreciation, and amortization expenses. Personnel-related
costs are a significant component of most of these expense categories. We grew
from 411 employees at December 31, 2005 to 527 employees at December 31,
2008.
Cost of Online
Revenue.
Cost of online revenue consists primarily of:
salaries and related personnel costs; member acquisition expenses (primarily
keyword purchases from leading Internet search sites); freelance writer
expenses; website hosting costs; vendor expenses associated with the delivery of
webcast, podcast, videocast and list rental offerings; and stock-based
compensation expense.
Cost of Events
Revenue.
Cost of events revenue consists primarily of:
facility expenses, including food and beverages for the event attendees;
salaries and related personnel costs; event speaker expenses; and stock-based
compensation expense.
Cost of Print
Revenue.
Cost of print revenue consists primarily of: printing
and graphics expenses; mailing costs; salaries and related personnel costs;
freelance writer expenses; subscriber acquisition expenses (primarily
telemarketing); and stock-based compensation expense.
Selling and
Marketing.
Selling and marketing expense consists primarily
of: salaries and related personnel costs; sales commissions; travel, lodging and
other out-of-pocket expenses; and stock-based compensation expense. Sales
commissions are recorded as expense when earned by the employee.
Product
Development.
Product development includes the creation and
maintenance of our network of websites, advertiser offerings and technical
infrastructure. Product development expense consists primarily of salaries and
related personnel and vendor costs; and stock-based compensation
expense.
General and
Administrative.
General and administrative expense consists
primarily of: salaries and related personnel costs; facilities expenses;
accounting, legal and other professional fees; and stock-based compensation
expense. General and administrative expense may continue to increase as a
percentage of total revenue for the foreseeable future as we invest in
infrastructure to support continued growth and incur additional expenses related
to being a publicly traded company, including increased audit and legal fees,
costs of compliance with securities and other regulations, investor relations
expense, and higher insurance premiums.
Depreciation.
Depreciation
expense consists of the depreciation of our property and equipment. Depreciation
of property and equipment is calculated using the straight-line method over
their estimated useful lives ranging from three to five years.
Amortization of Intangible
Assets.
Amortization of intangible assets expense consists of
the amortization of intangible assets recorded in connection with our
acquisitions. Separable intangible assets that are not deemed to have an
indefinite life are amortized over their useful lives using the straight-line
method over periods ranging from one to nine years.
Interest Income (Expense),
Net.
Interest income (expense) net consists primarily of
interest income earned on cash and cash equivalent balances less interest
expense incurred on bank term loan balances. We historically have invested our
cash in money market accounts, commercial paper corporate debt securities,
municipal bonds and auction rate securities.
Application
of Critical Accounting Policies and Use of Estimates
The
discussion of our financial condition and results of operations is based upon
our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates,
judgments and assumptions that affect the reported amount of assets,
liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to revenue, long-lived assets, the allowance for doubtful accounts,
stock-based compensation, and income taxes. We based our estimates of the
carrying value of certain assets and liabilities on historical experience and on
various other assumptions that we believe to be reasonable. In many cases, we
could reasonably have used different accounting policies and
estimates. In some cases, changes in the accounting estimates are
reasonably likely to occur from period to period. Our actual results may differ
from these estimates under different assumptions or conditions.
We
believe the following critical accounting policies affect our more significant
judgments used in the preparation of our consolidated financial statements. See
the notes to our financial statements for information about these critical
accounting policies as well as a description of our other accounting
policies.
Revenue
Recognition
We
generate substantially all of our revenue from the sale of targeted advertising
campaigns that we deliver via our network of websites, events and print
publications. We recognize this revenue in accordance with Staff Accounting
Bulletin, or SAB, No.
104, Revenue Recognition
, and
Financial Accounting Standards Board's, or FASB, Emerging Issues Task Force, or
EITF, Issue No. 00-21,
Revenue Arrangement With Multiple
Deliverables
. In all cases, we recognize revenue only when the price is
fixed or determinable, persuasive evidence of an arrangement exists, the service
is performed and collectibility of the resulting receivable is reasonably
assured.
Although
each of our online media offerings can be sold separately, most of our online
media sales involve multiple online offerings. Because objective
evidence of fair value does not exist for all elements in our bundled
advertising campaigns, no allocation can be made, and we recognize revenue on
all services over the term of the arrangement.
Events.
We sell
our events separately from our other service offerings, and recognize event
revenue in the period the event occurs. Amounts collected or billed
prior to satisfying the above revenue recognition criteria are recorded as
deferred revenue.
Print.
We
recognize print advertising revenue at the time the applicable magazine is
distributed when sold separately. When print advertising campaigns are sold with
online media offerings, we recognize revenue for all services in the advertising
campaign over the term of the arrangement. Amounts collected or billed prior to
satisfying the above revenue recognition criteria are recorded as deferred
revenue.
Online.
We
recognize revenue from our specific online media offerings as follows when these
items are sold separately:
|
·
|
White
Papers.
We recognize white paper revenue
ratably over the period in which the white paper is available on our
websites.
|
|
·
|
Webcasts, Podcasts and
Videocasts.
We
recognize webcast, podcast and videocast revenue ratably over the period
in which the webcast, podcast or videocast is available on our
websites
.
|
|
·
|
Software Package
Comparisons.
We
recognize software package comparison revenue ratably over the period in
which the software information is available on our
websites
.
|
|
·
|
Promotional E-mails and
E-newsletters.
We
recognize promotional e-mail revenue ratably over the period in which the
related content asset is available on our websites because promotional
emails do not have standalone value from the related content
asset. We recognize e-newsletter revenue in the period in
which the e-newsletter is
sent
.
|
|
·
|
List
Rentals.
We recognize list rental revenue in the period
in which the e-mail is sent to the list of registered
members.
|
|
·
|
Banners.
We
recognize banner revenue in the period in which the banner impressions
occur.
|
|
·
|
Third Party Revenue Sharing
Arrangements.
Revenue from third party revenue sharing
arrangements is recognized in the period in which the services are
performed.
|
We offer
customers the ability to purchase integrated ROI program offerings, which can
include any of our online media offerings packaged together to address the
particular customer's specific advertising requirements. As part of these
offerings, we will guarantee a minimum number of qualified sales leads to be
delivered over the course of the advertising campaign. We sometimes
extend the scheduled end date of advertising campaigns to satisfy lead
guarantees or to fulfill all elements of the campaign based on delayed receipt
of advertising media collateral from the customer. We estimate the revenue
reserve necessary to properly defer revenue recognition for extended advertising
campaigns. These estimates are based on the Company's experience in managing and
fulfilling these integrated ROI program offerings.
Typically, shortfalls
in fulfilling lead guarantees before the scheduled completion date of an
advertising campaign are satisfied within an average of 40 days of such
scheduled completion date. These integrated ROI program offerings represented
approximately 41%, 33% and 28% of our online revenues, and 31%, 22% and 18% of
our total revenues for the years ended December 31, 2008, 2007 and 2006,
respectively.
Amounts
collected or billed prior to satisfying the above revenue recognition criteria
are recorded as deferred revenue.
Long-Lived
Assets
Our
long-lived assets consist of property and equipment, goodwill and other
intangible assets. Goodwill and other intangible assets have arisen principally
from our acquisitions. The amount assigned to intangible assets is subjective
and based on our estimates of the future benefit of the intangible assets using
accepted valuation techniques, such as discounted cash flow and replacement cost
models. Our long-lived assets, other than goodwill, are amortized over their
estimated useful lives, which we determined based on the consideration of
several factors including the period of time the asset is expected to remain in
service. Intangible assets are amortized over their estimated useful lives,
which range from one to nine years, using methods of amortization that are
expected to reflect the estimated pattern of economic use. We evaluate the
carrying value and remaining useful lives of long-lived assets, other than
goodwill, whenever indicators of impairment are present. We evaluate the
carrying value of goodwill annually, and whenever indicators of impairment are
present. Because we have one reporting segment under SFAS No.
142,
Goodwill and Other
Intangible Assets
, we utilize the entity-wide approach to assess goodwill
for impairment and compare our fair value to our book value to determine if an
impairment exists.
Fair
Value of Financial Instruments
Financial
instruments consist of cash and cash equivalents, short and long-term
investments, accounts receivable, accounts payable, a term loan payable and an
interest rate swap. The carrying value of these instruments
approximates their fair values.
Allowance
for Doubtful Accounts
We offset
gross trade accounts receivable with an allowance for doubtful accounts. The
allowance for doubtful accounts is our best estimate of the amount of probable
credit losses in our existing accounts receivable. We review our allowance for
doubtful accounts on a regular basis, and all past due balances are reviewed
individually for collectibility. Account balances are charged against the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. Provisions for allowance for doubtful
accounts are recorded in general and administrative expense. If our historical
collection experience does not reflect our future ability to collect outstanding
accounts receivables, our future provision for doubtful accounts could be
materially affected. To date, we have not incurred any write-offs of accounts
receivable significantly different than the amounts reserved. The
allowance for doubtful accounts was $642,000 and $424,000 at December 31, 2008
and December 31, 2007, respectively.
Stock-Based
Compensation
Effective
January 1, 2006, we adopted SFAS No. 123(R), which requires companies to expense
the fair value of employee stock options and other forms of stock-based
compensation. SFAS No. 123(R) requires nonpublic companies that used
the minimum value method under SFAS No. 123 for either recognition or pro forma
disclosures to apply SFAS No. 123(R) using the prospective-transition method. As
such, we will continue to apply APB Opinion No. 25 in future periods to equity
awards outstanding at the date of adoption of SFAS No. 123(R) that were measured
using the minimum value method. In accordance with SFAS No. 123(R), we will
recognize the compensation cost of employee stock-based awards in the statement
of operations using the straight line method over the vesting period of the
award. Effective with the adoption of SFAS No. 123(R), we have elected to use
the Black-Scholes option pricing model to determine the fair value of stock
options granted. We calculated the fair values of the options granted
using the following assumptions:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Expected
volatility
|
|
|
41%
- 71
|
%
|
|
|
47%
- 50
|
%
|
|
|
57%
- 63
|
%
|
Expected
term (in years)
|
|
6.25
years
|
|
|
6.25
years
|
|
|
6.25
years
|
|
Risk-free
interest rate
|
|
|
1.71%
- 3.15
|
%
|
|
|
3.62%
- 5.04
|
%
|
|
|
4.68%
- 5.05
|
%
|
Expected
dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average
grant date fair value per share
|
|
$
|
3.28
|
|
|
$
|
7.35
|
|
|
$
|
4.48
|
|
As there
was no public market for our common stock prior to our initial public offering
in May 2007, and there has been limited historical information on the volatility
of our common stock since the date of our initial public offering, we determined
the volatility for options granted in 2008, 2007 and 2006 based on an analysis
of reported data for a peer group of companies that issued options with
substantially similar terms. The expected volatility of options granted has been
determined using an average of the historical volatility measures of this peer
group of companies for a period equal to the expected life of the
option. The expected life of options has been determined utilizing
the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No.
107,
Share-Based
Payment.
The risk-free interest rate is based on a zero coupon
United States treasury instrument whose term is consistent with the expected
life of the stock options. We have not paid and do not anticipate paying cash
dividends on our shares of common stock; therefore, the expected dividend yield
is assumed to be zero. In addition, SFAS No. 123(R) requires companies to
utilize an estimated forfeiture rate when calculating the expense for the
period. We applied an annual forfeiture rate based on our
historical forfeiture experience of 2.00%, 1.00% and 2.10% in determining the
expense recorded in 2008, 2007 and 2006, respectively.
Internal
Use Software and Website Development Costs
We
account for internal-use software and website development costs in accordance
with the guidance set forth in Statement of Position, or SOP, 98-1,
Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use,
and EITF Issue No. 00-2,
Accounting for Website
Development Costs
. We capitalize costs of materials, consultants and
compensation and related expenses of employees who devote time to the
development of internal-use software and website applications and infrastructure
involving developing software to operate our websites. However, we expense as
incurred website development costs for new features and functionalities since it
is not probable that they will result in additional functionality until they are
both developed and tested with confirmation that they are more effective than
the current set of features and functionalities on our websites. Our judgment is
required in determining the point at which various projects enter the states at
which costs may be capitalized, in assessing the ongoing value of the
capitalized costs and in determining the estimated useful lives over which the
costs are amortized, which is generally three years. To the extent that we
change the manner in which we develop and test new features and functionalities
related to our websites, assess the ongoing value of capitalized assets or
determine the estimated useful lives over which the costs are amortized, the
amount of website development costs we capitalize and amortize in future periods
would be impacted. We review capitalized internal use software and website
development costs for recoverability whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be
recoverable. We would recognize an impairment loss only if the
carrying amount of the asset is not recoverable and exceeds its fair
value. We capitalized internal-use software and website development
costs of $533,000, $950,000 and $659,000 for the years ended December 31, 2008,
2007 and 2006, respectively.
Income
Taxes
We are
subject to income taxes in both the United States and foreign jurisdictions, and
we use estimates in determining our provision for income taxes. We account for
income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes
,
which is the asset and liability method for accounting and reporting for income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized
based on temporary differences between the financial reporting and income tax
bases of assets and liabilities using statutory rates.
Our
deferred tax assets are comprised primarily of net operating loss, or NOL,
carryforwards. As of December 31, 2008, we had U.S. federal and state net
operating loss (NOL) carryforwards of approximately $11.1 million and $17.0
million, respectively, which may be used to offset future taxable income. The
NOL carryforwards expire through 2027, and are subject to review and possible
adjustment by the Internal Revenue Service. The Internal Revenue Code contains
provisions that limit the NOL and tax credit carryforwards available to be used
in any given year in the event of certain changes in the ownership interests of
significant stockholders. The federal NOL carry forwards of $11.1 million
available at December 31, 2008 were acquired from KnowledgeStorm and are subject
to limitations on their use in future years.
Net
Income (Loss) Per Share
As of May
16, 2007, the effective date of our IPO, we transitioned from having two classes
of equity securities outstanding, common and preferred stock, to a single class
of equity securities outstanding, common stock, upon automatic conversion of
shares of redeemable convertible preferred stock into shares of common
stock. For the period prior to May 16, 2007, we calculated net income
(loss) per share in accordance with SFAS No. 128, as clarified by EITF Issue No.
03-6. EITF Issue No. 03-6 clarifies the use of the “two-class” method
of calculating earnings per share as originally prescribed in SFAS No.
128. Under the two-class method, basic net income (loss) per share is
computed by dividing the net income (loss) applicable to common stockholders by
the weighted-average number of common shares outstanding for the fiscal
period. Diluted net income (loss) per share is computed using the
more dilutive of (a) the two-class method, or (b) the if-converted
method. We allocate net income first to preferred stockholders based
on dividend rights under our charter and then to preferred and common
stockholders based on ownership interests. Net losses are not
allocated to preferred stockholders.
For the
period subsequent to May 16, 2007, we have followed SFAS No. 128,
Earnings Per Share
, which
requires that basic EPS be calculated by dividing earnings available to common
shareholders for the period by the weighted average number of common shares
outstanding. Diluted EPS is computed using the weighted-average
number of common shares outstanding during the period, plus the dilutive effect
of potential future issuances of common stock relating to stock option programs
and other potentially dilutive securities using the treasury stock method. In
calculating diluted EPS, the dilutive effect of stock options is computed using
the average market price for the respective period. In addition, under SFAS No.
123(R), the assumed proceeds under the treasury stock method include the average
unrecognized compensation expense and assumed tax benefit of stock options that
are in-the-money. This results in the “assumed” buyback of additional shares,
thereby reducing the dilutive impact of stock options.
Results
of Operations
The
following table sets forth our results of operations for the periods
indicated:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
(in
thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
77,373
|
|
|
|
74
|
%
|
|
$
|
61,353
|
|
|
|
67
|
%
|
|
$
|
51,372
|
|
|
|
65
|
%
|
Events
|
|
|
22,786
|
|
|
|
22
|
|
|
|
24,254
|
|
|
|
26
|
|
|
|
19,708
|
|
|
|
25
|
|
Print
|
|
|
4,385
|
|
|
|
4
|
|
|
|
6,643
|
|
|
|
7
|
|
|
|
8,119
|
|
|
|
10
|
|
Total
revenues
|
|
|
104,544
|
|
|
|
100
|
|
|
|
92,250
|
|
|
|
100
|
|
|
|
79,199
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
|
21,404
|
|
|
|
21
|
|
|
|
15,575
|
|
|
|
17
|
|
|
|
12,988
|
|
|
|
16
|
|
Events
|
|
|
9,531
|
|
|
|
9
|
|
|
|
8,611
|
|
|
|
9
|
|
|
|
6,493
|
|
|
|
8
|
|
Print
|
|
|
2,156
|
|
|
|
2
|
|
|
|
3,788
|
|
|
|
4
|
|
|
|
5,339
|
|
|
|
7
|
|
Total
cost of revenues
|
|
|
33,091
|
|
|
|
32
|
|
|
|
27,974
|
|
|
|
30
|
|
|
|
24,820
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
71,453
|
|
|
|
68
|
|
|
|
64,276
|
|
|
|
70
|
|
|
|
54,379
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
33,481
|
|
|
|
32
|
|
|
|
28,048
|
|
|
|
30
|
|
|
|
20,305
|
|
|
|
26
|
|
Product
development
|
|
|
10,995
|
|
|
|
11
|
|
|
|
7,320
|
|
|
|
8
|
|
|
|
6,295
|
|
|
|
8
|
|
General
and administrative
|
|
|
14,663
|
|
|
|
14
|
|
|
|
12,592
|
|
|
|
14
|
|
|
|
8,756
|
|
|
|
11
|
|
Depreciation
|
|
|
2,406
|
|
|
|
2
|
|
|
|
1,610
|
|
|
|
2
|
|
|
|
1,144
|
|
|
|
2
|
|
Amortization
of intangible assets
|
|
|
5,306
|
|
|
|
5
|
|
|
|
4,740
|
|
|
|
5
|
|
|
|
5,029
|
|
|
|
6
|
|
Restructuring
charge
|
|
|
1,494
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
68,345
|
|
|
|
65
|
|
|
|
54,310
|
|
|
|
59
|
|
|
|
41,529
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
3,108
|
|
|
|
3
|
|
|
|
9,966
|
|
|
|
11
|
|
|
|
12,850
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
1,440
|
|
|
|
1
|
|
|
|
1,831
|
|
|
|
2
|
|
|
|
321
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
4,548
|
|
|
|
4
|
|
|
|
11,797
|
|
|
|
13
|
|
|
|
13,171
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
2,784
|
|
|
|
2
|
|
|
|
5,252
|
|
|
|
6
|
|
|
|
5,658
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,764
|
|
|
|
2
|
%
|
|
$
|
6,545
|
|
|
|
7
|
%
|
|
$
|
7,513
|
|
|
|
9
|
%
|
* Percentage
not meaningful.
Comparison
of Fiscal Years Ended December 31, 2008 and 2007
Revenues
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
|
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
($
in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
77,373
|
|
|
$
|
61,353
|
|
|
$
|
16,020
|
|
|
|
26
|
%
|
Events
|
|
|
22,786
|
|
|
|
24,254
|
|
|
|
(1,468
|
)
|
|
|
(6
|
)
|
Print
|
|
|
4,385
|
|
|
|
6,643
|
|
|
|
(2,258
|
)
|
|
|
(34
|
)
|
Total
revenues
|
|
$
|
104,544
|
|
|
$
|
92,250
|
|
|
$
|
12,294
|
|
|
|
13
|
%
|
Online.
The
increase in online revenue was primarily attributable to a $10.9 million
increase in revenue from lead generation offerings, due principally to an
increase in white paper and webcast sales volumes. White paper sales
volume increased in part due to our acquisition of KnowledgeStorm in November
2007. The increase also reflects a $4.6 million increase in branding
revenue, primarily due to increased banner sales
volume. Additionally, revenue from third party revenue sharing
arrangements increased by approximately $510,000 in 2008 as compared to
2007.
Events.
The
decrease in events revenue was primarily attributable to a $1.7 million decrease
in multi-day conference revenue due to fewer multi-day conferences held in 2008
as compared to 2007. The decrease was offset by a $272,000 increase
in seminar series and custom events revenue, due to an increase in the number of
seminar series and custom events produced in 2008 as compared to
2007.
Print.
The
decrease in print revenue was attributable to the continued shift of our
customer’s advertising budgets away from print and towards online offerings.
Additionally, we discontinued publishing
CIO Decisions
magazine in
November 2007 and both
Storage
and
Information
Security
magazines in December 2008.
Cost
of Revenues and Gross Profit
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
|
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
($
in thousands)
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
21,404
|
|
|
$
|
15,575
|
|
|
$
|
5,829
|
|
|
|
37
|
%
|
Events
|
|
|
9,531
|
|
|
|
8,611
|
|
|
|
920
|
|
|
|
11
|
|
Print
|
|
|
2,156
|
|
|
|
3,788
|
|
|
|
(1,632
|
)
|
|
|
(43
|
)
|
Total
cost of revenues
|
|
$
|
33,091
|
|
|
$
|
27,974
|
|
|
$
|
5,117
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
71,453
|
|
|
$
|
64,276
|
|
|
$
|
7,177
|
|
|
|
11
|
%
|
Gross
profit percentage
|
|
|
68
|
%
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
Cost of Online
Revenue.
Approximately $2.4 million of the increase in cost of
online revenue is attributable to employee salaries, benefits and other
compensation. This increase is primarily due to an increase in
headcount in our online editorial and operations organizations, as well as
increases to employee compensation. In addition, freelancer expenses
increased $422,000 in 2008 as compared to 2007. We increased headcount and
freelancer expenditures to support the increase in online sales volume and to
provide additional editorial content. The increase in cost of online
revenue was also attributable in part to a $1.5 million increase in member
acquisition expenses, primarily related to keyword purchases. The increase in
cost of online revenue also reflects $1.1 million of additional third party
production and hosting costs for online services due to the increased sales
volume in 2008 as compared to 2007. The increase in cost of online revenue also
reflects a $218,000 increase in stock-based compensation.
Cost of Events
Revenue.
The increase in cost of events revenue was
attributable in part to a $638,000 increase in salaries, bonuses and benefits
related to an increase in headcount in our events organization, as well as
increases to employee compensation. The increase in headcount was to
support anticipated growth in events revenue which did not occur. The
increase also reflects a $370,000 increase in seminar series and custom event
costs due to an increase in the number of seminar series and custom events
produced in 2008 as compared to 2007. The increase was partially
offset by a $126,000 decrease in multi-day conference costs due to fewer
multi-day conferences held in 2008 as compared to 2007.
Cost of Print
Revenue.
The decrease in cost of print revenue was
attributable to our efforts to reduce production costs for our publications in
response to our customers’ advertising budgets continuing to shift away from
print and towards online offerings. Additionally, we discontinued publishing
CIO Decisions
magazine
in November 2007 and both
Storage
and
Information Security
magazines in December 2008.
Gross Profit.
Our
gross profit is equal to the difference between our revenues and our cost of
revenues for the period. The increase in gross profit is primarily attributable
to a $10.2 million increase in online gross profit, offset by a decrease of $2.4
million in events gross profit and a decrease of $626,000 in print gross profit.
Gross margin for 2008 was 68%, as compared to 70% for 2007. Since the majority
of our costs are labor-related and therefore are fixed in nature, we expect our
gross profit to fluctuate from period to period depending on the total revenues
for the period as well as the relative contribution of online and events revenue
to our total revenues.
Operating
Expenses and Other
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
|
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
($
in thousands)
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
$
|
33,481
|
|
|
$
|
28,048
|
|
|
$
|
5,433
|
|
|
|
19
|
%
|
Product
development
|
|
|
10,995
|
|
|
|
7,320
|
|
|
|
3,675
|
|
|
|
50
|
|
General
and administrative
|
|
|
14,663
|
|
|
|
12,592
|
|
|
|
2,071
|
|
|
|
16
|
|
Depreciation
|
|
|
2,406
|
|
|
|
1,610
|
|
|
|
796
|
|
|
|
49
|
|
Amortization
of intangible assets
|
|
|
5,306
|
|
|
|
4,740
|
|
|
|
566
|
|
|
|
12
|
|
Restructuring
charge
|
|
|
1,494
|
|
|
|
-
|
|
|
|
1,494
|
|
|
|
*
|
|
Total
operating expenses
|
|
$
|
68,345
|
|
|
$
|
54,310
|
|
|
$
|
14,035
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
$
|
1,440
|
|
|
$
|
1,831
|
|
|
$
|
(391
|
)
|
|
|
(21
|
)
|
Provision
for income taxes
|
|
$
|
2,784
|
|
|
$
|
5,252
|
|
|
$
|
(2,468
|
)
|
|
|
(47
|
)
%
|
* Percentage
not meaningful.
Selling and
Marketing.
The increase in selling and marketing expense was
attributable in part to a $2.9 million increase in salaries, commissions,
bonuses and benefits resulting principally from an increase in headcount in our
sales and marketing organizations, as well as increases to employee
compensation. The increase in headcount is a result of actual growth in revenues
as well as anticipated growth which did not occur. The increase in
selling and marketing expense also reflects a $1.8 million increase in
stock-based compensation and a $543,000 increase in travel related
costs.
Product
Development.
The increase in product development expense was
attributable to a $3.1 million increase in salaries and benefits resulting
principally from an increase in headcount in our product development
organization, as well as increases to employee compensation. The increase in
headcount was primarily a result of additional product development employees
acquired in the acquisition of KnowledgeStorm in November 2007. The increase in
product development expense also reflects a $343,000 increase in hardware and
software maintenance expenses.
General and
Administrative.
The increase in general and administrative
expense was attributable to a $1.4 million increase in facilities expense due to
leasing additional office space in our Needham, MA headquarters beginning in
July 2007, as well as office space acquired with KnowledgeStorm in November
2007. The increase in general and administrative expense was also attributable
to a $637,000 increase in stock-based compensation, offset by a decrease of $1.5
million in other employee compensation. The increase is also due in
part to an increase of $785,000 in expense related to audit, legal, insurance
and other expenses attributable primarily to our being a publicly traded company
for a full year, as well as an increase of $365,000 in bad debt
expense.
Depreciation and Amortization of
Intangible Assets.
The increase in depreciation expense was
primarily attributable to depreciation of assets acquired from KnowledgeStorm in
November 2007. The increase in amortization of intangible assets expense was
primarily attributable to amortization of intangible assets related to our
acquisitions of TechnologyGuide.com in April 2007 and KnowledgeStorm in November
2007.
Interest Income (Expense),
Net.
The decrease in interest income (expense), net reflects a
decrease in interest income due to lower average cash and investment balances as
well as lower interest rates during 2008 compared to 2007.
Provision for Income
Taxes.
The provision for income taxes as a percentage of
income before taxes, or our annual effective tax rate, was 61% in 2008 and 45%
in 2007. The increase in our effective tax rate is due primarily to a
decrease in pretax income in 2008 and an increase in nondeductible stock-based
compensation.
Comparison
of Fiscal Years Ended December 31, 2007 and 2006
Revenues
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
|
As
restated
|
|
|
|
($
in thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
61,353
|
|
|
$
|
51,372
|
|
|
$
|
9,981
|
|
|
|
19
|
%
|
Events
|
|
|
24,254
|
|
|
|
19,708
|
|
|
|
4,546
|
|
|
|
23
|
|
Print
|
|
|
6,643
|
|
|
|
8,119
|
|
|
|
(1,476
|
)
|
|
|
(18
|
)
|
Total
revenues
|
|
$
|
92,250
|
|
|
$
|
79,199
|
|
|
$
|
13,051
|
|
|
|
16
|
%
|
Online.
The
increase in online revenue was attributable to a $12.1 million increase in
revenue from lead generation offerings due primarily to an increase in webcast
and white paper sales volumes as well as revenues from TechnologyGuide.com,
which we acquired in April 2007 and KnowledgeStorm, which we acquired in
November 2007. The increase is offset by a $2.4 million decrease in revenue from
branding offerings due primarily to decreases in banner and e-newsletter sales
volume.
Events.
The
increase in events revenue was primarily attributable to a $4.2 million increase
in seminar series revenue due to an increase in the number of seminar series
events produced in 2007 as compared to 2006.
Print.
The
decrease in print revenue was attributable to the continued shift of advertising
budgets towards online offerings. Additionally, we discontinued
publishing
CIO
Decisions
magazine in November 2007.
Cost
of Revenues and Gross Profit
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
Percent
Change
|
|
|
|
As
restated
|
|
|
|
($
in thousands)
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
15,575
|
|
|
$
|
12,988
|
|
|
$
|
2,587
|
|
|
|
20
|
%
|
Events
|
|
|
8,611
|
|
|
|
6,493
|
|
|
|
2,118
|
|
|
|
33
|
|
Print
|
|
|
3,788
|
|
|
|
5,339
|
|
|
|
(1,551
|
)
|
|
|
(29
|
)
|
Total
cost of revenues
|
|
$
|
27,974
|
|
|
$
|
24,820
|
|
|
$
|
3,154
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
64,276
|
|
|
$
|
54,379
|
|
|
$
|
9,897
|
|
|
|
18
|
%
|
Gross
profit percentage
|
|
|
70
|
%
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
Cost of Online
Revenue.
The increase in cost of online revenue was in part
attributable to a $888,000 increase in member acquisition expenses, primarily
related to keyword purchases for 2020software.com which we acquired in May 2006.
The increase also reflects $594,000 in additional webcast cost of sales due to
increased webcast sales volume in 2007. Approximately $516,000 of the
increase is attributable to salaries and benefits due to an increase in average
headcount of 10 employees in our online editorial and operations organizations,
as well as an additional $193,000 related to increased freelancer expenses in
2007. We increased headcount and freelancers expenditures to support the
increase in online revenue volume and to provide additional editorial
content. Approximately $420,000 of the increase related to the
acquisition of KnowledgeStorm, which we completed in November 2007.
Cost of Events
Revenue.
The increase in cost of events revenue was primarily
attributable to a $1.2 million increase in seminar and custom event cost of
sales due to an increase in the number of seminar series and custom events
produced in 2007 as compared to 2006. Approximately $547,000 of the
increase was related to salaries, bonuses, benefits and temporary staffing
expenses to support the increase in seminar series and custom event
volume. Three additional multi-day conferences were held in 2007 as
compared to 2006 resulting in increased conference expenses of approximately
$305,000.
Cost of Print
Revenue.
The decrease in cost of print revenue was
attributable to our efforts in 2007 to reduce production costs for all three
magazines in response to our customer’s advertising budgets continuing to shift
away from print and towards online offerings. Additionally, we
discontinued publishing
CIO
Decisions
magazine in November 2007.
Gross Profit.
The
increase in gross profit reflects a $7.4 million increase in online gross profit
and a $2.4 million increase in events gross profit. The increase in online gross
profit is attributable to an increase in online revenue at a consistent gross
profit percentage. The increase in events gross profit is attributable to an
increase in custom event and seminar series revenue at a higher gross profit
percentage on these events when compared to 2006. We expect our gross profit to
fluctuate from period to period depending on our mix of revenues.
Operating
Expenses and Other
|
|
For
the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase
(Decrease)
|
|
|
Percent
Change
|
|
|
|
As
restated
|
|
|
|
($
in thousands)
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
$
|
28,048
|
|
|
$
|
20,305
|
|
|
$
|
7,743
|
|
|
|
38
|
%
|
Product
development
|
|
|
7,320
|
|
|
|
6,295
|
|
|
|
1,025
|
|
|
|
16
|
|
General
and administrative
|
|
|
12,592
|
|
|
|
8,756
|
|
|
|
3,836
|
|
|
|
44
|
|
Depreciation
|
|
|
1,610
|
|
|
|
1,144
|
|
|
|
466
|
|
|
|
41
|
|
Amortization
of intangible assets
|
|
|
4,740
|
|
|
|
5,029
|
|
|
|
(289
|
)
|
|
|
(6
|
)
|
Total
operating expenses
|
|
$
|
54,310
|
|
|
$
|
41,529
|
|
|
$
|
12,781
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
$
|
1,831
|
|
|
$
|
321
|
|
|
$
|
1,510
|
|
|
|
*
|
|
Provision
for (benefit from) income taxes
|
|
$
|
5,252
|
|
|
$
|
5,658
|
|
|
$
|
(406
|
)
|
|
|
(7
|
)
%
|
* Percent
change not meaningful.
Selling and
Marketing.
The increase in selling and marketing expense was
primarily attributable to a $3.9 million increase in salaries, commissions, and
benefits related to an increase in average headcount of 45 employees in our
sales and marketing organizations, as well as increases to employee
compensation. The increase in headcount was to support the growth in revenues.
The increase also reflects a $2.4 million increase in stock-based compensation
expense and a $347,000 increase in travel expense resulting from the growth in
sales personnel. Approximately $945,000 of selling and marketing
expense related to the results of operations of KnowledgeStorm which we acquired
in November 2007.
Product
Development.
The increase in product development expense was
primarily attributable to $612,000 of expense related to the results of
operations of KnowledgeStorm which we acquired in November 2007. An
additional $144,000 of the increase was for consulting expenses related to IT
infrastructure improvements to support the growing number of online
offerings. The increase also reflects a $244,000 increase in
stock-based compensation.
General and
Administrative.
The increase in general and administrative
expense was primarily attributable to a $1.8 million increase in stock-based
compensation and a $482,000 increase in other employee
compensation. The increase was also attributable to a $955,000
increase in audit, legal, and insurance expenses related to operating as a
publicly traded company since May 2007. The increase also reflects a
$259,000 increase in facilities expense due to leasing additional office space
in our Needham, MA headquarters beginning in July 2007.
Depreciation.
The
increase in depreciation expense was attributable to purchases of property and
equipment of $2.7 million in the year ended December 31, 2007 compared to $1.3
million in 2006.
Amortization of Intangible
Assets.
The decrease in amortization of intangible assets
expense was attributable to intangible assets related to acquisitions in prior
years becoming fully amortized, offset in part by the amortization of intangible
assets related to our acquisitions of TechnologyGuide.com in May 2007 and
KnowledgeStorm in November 2007.
Interest Income (Expense),
Net.
The increase in interest income (expense), net reflected
an increase in average cash and short-term investment balances during 2007
compared to 2006.
Provision for Income
Taxes.
The provision for income taxes as a percentage of
income before taxes, or our annual effective tax rate, was 45% in 2007 and 43%
in 2006. The increase in the effective tax rate was primarily due to
a decrease in pretax income in 2008 and an increase in nondeductible stock-based
compensation; partially offset by an increase in interest income exempt from
Federal taxation.
Selected Quarterly Results of
Operations
The
following table presents our unaudited quarterly consolidated results of
operations and our unaudited quarterly consolidated results of operations as a
percentage of revenue for the eight quarters ended December 31, 2008. The
unaudited quarterly consolidated information has been prepared on the same basis
as our audited consolidated financial statements. You should read the following
table presenting our quarterly consolidated results of operations in conjunction
with our audited consolidated financial statements and the related notes
included elsewhere in this Annual Report. The operating results for any quarter
are not necessarily indicative of the operating results for any future
period.
|
|
For
the Three Months Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Mar.
31
|
|
|
Jun.
30
|
|
|
Sep.
30
|
|
|
Dec.
31
|
|
|
Mar.
31
|
|
|
Jun.
30
|
|
|
Sep.
30
|
|
|
Dec.
31
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
(in
thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
18,210
|
|
|
$
|
19,071
|
|
|
$
|
20,420
|
|
|
$
|
19,672
|
|
|
$
|
13,284
|
|
|
$
|
14,584
|
|
|
$
|
14,539
|
|
|
$
|
18,946
|
|
Events
|
|
|
3,985
|
|
|
|
7,262
|
|
|
|
5,496
|
|
|
|
6,043
|
|
|
|
2,939
|
|
|
|
6,350
|
|
|
|
6,912
|
|
|
|
8,053
|
|
Print
|
|
|
1,068
|
|
|
|
1,282
|
|
|
|
1,080
|
|
|
|
955
|
|
|
|
1,629
|
|
|
|
1,869
|
|
|
|
1,655
|
|
|
|
1,490
|
|
Total
revenues
|
|
|
23,263
|
|
|
|
27,615
|
|
|
|
26,996
|
|
|
|
26,670
|
|
|
|
17,852
|
|
|
|
22,803
|
|
|
|
23,106
|
|
|
|
28,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
|
5,169
|
|
|
|
5,481
|
|
|
|
5,462
|
|
|
|
5,292
|
|
|
|
3,525
|
|
|
|
3,900
|
|
|
|
3,769
|
|
|
|
4,381
|
|
Events
|
|
|
1,827
|
|
|
|
2,923
|
|
|
|
2,328
|
|
|
|
2,453
|
|
|
|
1,372
|
|
|
|
2,410
|
|
|
|
2,283
|
|
|
|
2,546
|
|
Print
|
|
|
546
|
|
|
|
632
|
|
|
|
580
|
|
|
|
398
|
|
|
|
1,129
|
|
|
|
999
|
|
|
|
862
|
|
|
|
798
|
|
Total
cost of revenues
|
|
|
7,542
|
|
|
|
9,036
|
|
|
|
8,370
|
|
|
|
8,143
|
|
|
|
6,026
|
|
|
|
7,309
|
|
|
|
6,914
|
|
|
|
7,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
15,721
|
|
|
|
18,579
|
|
|
|
18,626
|
|
|
|
18,527
|
|
|
|
11,826
|
|
|
|
15,494
|
|
|
|
16,192
|
|
|
|
20,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
8,444
|
|
|
|
8,885
|
|
|
|
8,161
|
|
|
|
7,991
|
|
|
|
6,152
|
|
|
|
6,388
|
|
|
|
7,271
|
|
|
|
8,237
|
|
Product
development
|
|
|
2,762
|
|
|
|
2,890
|
|
|
|
2,788
|
|
|
|
2,555
|
|
|
|
1,748
|
|
|
|
1,596
|
|
|
|
1,677
|
|
|
|
2,299
|
|
General
and administrative
|
|
|
3,795
|
|
|
|
3,459
|
|
|
|
3,662
|
|
|
|
3,747
|
|
|
|
2,610
|
|
|
|
2,943
|
|
|
|
3,364
|
|
|
|
3,675
|
|
Depreciation
|
|
|
724
|
|
|
|
581
|
|
|
|
579
|
|
|
|
522
|
|
|
|
330
|
|
|
|
364
|
|
|
|
401
|
|
|
|
515
|
|
Amortization
of intangible assets
|
|
|
1,480
|
|
|
|
1,332
|
|
|
|
1,259
|
|
|
|
1,235
|
|
|
|
759
|
|
|
|
1,041
|
|
|
|
1,171
|
|
|
|
1,769
|
|
Restructuring
charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,494
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
17,205
|
|
|
|
17,147
|
|
|
|
16,449
|
|
|
|
17,544
|
|
|
|
11,599
|
|
|
|
12,332
|
|
|
|
13,884
|
|
|
|
16,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
|
(1,484
|
)
|
|
|
1,432
|
|
|
|
2,177
|
|
|
|
983
|
|
|
|
227
|
|
|
|
3,162
|
|
|
|
2,308
|
|
|
|
4,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
418
|
|
|
|
268
|
|
|
|
248
|
|
|
|
506
|
|
|
|
(67
|
)
|
|
|
377
|
|
|
|
897
|
|
|
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for (benefit from) income taxes
|
|
|
(1,066
|
)
|
|
|
1,700
|
|
|
|
2,425
|
|
|
|
1,489
|
|
|
|
160
|
|
|
|
3,539
|
|
|
|
3,205
|
|
|
|
4,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for (benefit from) income taxes
|
|
|
(630
|
)
|
|
|
648
|
|
|
|
1,718
|
|
|
|
1,048
|
|
|
|
85
|
|
|
|
1,551
|
|
|
|
1,487
|
|
|
|
2,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(436
|
)
|
|
$
|
1,052
|
|
|
$
|
707
|
|
|
$
|
441
|
|
|
$
|
75
|
|
|
$
|
1,988
|
|
|
$
|
1,718
|
|
|
$
|
2,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.31
|
)
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
Net
income (loss) per share diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.31
|
)
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
Seasonality
The
timing of our revenues is affected by seasonal factors. Our revenues are
seasonal primarily as a result of the annual budget approval process of many of
our customers and the historical decrease in advertising activity in July and
August. Revenues are usually the lowest in the first quarter of each calendar
year, increase during the second quarter, decrease during the third quarter, and
increase again during the fourth quarter. Events revenue may vary depending on
which quarters we produce the event, which may vary when compared to previous
periods. The timing of revenues in relation to our expenses, much of which does
not vary directly with revenue, has an impact on the cost of online revenue,
selling and marketing, product development, and general and administrative
expenses as a percentage of revenue in each calendar quarter during the
year.
The
majority of our expenses are personnel-related and include salaries, stock-based
compensation, benefits and incentive-based compensation plan expenses. As a
result, we have not experienced significant seasonal fluctuations in the timing
of our expenses period to period.
Liquidity
and Capital Resources
Resources
Since
2003, we have funded our operations principally with cash flows generated by
operations. In May 2007, we completed our initial public offering of
8.9 million shares of our common stock, of which 7.1 million shares were sold by
us and 1.8 million shares were sold by stockholders of ours, all at a price to
the public of $13.00 per share. We raised a total of $91.9 million in
gross proceeds from the offering, or $83.2 million in net proceeds after
deducting underwriting discounts and commissions of $6.4 million and other
offering costs of approximately $2.3 million. We have used a portion
of these proceeds to repay $12.0 million that we had borrowed against our
revolving credit facility in conjunction with the acquisition of
TechnologyGuide.com in April 2007 and to pay to the selling stockholders of
KnowledgeStorm, Inc. approximately $52 million in November 2007 as partial
consideration in that acquisition. We believe that our existing cash
and cash equivalents, our cash flow from operating activities and available bank
borrowings will be sufficient to meet our anticipated cash needs for at least
the next twelve months. Our future working capital requirements will
depend on many factors, including the operations of our existing business, our
potential strategic expansion internationally, future acquisitions we might
undertake, and the expansion into complementary businesses. To the
extent that our cash and cash equivalents and cash flow from operating
activities are insufficient to fund our future activities, we may need to raise
additional funds through bank credit arrangements or public or private equity or
debt financings. We also may need to raise additional funds in the
event we determine in the future to effect one or more additional acquisitions
of businesses. In the event additional funding is required, we may
not be able to obtain bank credit arrangements or affect an equity or debt
financing on terms acceptable to us or at all.
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Cash,
cash equivalents and investments
|
|
$
|
69,568
|
|
|
$
|
62,001
|
|
|
$
|
30,830
|
|
Accounts
receivable, net
|
|
|
17,622
|
|
|
|
15,198
|
|
|
|
12,096
|
|
Cash,
Cash Equivalents and Investments
Our cash,
cash equivalents and investments at December 31, 2008 were held for working
capital purposes and were invested primarily in money market accounts and
municipal bonds. We do not enter into investments for trading or
speculative purposes.
Accounts
Receivable, Net
Our
accounts receivable balance fluctuates from period to period, which affects our
cash flow from operating activities. The fluctuations vary depending on the
timing of our service delivery and billing activity, cash collections, and
changes to our allowance for doubtful accounts. We use days' sales outstanding,
or DSO, calculated on a monthly basis, as a measurement of the quality and
status of our receivables. We define DSO as accounts receivable divided by total
revenue for the applicable period, multiplied by the number of days in the
applicable period. DSO was 60 days at December 31, 2008, 57 days at December 31,
2007, and 51 days at December 31, 2006.
Operating
Activities
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in
thousands)
|
|
Cash
provided by operating activities
|
|
|
10,565
|
|
|
|
13,302
|
|
|
|
12,339
|
|
Cash
used in investing activities
(1)
|
|
|
(3,271
|
)
|
|
|
(67,884
|
)
|
|
|
(16,280
|
)
|
Cash
provided by (used in) financing activities
|
|
|
94
|
|
|
|
85,753
|
|
|
|
(12,108
|
)
|
(1)
|
Cash
used in investing activities shown net of investment activity of $6.1
million and ($51.3) million for the years ended December 31, 2008 and
2007, respectively.
|
Cash
provided by operating activities primarily consists of net income adjusted for
certain non-cash items including depreciation and amortization, the provision
for bad debt, stock-based compensation, deferred income taxes, and the effect of
changes in working capital and other activities. Cash provided by operating
activities for the year ended December 31, 2008 was $10.6 million compared to
$13.3 million and $12.3 million in the years ended December 31, 2007 and 2006,
respectively, primarily due to decreased profitability.
Investing
Activities
Cash used
in investing activities primarily consists of purchases of property and
equipment and acquisitions of businesses. Cash used in investing
activities, net of investment activity, for the year ended December 31, 2008 was
$3.3 million and consisted of $2.0 million for the purchase of property and
equipment and $1.3 million for the acquisition of The Brian Madden
Company. Cash used in investing activities, net of investment
activity, for the year ended December 31, 2007 was $67.9 million and consisted
of $64.2 million for the acquisitions of TechnologyGuide.com in April 2007 and
KnowledgeStorm in November 2007, net of cash acquired, $2.7 million for the
purchase of property and equipment and $1.0 million to acquire certain assets of
Ajaxian in February 2007. Cash used in investing activities for the
year ended December 31, 2006 was $16.3 million and consisted of $15.0 million
for the acquisition of 2020software.com in May 2006 and $1.3 million for the
purchase of property and equipment.
Equity
Financing Activities
We
received proceeds from the exercise of common stock options and warrants
totaling $2.2 million, $2.5 million and $892,000 for the years ended December
31, 2008, 2007 and 2006, respectively. In May 2007, we completed our
initial public offering of 8.9 million shares of our common stock, of which 7.1
million shares were sold by us and 1.8 million shares were sold by stockholders
of ours, all at a price to the public of $13.00 per share. We raised
a total of $91.9 million in gross proceeds from the offering, or $83.2 million
in net proceeds after deducting underwriting discounts and commissions of $6.4
million and other offering costs of approximately $2.3 million.
Term
Loan and Credit Facility Borrowings
On August
30, 2006, we entered into a credit agreement with Citizens Bank of
Massachusetts, which included a $10.0 million term loan and a $20.0 million
revolving credit facility. As of December 31, 2008, outstanding
borrowings under the credit agreements were $3.0 million.
We
borrowed $12.0 million against our revolving credit facility in conjunction with
the acquisition of TechnologyGuide.com in April 2007. The entire
outstanding balance of $12.0 million was repaid in May 2007 with proceeds from
our initial public offering. Our revolving credit facility matures on
August 30, 2011. Unless earlier payment is required by an event of default, all
principal and any unpaid interest will be due and payable on August 30,
2011. At our option, the revolving credit facility bears interest at
either the lender's prime rate less 1.00% or the London Interbank Offered Rate,
or LIBOR, plus the applicable LIBOR margin. The applicable LIBOR margin is based
on the ratio of total funded debt to EBITDA for the preceding four fiscal
quarters. As of December 31, 2008, the applicable LIBOR margin was
1.25%.
We are
also required to pay an unused line fee on the daily unused amount of our
revolving credit facility at a per annum rate based on the ratio of total funded
debt to EBITDA for the preceding four fiscal quarters. As of December 31, 2008,
unused availability under our revolving credit facility totaled $20 million and
the per annum unused line fee rate was 0.20%.
Our term
loan requires the payment of 39 consecutive monthly installments of $250,000
each, plus interest, the first such installment was due on September 30, 2006,
with a final payment of the entire unpaid principal balance due on December 30,
2009. In September 2006, we entered into an interest rate swap
agreement to mitigate interest rate fluctuation, and fix the interest rate on
the term loan at 6.98%.
Borrowings
under our credit agreements are collateralized by an interest in and lien on all
of our assets and certain other guarantees and pledges. Our credit agreements
contain certain affirmative and negative covenants, which require, among other
things, that we meet certain financial ratio covenants and limit certain capital
expenditures.
At
December 31, 2008 we were in violation of one loan covenant under the credit
agreement with Citizens Bank.
We failed
to file timely audited financial statements with the SEC. We received a waiver
from the bank agreeing to waive compliance with such covenant solely for the
quarters ending December 31, 2008 and March 31, 2009.
Capital
Expenditures
We have
made capital expenditures primarily for computer equipment and related software
needed to host our websites, internal-use software development costs, as well as
for leasehold improvements and other general purposes to support our growth. Our
capital expenditures totaled $2.0 million, $2.7 million, and $1.3 million for
the years ended December 31, 2008, 2007 and 2006, respectively. We expect to
spend approximately $3.3 million in capital expenditures in 2009 primarily for
leasehold improvements, website development costs, computer equipment and
related software, and internal-use software development costs. We are not
currently party to any purchase contracts related to future capital
expenditures.
Contractual
Obligations and Commitments
As of
December 31, 2008, our principal commitments consist of obligations under leases
for office space and principal and interest payments due under our bank term
loan. The offices are leased under noncancelable operating lease agreements that
expire through January 2013. The following table sets forth our commitments to
settle contractual obligations in cash as of December 31, 2008:
|
|
Payments
Due By Period
|
|
|
|
Total
|
|
|
Less
than 1 Year
|
|
|
1
- 3 Years
|
|
|
3
- 5 Years
|
|
|
More
than 5 Years
|
|
|
|
(in
thousands)
|
|
Bank
term loan payable
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating
leases
|
|
|
5,645
|
|
|
|
3,199
|
|
|
|
2,395
|
|
|
|
51
|
|
|
|
-
|
|
Total
|
|
$
|
8,645
|
|
|
$
|
6,199
|
|
|
$
|
2,395
|
|
|
$
|
51
|
|
|
$
|
-
|
|
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Recent
Accounting Pronouncements
See Note
3 of “Notes to Consolidated Financial Statements” for recent accounting
pronouncements that could have an effect on us.
Item
7A. Quantitative
and Qualitative Disclosures About Market
Risk
Market
risk represents the risk of loss that may impact our financial position due to
adverse changes in financial market prices and rates. Our market risk
exposure is primarily a result of fluctuations in foreign exchange rates and
interest rates. We do not hold or issue financial instruments for trading
purposes.
Foreign
Currency Exchange Risk
Our
subsidiary, TechTarget Limited, was established in July 2006 and is located in
London, England. As of December 31, 2008, most of our international customer
agreements have been denominated in U.S. dollars, and aggregate foreign currency
payments made by us through this subsidiary have been less than $200,000 during
the year ended December 31, 2008. We currently believe our exposure to foreign
currency exchange rate fluctuations is financially immaterial and therefore have
not entered into foreign currency hedging transactions. We continue to review
this issue and may consider hedging certain foreign exchange risks through the
use of currency futures or options in the future.
Interest
Rate Risk
At
December 31, 2008, we had cash, cash equivalents and investments totaling $69.6
million. These amounts were invested primarily in money market
accounts and municipal bonds. The cash, cash equivalents and
investments were held for working capital purposes. We do not enter
into investments for trading or speculative purposes. Due to the
short-term nature of these investments, we believe we do not have any material
exposure to changes in the fair value of our investment portfolio as a result of
changes in interest rates. Declines in interest rates, however, would
reduce future investment income.
Our
exposure to market risk also relates to the amount of interest expense we must
pay under our revolving credit facility. The advances under this credit facility
bear a variable rate of interest determined as a function of the lender's prime
rate or LIBOR. At December 31, 2008, there were no amounts
outstanding under our revolving credit facility.
Item
8. Financial
Statements and Supplementary
Data
Index
to Consolidated Financial Statements
Report of Independent Registered Public Accounting
Firm
The Board
of Directors and Stockholders of
TechTarget,
Inc.
We have
audited the accompanying consolidated balance sheets of TechTarget, Inc. as of
December 31, 2008 and 2007, and the related consolidated statements of
operations, redeemable convertible preferred stock and stockholders’ equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of TechTarget, Inc. at
December 31, 2008 and 2007, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2008, in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 2 to the consolidated financial statements, the Company has
restated its financial statements for the years ended December 31, 2007 and
2006. In addition, as discussed in Note 2 to the consolidated financial
statements, effective January 1, 2007, the Company adopted Financial Accounting
Standards Board Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of TechTarget, Inc.'s
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated July 13, 2009 expressed an adverse opinion thereon.
Boston,
Massachusetts
July 13,
2009
TechTarget, Inc.
Consolidated
Balance Sheets
(in
thousands, except share and per share data)
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
restated
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
24,130
|
|
|
$
|
10,693
|
|
Short-term
investments
|
|
|
42,863
|
|
|
|
51,308
|
|
Accounts
receivable, net of allowance for doubtful accounts of $642 and $424 as of
December 31, 2008 and 2007, respectively
|
|
|
17,622
|
|
|
|
15,198
|
|
Prepaid
expenses and other current assets
|
|
|
6,251
|
|
|
|
2,261
|
|
Deferred
tax assets
|
|
|
2,959
|
|
|
|
5,250
|
|
Total
current assets
|
|
|
93,825
|
|
|
|
84,710
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
3,904
|
|
|
|
4,401
|
|
Long-term
investments
|
|
|
2,575
|
|
|
|
-
|
|
Goodwill
|
|
|
88,958
|
|
|
|
88,326
|
|
Intangible
assets, net of accumulated amortization
|
|
|
17,242
|
|
|
|
21,939
|
|
Other
assets
|
|
|
139
|
|
|
|
203
|
|
Deferred
tax assets
|
|
|
3,369
|
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
210,012
|
|
|
$
|
202,489
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of bank term loan payable
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
Accounts
payable
|
|
|
3,404
|
|
|
|
2,919
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
1,330
|
|
Accrued
expenses and other current liabilities
|
|
|
2,908
|
|
|
|
2,473
|
|
Accrued
compensation expenses
|
|
|
702
|
|
|
|
2,600
|
|
Deferred
revenue
|
|
|
8,749
|
|
|
|
9,378
|
|
Total
current liabilities
|
|
|
18,763
|
|
|
|
21,700
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
312
|
|
|
|
455
|
|
Bank
term loan payable, net of current portion
|
|
|
-
|
|
|
|
3,000
|
|
Total
liabilities
|
|
|
19,075
|
|
|
|
25,155
|
|
|
|
|
|
|
|
|
|
|
Commitments
(Note 11)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred
stock, 5,000,000 shares authorized; no shares issued or
outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.001 par value per share, 100,000,000 shares authorized;
41,616,963 and 41,081,616 shares issued and outstanding at December 31,
2008 and 2007, respectively
|
|
|
42
|
|
|
|
41
|
|
Additional
paid-in capital
|
|
|
221,597
|
|
|
|
209,773
|
|
Warrants
|
|
|
2
|
|
|
|
13
|
|
Accumulated
other comprehensive loss
|
|
|
(77
|
)
|
|
|
(102
|
)
|
Accumulated
deficit
|
|
|
(30,627
|
)
|
|
|
(32,391
|
)
|
Total
stockholders' equity (deficit)
|
|
|
190,937
|
|
|
|
177,334
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
210,012
|
|
|
$
|
202,489
|
|
See
accompanying notes.
TechTarget, Inc.
Consolidated
Statements of Operations
(in
thousands, except share and per share data)
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
77,373
|
|
|
$
|
61,353
|
|
|
$
|
51,372
|
|
Events
|
|
|
22,786
|
|
|
|
24,254
|
|
|
|
19,708
|
|
Print
|
|
|
4,385
|
|
|
|
6,643
|
|
|
|
8,119
|
|
Total
revenues
|
|
|
104,544
|
|
|
|
92,250
|
|
|
|
79,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
(1)
|
|
|
21,404
|
|
|
|
15,575
|
|
|
|
12,988
|
|
Events
(1)
|
|
|
9,531
|
|
|
|
8,611
|
|
|
|
6,493
|
|
Print
(1)
|
|
|
2,156
|
|
|
|
3,788
|
|
|
|
5,339
|
|
Total
cost of revenues
|
|
|
33,091
|
|
|
|
27,974
|
|
|
|
24,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
71,453
|
|
|
|
64,276
|
|
|
|
54,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
(1)
|
|
|
33,481
|
|
|
|
28,048
|
|
|
|
20,305
|
|
Product
development
(1)
|
|
|
10,995
|
|
|
|
7,320
|
|
|
|
6,295
|
|
General
and administrative
(1)
|
|
|
14,663
|
|
|
|
12,592
|
|
|
|
8,756
|
|
Depreciation
|
|
|
2,406
|
|
|
|
1,610
|
|
|
|
1,144
|
|
Amortization
of intangible assets
|
|
|
5,306
|
|
|
|
4,740
|
|
|
|
5,029
|
|
Restructuring
charge (Note 6)
|
|
|
1,494
|
|
|
|
-
|
|
|
|
-
|
|
Total
operating expenses
|
|
|
68,345
|
|
|
|
54,310
|
|
|
|
41,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
3,108
|
|
|
|
9,966
|
|
|
|
12,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,818
|
|
|
|
2,815
|
|
|
|
1,613
|
|
Interest
expense
|
|
|
(378
|
)
|
|
|
(984
|
)
|
|
|
(1,292
|
)
|
Total
interest income (expense)
|
|
|
1,440
|
|
|
|
1,831
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
4,548
|
|
|
|
11,797
|
|
|
|
13,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
2,784
|
|
|
|
5,252
|
|
|
|
5,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,764
|
|
|
$
|
6,545
|
|
|
$
|
7,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
(0.42
|
)
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,424,920
|
|
|
|
28,384,303
|
|
|
|
7,824,374
|
|
Diluted
|
|
|
43,439,619
|
|
|
|
31,346,738
|
|
|
|
7,824,374
|
|
(1) Amounts
include stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
Cost
of online revenue
|
|
$
|
407
|
|
|
$
|
189
|
|
|
$
|
87
|
|
Cost
of events revenue
|
|
|
91
|
|
|
|
53
|
|
|
|
31
|
|
Cost
of print revenue
|
|
|
6
|
|
|
|
15
|
|
|
|
12
|
|
Selling
and marketing
|
|
|
4,813
|
|
|
|
2,999
|
|
|
|
606
|
|
Product
development
|
|
|
473
|
|
|
|
334
|
|
|
|
90
|
|
General
and administrative
|
|
|
2,881
|
|
|
|
2,244
|
|
|
|
424
|
|
See
accompanying notes.
TechTarget, Inc.
Consolidated
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity
(Deficit)
(in
thousands, except share and per share data)
|
|
Redeemable
Convertible Preferred Stock
|
|
|
Common
Stock
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Redemption
Value
|
|
|
Number
of Shares
|
|
|
$0.001
Par Value
|
|
|
Number
of Shares
|
|
|
Value
|
|
|
Additional
Paid-In Capital
|
|
|
Warrants
|
|
|
Deferred
Compensation
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005 (as previously reported)
|
|
|
97,491,861
|
|
|
$
|
126,004
|
|
|
|
8,249,973
|
|
|
$
|
8
|
|
|
|
836,010
|
|
|
$
|
(4,548
|
)
|
|
$
|
-
|
|
|
$
|
364
|
|
|
$
|
(28
|
)
|
|
$
|
-
|
|
|
$
|
(59,519
|
)
|
|
$
|
(63,723
|
)
|
Cumulative
effect of restatement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,033
|
)
|
|
$
|
(2,033
|
)
|
Balance,
December 31, 2005 (as restated)
|
|
|
97,491,861
|
|
|
$
|
126,004
|
|
|
|
8,249,973
|
|
|
$
|
8
|
|
|
|
836,010
|
|
|
$
|
(4,548
|
)
|
|
$
|
-
|
|
|
$
|
364
|
|
|
$
|
(28
|
)
|
|
$
|
-
|
|
|
$
|
(61,552
|
)
|
|
$
|
(65,756
|
)
|
Accretion
of redeemable convertible preferred stock
|
|
|
|
|
|
|
10,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,762
|
)
|
Issuance
of common stock from warrants and stock options
|
|
|
|
|
|
|
|
|
|
|
555,867
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1,150
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
892
|
|
Retirement
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(836,010
|
)
|
|
|
(1
|
)
|
|
|
(836,010
|
)
|
|
|
4,548
|
|
|
|
(4,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,222
|
|
|
|
1,222
|
|
Reclassification
from additional paid-in capital to accumulated deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,159
|
)
|
|
|
-
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
(56
|
)
|
Net
income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
7,513
|
|
|
|
7,513
|
|
Comprehensive
income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,457
|
|
Balance,
December 31, 2006 (as restated)
|
|
|
97,491,861
|
|
|
$
|
136,766
|
|
|
|
7,969,830
|
|
|
$
|
8
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
105
|
|
|
$
|
-
|
|
|
$
|
(56
|
)
|
|
$
|
(66,976
|
)
|
|
$
|
(66,919
|
)
|
Accretion
of redeemable convertible preferred stock
|
|
|
|
|
|
|
2,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,613
|
)
|
Reclassification
from additional paid-in capital to accumulated deficit prior to initial
public offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,492
|
)
|
|
|
-
|
|
Conversion
of redeemable convertible preferred stock to common stock
|
|
|
(97,491,861
|
)
|
|
|
(139,379
|
)
|
|
|
24,372,953
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
108,822
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
30,532
|
|
|
|
139,734
|
|
Sale
of common stock in initial public offering, net of issuance
costs
|
|
|
|
|
|
|
|
|
|
|
7,072,097
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
83,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,161
|
|
Issuance
of common stock from warrants, stock options and restricted stock
awards
|
|
|
|
|
|
|
|
|
|
|
1,306,916
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2,862
|
|
|
|
(398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,466
|
|
Issuance
of common stock to acquire KnowledgeStorm
|
|
|
|
|
|
|
|
|
|
|
359,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Excess
tax benefit - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,222
|
|
Reclassification
of preferred stock warrants to other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,834
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
(46
|
)
|
Net
income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,545
|
|
|
|
6,545
|
|
Comprehensive
income (as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,499
|
|
Balance,
December 31, 2007 (as restated)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
41,081,616
|
|
|
$
|
41
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
209,773
|
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
(102
|
)
|
|
$
|
(32,391
|
)
|
|
$
|
177,334
|
|
Issuance
of common stock from warrants, stock options and restricted stock
awards
|
|
|
|
|
|
|
|
|
|
|
535,347
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
2,214
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,203
|
|
Excess
tax benefit - stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939
|
|
Stock-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,671
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of interest rate swap
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
Unrealized
gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
Unrealized
loss on foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,764
|
|
|
|
1,764
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,789
|
|
Balance,
December 31, 2008
|
|
|
-
|
|
|
$
|
-
|
|
|
|
41,616,963
|
|
|
$
|
42
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
221,597
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
(77
|
)
|
|
$
|
(30,627
|
)
|
|
$
|
190,937
|
|
See
accompanying notes.
TechTarget, Inc.
Consolidated
Statements of Cash Flows
(in
thousands)
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,764
|
|
|
$
|
6,545
|
|
|
$
|
7,513
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,712
|
|
|
|
6,350
|
|
|
|
6,173
|
|
Provision
for bad debt
|
|
|
441
|
|
|
|
78
|
|
|
|
366
|
|
Stock-based
compensation
|
|
|
8,671
|
|
|
|
5,834
|
|
|
|
1,250
|
|
Non-cash
interest expense
|
|
|
9
|
|
|
|
312
|
|
|
|
92
|
|
Deferred
tax benefit
|
|
|
1,746
|
|
|
|
(1,715
|
)
|
|
|
21
|
|
Excess
tax benefit - stock options
|
|
|
(891
|
)
|
|
|
(3,126
|
)
|
|
|
-
|
|
Non-cash
portion of restructuring charge
|
|
|
49
|
|
|
|
-
|
|
|
|
-
|
|
Other
non-cash items related to income taxes
|
|
|
85
|
|
|
|
-
|
|
|
|
-
|
|
Changes
in operating assets and liabilities, net of businesses
acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(2,871
|
)
|
|
|
(1,985
|
)
|
|
|
(3,247
|
)
|
Prepaid
expenses and other current assets
|
|
|
(3,012
|
)
|
|
|
2,048
|
|
|
|
(39
|
)
|
Other
assets
|
|
|
55
|
|
|
|
686
|
|
|
|
(774
|
)
|
Accounts
payable
|
|
|
476
|
|
|
|
(246
|
)
|
|
|
(741
|
)
|
Income
taxes payable
|
|
|
(1,330
|
)
|
|
|
(524
|
)
|
|
|
1,539
|
|
Accrued
expenses and other current liabilities
|
|
|
305
|
|
|
|
(855
|
)
|
|
|
399
|
|
Accrued
compensation expenses
|
|
|
(1,898
|
)
|
|
|
(2,729
|
)
|
|
|
446
|
|
Deferred
revenue
|
|
|
(629
|
)
|
|
|
2,786
|
|
|
|
(605
|
)
|
Other
liabilities
|
|
|
(117
|
)
|
|
|
(157
|
)
|
|
|
(54
|
)
|
Net
cash provided by operating activities
|
|
|
10,565
|
|
|
|
13,302
|
|
|
|
12,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment, and other assets
|
|
|
(2,037
|
)
|
|
|
(2,709
|
)
|
|
|
(1,263
|
)
|
Purchases
of short-term investments
|
|
|
(60,103
|
)
|
|
|
(354,729
|
)
|
|
|
-
|
|
Purchases
of long-term investments
|
|
|
(17,114
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from sales and maturities of short-term investments
|
|
|
83,189
|
|
|
|
303,421
|
|
|
|
-
|
|
Proceeds
from sales and maturities of long-term investments
|
|
|
77
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition
of assets
|
|
|
(50
|
)
|
|
|
(1,013
|
)
|
|
|
-
|
|
Acquisition
of businesses, net of cash acquired
|
|
|
(1,184
|
)
|
|
|
(64,162
|
)
|
|
|
(15,017
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
2,778
|
|
|
|
(119,192
|
)
|
|
|
(16,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from revolving credit facility
|
|
|
-
|
|
|
|
12,000
|
|
|
|
-
|
|
Payments
made on revolving credit facility
|
|
|
-
|
|
|
|
(12,000
|
)
|
|
|
-
|
|
Proceeds
from bank term loan payable
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
Payments
on bank term loan payable
|
|
|
(3,000
|
)
|
|
|
(3,000
|
)
|
|
|
(23,000
|
)
|
Proceeds
from initial public offering, net of stock issuance costs
|
|
|
-
|
|
|
|
83,161
|
|
|
|
-
|
|
Excess
tax benefit - stock options
|
|
|
891
|
|
|
|
3,126
|
|
|
|
-
|
|
Proceeds
from exercise of warrants and stock options
|
|
|
2,203
|
|
|
|
2,466
|
|
|
|
892
|
|
Net
cash provided by (used in) financing activities
|
|
|
94
|
|
|
|
85,753
|
|
|
|
(12,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
13,437
|
|
|
|
(20,137
|
)
|
|
|
(16,049
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
10,693
|
|
|
|
30,830
|
|
|
|
46,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
24,130
|
|
|
$
|
10,693
|
|
|
$
|
30,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
318
|
|
|
$
|
620
|
|
|
$
|
1,286
|
|
Cash
paid for taxes
|
|
$
|
4,561
|
|
|
$
|
4,484
|
|
|
$
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in connection with KnowledgeStorm
acquisition
|
|
$
|
-
|
|
|
$
|
6,000
|
|
|
$
|
-
|
|
Accrual
for cash to be paid in connection with The Brian Madden Company
acquisition
|
|
$
|
131
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes.
TechTarget, Inc.
Notes
to Consolidated Financial Statements
Years
Ended December 31, 2008, 2007 and 2006
(In
thousands, except share and per share data)
1.
Organization and Operations
TechTarget,
Inc. (the Company) is a leading provider of specialized online content that
brings together buyers and sellers of corporate information technology, or IT,
products. The Company sells customized marketing programs that enable IT vendors
to reach corporate IT decision makers who are actively researching specific IT
purchases.
The
Company’s integrated content platform consists of a network of websites that are
complemented with targeted in-person events and specialized IT
magazines. Throughout all stages of the purchase decision process,
these content offerings meet IT professionals' needs for expert, peer and IT
vendor information, and provide a platform on which IT vendors can launch
targeted marketing campaigns that generate measurable, high return on investment
(ROI). As IT professionals have become increasingly specialized, they have come
to rely on our sector-specific websites for purchasing decision support. The
Company’s content enables IT professionals to navigate the complex and rapidly
changing IT landscape where purchasing decisions can have significant financial
and operational consequences. Based upon the logical clustering of users'
respective job responsibilities and the marketing focus of the products that the
Company’s customers are advertising, content offerings are currently categorized
across ten distinct media groups: Application Development; Channel; CIO/IT
Strategy; Data Center and Virtualization; Enterprise Applications; Networking;
Security; Storage; TechnologyGuide.com; and Vertical Software.
During
December 2008, in response to the then-current and anticipated future economic
uncertainties, the Company implemented an expense reduction program that
included a reduction in workforce, a reduction in a certain office lease, the
elimination of its two print publications, and a continuation of strict controls
on discretionary spending. During the twenty-four month period
immediately preceding the announced workforce reduction, the Company had hired
approximately 150 employees to support existing and anticipated growth. The
reduction in workforce resulted in a decrease of employees by approximately 76
full-time positions, representing approximately 12% of the Company’s total
workforce. As a result of the expense reduction program, the Company incurred a
pre-tax restructuring charge of $1,494 in the fourth quarter of
2008.
2.
Restatement of Previously Issued Financial Statements
In
connection with the Company’s financial statement close process for the
year ended December 31, 2008, the Company concluded that its methodology for
determining the timing of recognizing webcast revenues was improper. The Company
had been recognizing the majority of the revenue in the month in which the
webcast occurred. The Company concluded that the webcast revenues should have
been recognized ratably over the period in which the webcasts were available on
the websites of the Company and its partners. In connection with this finding,
the Company performed a comprehensive review of its business processes
pertaining to all of its service revenue offerings and the related application
of accounting policies and procedures to those business processes. The Company
identified additional errors in the recognition of revenue relating to its
whitepaper, promotional emails and sponsorship offerings. In addition, the
Company identified errors in its assessment of whether or not it had verifiable
objective evidence of fair value for undelivered elements in its advertising
campaigns. As a result, the Company determined that verifiable objective
evidence of fair value did not exist for elements in its advertising
campaigns with multiple elements. Instead of allocating revenue to separate
units of accounting based upon verifiable objective evidence of fair value, all
deliverables in multiple element arrangements should have been combined as
a single unit of accounting and revenue should have been recognized for the
entire arrangement over the service period. The Company had historically
concluded that its revenue arrangements with multiple elements could be divided
into separate units of accounting under the guidance prescribed in Financial
Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) Issue No.
00-21,
Revenue Arrangements
With Multiple Deliverables.
The
Company has restated its financial statements as of and for the years ended
December 31, 2007, 2006, 2005 and 2004 in accordance with SFAS No. 154,
Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.
3
.
Adjustments
to Consolidated Balance Sheet
The
following is a summary of the adjustments to the Company’s previously issued
audited consolidated balance sheet as of December 31, 2007.
|
|
December
31, 2007
|
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
10,693
|
|
|
$
|
-
|
|
|
$
|
10,693
|
|
Short-term
investments
|
|
|
51,308
|
|
|
|
-
|
|
|
|
51,308
|
|
Accounts
receivable, net of allowance for doubtful accounts of $424 as of December
31, 2007
|
|
|
15,198
|
|
|
|
-
|
|
|
|
15,198
|
|
Prepaid
expenses and other current assets
|
|
|
1,962
|
|
|
|
299
|
|
|
|
2,261
|
|
Deferred
tax assets
|
|
|
2,947
|
|
|
|
2,303
|
|
|
|
5,250
|
|
Total
current assets
|
|
|
82,108
|
|
|
|
2,602
|
|
|
|
84,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
4,401
|
|
|
|
-
|
|
|
|
4,401
|
|
Long-term
investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Goodwill
|
|
|
88,326
|
|
|
|
-
|
|
|
|
88,326
|
|
Intangible
assets, net of accumulated amortization
|
|
|
21,939
|
|
|
|
-
|
|
|
|
21,939
|
|
Deferred
tax assets
|
|
|
2,910
|
|
|
|
-
|
|
|
|
2,910
|
|
Other
assets
|
|
|
203
|
|
|
|
-
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
199,887
|
|
|
$
|
2,602
|
|
|
$
|
202,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of bank term loan payable
|
|
$
|
3,000
|
|
|
$
|
-
|
|
|
$
|
3,000
|
|
Accounts
payable
|
|
|
2,919
|
|
|
|
-
|
|
|
|
2,919
|
|
Income
taxes payable
|
|
|
1,031
|
|
|
|
299
|
|
|
|
1,330
|
|
Accrued
expenses and other current liabilities
|
|
|
2,473
|
|
|
|
-
|
|
|
|
2,473
|
|
Accrued
compensation expenses
|
|
|
2,600
|
|
|
|
-
|
|
|
|
2,600
|
|
Deferred
revenue
|
|
|
3,761
|
|
|
|
5,617
|
|
|
|
9,378
|
|
Total
current liabilities
|
|
|
15,784
|
|
|
|
5,916
|
|
|
|
21,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
455
|
|
|
|
-
|
|
|
|
455
|
|
Bank
term loan payable, net of current portion
|
|
|
3,000
|
|
|
|
-
|
|
|
|
3,000
|
|
Total
liabilities
|
|
|
19,239
|
|
|
|
5,916
|
|
|
|
25,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
(Note 11)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, 5,000,000 shares authorized; no shares issued or
outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common
stock, $0.001 par value per share, 100,000,000 shares authorized,
41,081,616 shares issued and outstanding at December 31,
2007
|
|
|
41
|
|
|
|
-
|
|
|
|
41
|
|
Additional
paid-in capital
|
|
|
209,773
|
|
|
|
-
|
|
|
|
209,773
|
|
Warrants
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
Accumulated
other comprehensive loss
|
|
|
(102
|
)
|
|
|
-
|
|
|
|
(102
|
)
|
Accumulated
deficit
|
|
|
(29,077
|
)
|
|
|
(3,314
|
)
|
|
|
(32,391
|
)
|
Total
stockholders' equity
|
|
|
180,648
|
|
|
|
(3,314
|
)
|
|
|
177,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
199,887
|
|
|
$
|
2,602
|
|
|
$
|
202,489
|
|
Adjustments
to Consolidated Statements of Operations
The
following is a summary of the adjustments to the Company’s previously issued
audited consolidated statements of operations for the years ended December 31,
2007 and 2006.
|
|
Year
Ended December 31, 2007
|
|
|
Year
Ended December 31, 2006
|
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
$
|
63,686
|
|
|
$
|
(2,333
|
)
|
|
$
|
61,353
|
|
|
$
|
51,176
|
|
|
$
|
196
|
|
|
$
|
51,372
|
|
Events
|
|
|
24,254
|
|
|
|
-
|
|
|
$
|
24,254
|
|
|
|
19,708
|
|
|
|
-
|
|
|
$
|
19,708
|
|
Print
|
|
|
6,725
|
|
|
|
(82
|
)
|
|
$
|
6,643
|
|
|
|
8,128
|
|
|
|
(9
|
)
|
|
$
|
8,119
|
|
Total
revenues
|
|
|
94,665
|
|
|
|
(2,415
|
)
|
|
|
92,250
|
|
|
|
79,012
|
|
|
|
187
|
|
|
|
79,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
|
|
|
15,575
|
|
|
|
-
|
|
|
|
15,575
|
|
|
|
12,988
|
|
|
|
-
|
|
|
|
12,988
|
|
Events
|
|
|
8,611
|
|
|
|
-
|
|
|
|
8,611
|
|
|
|
6,493
|
|
|
|
-
|
|
|
|
6,493
|
|
Print
|
|
|
3,788
|
|
|
|
-
|
|
|
|
3,788
|
|
|
|
5,339
|
|
|
|
-
|
|
|
|
5,339
|
|
Total
cost of revenues
|
|
|
27,974
|
|
|
|
-
|
|
|
|
27,974
|
|
|
|
24,820
|
|
|
|
-
|
|
|
|
24,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
66,691
|
|
|
|
(2,415
|
)
|
|
|
64,276
|
|
|
|
54,192
|
|
|
|
187
|
|
|
|
54,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing
|
|
|
28,048
|
|
|
|
-
|
|
|
|
28,048
|
|
|
|
20,305
|
|
|
|
-
|
|
|
|
20,305
|
|
Product
development
|
|
|
7,320
|
|
|
|
-
|
|
|
|
7,320
|
|
|
|
6,295
|
|
|
|
-
|
|
|
|
6,295
|
|
General
and administrative
|
|
|
12,592
|
|
|
|
-
|
|
|
|
12,592
|
|
|
|
8,756
|
|
|
|
-
|
|
|
|
8,756
|
|
Depreciation
|
|
|
1,610
|
|
|
|
-
|
|
|
|
1,610
|
|
|
|
1,144
|
|
|
|
-
|
|
|
|
1,144
|
|
Amortization
of intangible assets
|
|
|
4,740
|
|
|
|
-
|
|
|
|
4,740
|
|
|
|
5,029
|
|
|
|
-
|
|
|
|
5,029
|
|
Total
operating expenses
|
|
|
54,310
|
|
|
|
-
|
|
|
|
54,310
|
|
|
|
41,529
|
|
|
|
-
|
|
|
|
41,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
12,381
|
|
|
|
(2,415
|
)
|
|
|
9,966
|
|
|
|
12,663
|
|
|
|
187
|
|
|
|
12,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,815
|
|
|
|
-
|
|
|
|
2,815
|
|
|
|
1,613
|
|
|
|
-
|
|
|
|
1,613
|
|
Interest
expense
|
|
|
(984
|
)
|
|
|
-
|
|
|
|
(984
|
)
|
|
|
(1,292
|
)
|
|
|
-
|
|
|
|
(1,292
|
)
|
Total
interest income
|
|
|
1,831
|
|
|
|
-
|
|
|
|
1,831
|
|
|
|
321
|
|
|
|
-
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
14,212
|
|
|
|
(2,415
|
)
|
|
|
11,797
|
|
|
|
12,984
|
|
|
|
187
|
|
|
|
13,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
6,046
|
|
|
|
(794
|
)
|
|
|
5,252
|
|
|
|
5,811
|
|
|
|
(153
|
)
|
|
|
5,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
8,166
|
|
|
$
|
(1,621
|
)
|
|
$
|
6,545
|
|
|
$
|
7,173
|
|
|
$
|
340
|
|
|
$
|
7,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.15
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.09
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.42
|
)
|
Diluted
|
|
$
|
0.13
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.08
|
|
|
$
|
(0.46
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
28,384,303
|
|
|
|
-
|
|
|
|
28,384,303
|
|
|
|
7,824,374
|
|
|
|
-
|
|
|
|
7,824,374
|
|
Diluted
|
|
|
31,346,738
|
|
|
|
-
|
|
|
|
31,346,738
|
|
|
|
7,824,374
|
|
|
|
-
|
|
|
|
7,824,374
|
|
Adjustments
to Consolidated Statements of Cash Flow
The
following is a summary of the adjustments to the Company’s previously issued
audited consolidated statements of cash flows for the years ended December 31,
2007 and 2006.
|
|
Year
Ended December 31, 2007
|
|
|
Year
Ended December 31, 2006
|
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
As
Previously Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,166
|
|
|
$
|
(1,621
|
)
|
|
|
6,545
|
|
|
$
|
7,173
|
|
|
$
|
340
|
|
|
|
7,513
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
6,350
|
|
|
|
-
|
|
|
|
6,350
|
|
|
|
6,173
|
|
|
|
-
|
|
|
|
6,173
|
|
Provision
for bad debt
|
|
|
78
|
|
|
|
-
|
|
|
|
78
|
|
|
|
366
|
|
|
|
-
|
|
|
|
366
|
|
Stock-based
compensation expense
|
|
|
5,834
|
|
|
|
-
|
|
|
|
5,834
|
|
|
|
1,250
|
|
|
|
-
|
|
|
|
1,250
|
|
Non-cash
interest expense
|
|
|
312
|
|
|
|
-
|
|
|
|
312
|
|
|
|
92
|
|
|
|
-
|
|
|
|
92
|
|
Deferred
tax benefit
|
|
|
(921
|
)
|
|
|
(794
|
)
|
|
|
(1,715
|
)
|
|
|
174
|
|
|
|
(153
|
)
|
|
|
21
|
|
Excess
tax benefit - stock options
|
|
|
(3,126
|
)
|
|
|
-
|
|
|
|
(3,126
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Changes
in operating assets and liabilities, net of businesses
acquired:
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Accounts
receivable
|
|
|
(1,985
|
)
|
|
|
-
|
|
|
|
(1,985
|
)
|
|
|
(3,247
|
)
|
|
|
-
|
|
|
|
(3,247
|
)
|
Prepaid
expenses and other current assets
|
|
|
1,703
|
|
|
|
345
|
|
|
|
2,048
|
|
|
|
(39
|
)
|
|
|
-
|
|
|
|
(39
|
)
|
Other
assets
|
|
|
686
|
|
|
|
-
|
|
|
|
686
|
|
|
|
(774
|
)
|
|
|
-
|
|
|
|
(774
|
)
|
Accounts
payable
|
|
|
(246
|
)
|
|
|
-
|
|
|
|
(246
|
)
|
|
|
(741
|
)
|
|
|
-
|
|
|
|
(741
|
)
|
Income
taxes payable
|
|
|
(181
|
)
|
|
|
(343
|
)
|
|
|
(524
|
)
|
|
|
1,539
|
|
|
|
-
|
|
|
|
1,539
|
|
Accrued
expenses and other current liabilities
|
|
|
(855
|
)
|
|
|
-
|
|
|
|
(855
|
)
|
|
|
399
|
|
|
|
-
|
|
|
|
399
|
|
Accrued
compensation expenses
|
|
|
(2,729
|
)
|
|
|
-
|
|
|
|
(2,729
|
)
|
|
|
446
|
|
|
|
-
|
|
|
|
446
|
|
Deferred
revenue
|
|
|
373
|
|
|
|
2,413
|
|
|
|
2,786
|
|
|
|
(418
|
)
|
|
|
(187
|
)
|
|
|
(605
|
)
|
Other
liabilities
|
|
|
(157
|
)
|
|
|
-
|
|
|
|
(157
|
)
|
|
|
(54
|
)
|
|
|
-
|
|
|
|
(54
|
)
|
Net
cash provided by operating activities
|
|
|
13,302
|
|
|
|
-
|
|
|
|
13,302
|
|
|
|
12,339
|
|
|
|
-
|
|
|
|
12,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment, and other assets
|
|
|
(2,709
|
)
|
|
|
-
|
|
|
|
(2,709
|
)
|
|
|
(1,263
|
)
|
|
|
-
|
|
|
|
(1,263
|
)
|
Purchases
of short-term investments
|
|
|
(354,729
|
)
|
|
|
-
|
|
|
|
(354,729
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases
of long-term investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from sales and maturities of short-term investments
|
|
|
303,421
|
|
|
|
-
|
|
|
|
303,421
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from sales and maturities of long-term investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition
of assets
|
|
|
(1,013
|
)
|
|
|
-
|
|
|
|
(1,013
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition
of businesses, net of cash acquired
|
|
|
(64,162
|
)
|
|
|
-
|
|
|
|
(64,162
|
)
|
|
|
(15,017
|
)
|
|
|
-
|
|
|
|
(15,017
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
(119,192
|
)
|
|
|
-
|
|
|
|
(119,192
|
)
|
|
|
(16,280
|
)
|
|
|
-
|
|
|
|
(16,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from revolving credit facility
|
|
|
12,000
|
|
|
|
-
|
|
|
|
12,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Payments
made on revolving credit facility
|
|
|
(12,000
|
)
|
|
|
-
|
|
|
|
(12,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from bank term loan payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
Payments
on bank term loan payable
|
|
|
(3,000
|
)
|
|
|
-
|
|
|
|
(3,000
|
)
|
|
|
(23,000
|
)
|
|
|
-
|
|
|
|
(23,000
|
)
|
Proceeds
from initial public offering, net of stock issuance costs
|
|
|
83,161
|
|
|
|
-
|
|
|
|
83,161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Excess
tax benefit - stock options
|
|
|
3,126
|
|
|
|
-
|
|
|
|
3,126
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds
from exercise of warrants and stock options
|
|
|
2,466
|
|
|
|
-
|
|
|
|
2,466
|
|
|
|
892
|
|
|
|
-
|
|
|
|
892
|
|
Net
cash provided by financing activities
|
|
|
85,753
|
|
|
|
-
|
|
|
|
85,753
|
|
|
|
(12,108
|
)
|
|
|
-
|
|
|
|
(12,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
(20,137
|
)
|
|
|
-
|
|
|
|
(20,137
|
)
|
|
|
(16,049
|
)
|
|
|
-
|
|
|
|
(16,049
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
30,830
|
|
|
|
-
|
|
|
|
30,830
|
|
|
|
46,879
|
|
|
|
-
|
|
|
|
46,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
10,693
|
|
|
$
|
-
|
|
|
$
|
10,693
|
|
|
$
|
30,830
|
|
|
$
|
-
|
|
|
$
|
30,830
|
|
3.
Summary of Significant Accounting Policies
The
accompanying consolidated financial statements reflect the application of
certain significant accounting policies as described below and elsewhere in
these notes to the consolidated financial statements.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, which include KnowledgeStorm, Inc.,
Bitpipe, Inc., TechTarget Securities Corporation and TechTarget, Ltd.
KnowledgeStorm, Inc. was acquired by the Company on November 6, 2007 and is a
leading online search resource providing vendor generated content targeted
toward corporate IT professionals. Bitpipe, Inc. is a leading
provider of in-depth IT content including white papers, product literature, and
case studies from IT vendors. TechTarget Securities Corporation is a
Massachusetts Securities Corporation incorporated in 2004. TechTarget, Ltd. is a
subsidiary doing business principally in the United Kingdom. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. accounting
principles generally accepted requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue
Recognition
The
Company generates substantially all of its revenue from the sale of targeted
advertising campaigns that are delivered via its network of websites, events and
print publications. Revenue is recognized in accordance with Staff Accounting
Bulletin (SAB) No. 104,
Revenue Recognition
, and
Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF)
Issue No. 00-21,
Revenue
Arrangements With Multiple Deliverables
. Revenue is recognized only when
the price is fixed or determinable, persuasive evidence of an arrangement
exists, the service is performed and collectibility of the resulting receivable
is reasonably assured.
Although
each of the Company’s online media offerings can be sold separately, most of the
Company’s online media sales involve multiple online
offerings. Because objective evidence of fair value does not exist
for all elements in the Company’s bundled advertising campaigns, no allocation
can be made among the various elements, and the Company recognizes revenue on
all items ratably over the term of the arrangement.
Event
Sponsorships.
Sponsorship revenue from events is recognized
upon completion of the event in the period the event occurs. The majority of the
Company’s events are free to qualified attendees, however certain events are
based on a paid attendee model. The Company recognizes revenue for paid attendee
events upon completion of the event and receipt of payment from the attendee.
Amounts collected or billed prior to satisfying the above revenue recognition
criteria are recorded as deferred revenue.
Print
Publications.
When sold separately advertising revenues from
print publications are recognized at the time the applicable publication is
distributed. When print advertising campaigns are sold with other
services, revenue is recognized for all services in the advertising campaign
over the term of the arrangement. Amounts collected or billed prior
to satisfying the above revenue recognition criteria are recorded as deferred
revenue.
Online
Media.
Revenue for online media offerings is recognized for
specific online media offerings as follows when these items are sold
separately:
|
·
|
White
Papers.
White paper revenue is recognized
ratably over the period in which the white paper is available on the
Company's websites.
|
|
·
|
Webcasts, Podcasts and
Videocasts.
Webcast, podcast and videocast revenue is
recognized ratably over the period in which the webcast, podcast or
videocast is available on the Company’s
websites.
|
|
·
|
Software Package
Comparisons.
Software package comparison revenue is
recognized ratably over the period in which the software information
is available on the Company’s
websites.
|
|
·
|
Promotional E-mails and
E-newsletters.
Promotional e-mail revenue is recognized
ratably over the period in which the related content asset is available
on its websites because promotional emails do not have standalone
value from the related content asset. E-newsletter revenue is
recognized in the period in which the e-newsletter is
sent.
|
|
·
|
List
Rentals.
List rental revenue is recognized in the period
in which the e-mail is sent to the list of registered
members.
|
|
·
|
Banners.
Banner
revenue is recognized in the period in which the banner impressions
occur.
|
|
·
|
Third Party Revenue Sharing
Arrangements.
Revenue from third party revenue sharing
arrangements is recognized in the period in which the services are
performed.
|
The
Company offers customers the ability to purchase integrated ROI program
offerings, which can include any of its online media offerings packaged together
to address the particular customer's specific advertising requirements. As part
of these offerings, the Company will guarantee a minimum number of qualified
sales leads to be delivered over the course of the advertising
campaign. Scheduled end dates of advertising campaigns are sometimes
extended to satisfy lead guarantees or fulfill all elements of the advertising
campaign based on delayed receipt of advertising media collateral from the
customer. The Company estimates the revenue reserve necessary to properly defer
revenue recognition for extended advertising campaigns. These estimates are
based on the Company's experience in managing and fulfilling these integrated
ROI program offerings.
Typically, shortfalls in fulfilling lead
guarantees before the scheduled completion date of an advertising campaign are
satisfied within an average of 40 days of such scheduled completion
date. These integrated ROI program offerings represented
approximately 41%, 33% and 28% of our online revenues, and 31%, 22% and 18% of
our total revenues for the years ended December 31, 2008, 2007 and 2006,
respectively.
Amounts
collected or billed prior to satisfying the above revenue recognition criteria
are recorded as deferred revenue.
Fair
Value of Financial Instruments
Financial
instruments consist of cash and cash equivalents, short and long-term
investments, accounts receivable, accounts payable, a term loan payable and an
interest rate swap. The carrying value of these instruments approximates their
estimated fair values.
Long-lived
Assets
Long-lived
assets consist of property and equipment, goodwill and other intangible assets.
Goodwill and other intangible assets arise from acquisitions and are recorded in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible
Assets
. In accordance with this statement, a specifically identified
intangible asset must be recorded as a separate asset from goodwill if either of
the following two criteria is met: (1) the intangible asset acquired arises from
contractual or other legal rights; (2) the intangible asset is separable.
Accordingly, intangible assets consist of specifically identified intangible
assets. Goodwill is the excess of any purchase price over the estimated fair
market value of net tangible assets acquired not allocated to specific
intangible assets.
As
required by SFAS No. 142, goodwill and indefinite-lived intangible assets are
not amortized, but are reviewed annually for impairment or more frequently if
impairment indicators arise. Separable intangible assets that are not deemed to
have an indefinite life are amortized over their useful lives, which range from
one to nine years, using methods of amortization that are expected to reflect
the estimated pattern of economic use and are reviewed for impairment when
events or changes in circumstances suggest that the assets may not be
recoverable under SFAS No. 144,
Accounting for the Impairment or
Disposal of Long-Lived Assets
. The Company performs its annual test of
impairment of goodwill on December 31st of each year, and whenever events or
changes in circumstances suggest that the carrying amount may not be
recoverable. Based on this evaluation, the Company believes that, as of each of
the balance sheet dates presented, none of the Company's goodwill or other
long-lived assets was impaired.
Allowance
for Doubtful Accounts
The
Company reduces gross trade accounts receivable by an allowance for doubtful
accounts. The allowance for doubtful accounts is the Company's best estimate of
the amount of probable credit losses in the Company's existing accounts
receivable. The Company reviews its allowance for doubtful accounts on a regular
basis and all past due balances are reviewed individually for collectibility.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. Provisions for allowance for doubtful accounts are recorded in general
and administrative expenses.
Below is
a summary of the changes in the Company's allowance for doubtful accounts for
the years ended December 31, 2008, 2007 and 2006.
|
|
Balance
at Beginning of Period
|
|
|
Provision
|
|
|
Write-offs
|
|
|
Balance
at End of Period
|
|
Year
ended December 31, 2006
|
|
$
|
500
|
|
|
$
|
366
|
|
|
$
|
(286
|
)
|
|
$
|
580
|
|
Year
ended December 31, 2007
|
|
$
|
580
|
|
|
$
|
78
|
|
|
$
|
(234
|
)
|
|
$
|
424
|
|
Year
ended December 31, 2008
|
|
$
|
424
|
|
|
$
|
441
|
|
|
$
|
(223
|
)
|
|
$
|
642
|
|
Property
and Equipment
Property
and equipment is stated at cost. Property and equipment acquired through
acquisitions of businesses are initially recorded at fair value. Depreciation is
calculated on the straight-line method based on the month the asset is placed in
service over the following estimated useful lives:
|
Estimated
Useful Life
|
|
|
Computer
equipment and software
|
|
Internal-use
software and website development costs
|
|
|
Shorter
of useful life or life of
lease
|
Property
and equipment consists of the following:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Furniture
and fixtures
|
|
$
|
1,439
|
|
|
$
|
1,291
|
|
Computer
equipment and software
|
|
|
5,989
|
|
|
|
6,739
|
|
Leasehold
improvements
|
|
|
1,168
|
|
|
|
1,115
|
|
Internal-use
software and website development costs
|
|
|
3,042
|
|
|
|
2,508
|
|
|
|
|
11,638
|
|
|
|
11,653
|
|
Less: Accumulated
depreciation
|
|
|
(7,734
|
)
|
|
|
(7,252
|
)
|
|
|
$
|
3,904
|
|
|
$
|
4,401
|
|
Depreciation
expense was $2,406, $1,610, and $1,144 for the years ended December 31, 2008,
2007 and 2006, respectively. Repairs and maintenance charges that do not
increase the useful life of the assets are charged to operations as incurred.
Effective January 1, 2006, the Company changed the estimated useful life for
computer equipment and software from two years to three years to more closely
approximate the service lives of computer equipment and software assets placed
in service to date. The change in accounting estimate did not have a material
effect on the Company's results from operations for the year ended December 31,
2006. Management does not expect this change in accounting estimate to have a
material effect on results of operations in future periods. During
2008, the Company reviewed its fixed assets and wrote off approximately $1.9
million of fully depreciated assets that were no longer in service.
Internal
Use Software and Website Development Costs
The
Company accounts for website development costs according to the guidance in the
EITF Issue No. 00-2,
Accounting for Web Site Development
Costs,
which requires that costs incurred during the development of
website applications and infrastructure involving developing software to operate
a website be capitalized. Additionally, all costs relating to
internal use software are accounted for under Statement of Position (SOP) 98-1,
Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use
. The
estimated useful life of costs capitalized is evaluated for each specific
project. Capitalized internal use software and website development
costs are reviewed for recoverability whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An impairment loss shall be recognized only if the
carrying amount of the asset is not recoverable and exceeds its fair
value. The Company capitalized internal-use software and website
development costs of $533, $950 and $659 for the years ended December 31, 2008,
2007 and 2006, respectively.
Restructuring
Charge
In
December 2008 the Company implemented a restructuring initiative to lower its
current and future operating expenses in order to align its costs with the
current business conditions with the goal of maintaining its profitability and
investing as appropriate to gain market share. As a result of this
initiative, the Company has recorded a restructuring charge comprised
principally of employee severance and associated termination costs related to
the reduction of its workforce, a reduction in certain office leases, contract
termination costs in connection with the elimination of its two print
publications and write-offs of leasehold improvements associated with the exit
of facilities. These activities have been accounted for primarily in accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 146,
Accounting for Costs Associated with
Exit or Disposal Activities
(“SFAS 146”). SFAS 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred, as opposed to when management commits to an exit
plan. SFAS 146 also requires that: (i) liabilities associated with exit and
disposal activities be measured at fair value; (ii) one-time termination
benefits be expensed at the date the entity notifies the employee, unless the
employee must provide future service, in which case the benefits are expensed
ratably over the future service period; and (iii) costs to terminate a contract
before the end of its term be recognized when the entity terminated the contract
in accordance with the contract terms.
Concentrations
of Credit Risk and Off-Balance Sheet Risk
Financial
instruments that potentially expose the Company to concentrations of credit risk
consist mainly of cash and cash equivalents and accounts receivable. The Company
maintains its cash and cash equivalents principally in accredited financial
institutions of high credit standing. The Company routinely assesses the credit
worthiness of its customers. The Company generally has not experienced any
significant losses related to individual customers or groups of customers in any
particular industry or area. The Company does not require collateral. Due to
these factors, no additional credit risk beyond amounts provided for collection
losses is believed by management to be probable in the Company's accounts
receivable.
No single
customer represented 10% or more of total accounts receivable at December 31,
2008 and 2007. No single customer accounted for more than 10%
of revenue for the years ended December 31, 2008 and 2007. One
customer accounted for 11% of revenue for the year ended December 31, 2006. No
other customer accounted for more than 10% of revenue for the year ended
December 31, 2006.
Derivative
Instruments
The
Company has adopted the accounting and disclosure requirements of Statement of
Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative
Instruments and Hedging Activities
. SFAS No. 133 requires that all
derivative instruments be recorded on the consolidated balance sheet at their
fair value. In September, 2006, the Company entered into an interest rate swap
agreement to mitigate interest rate fluctuations on its variable rate bank term
loan, as further described in Note 10. Under SFAS No. 133, the interest rate
swap agreement is deemed to be a cash flow hedge and qualifies for hedge
accounting using the shortcut method. Accordingly, changes in the fair value of
the interest rate swap agreement are recorded in "accumulated other
comprehensive loss" on the consolidated statements of redeemable convertible
preferred stock and stockholders' deficit. The Company has no foreign exchange
contracts, option contracts, or other hedging arrangements.
Advertising
Expense
Advertising
expense primarily includes promotional expenditures and are expensed as
incurred. Advertising expense was $1, $30 and $102 for the years ended December
31, 2008, 2007 and 2006, respectively.
Income
Taxes
The
Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes
,
which is the asset and liability method for accounting and reporting for income
taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized
based on temporary differences between the financial reporting and income tax
bases of assets and liabilities using statutory rates. In addition, SFAS No. 109
requires a valuation allowance against net deferred tax assets if, based upon
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.
In July
2006, the FASB issued Financial Accounting Standards Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes
, (FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in an enterprise's financial statements in accordance
with SFAS No. 109. FIN 48 prescribes a recognition and measurement method of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosures and transitions. The Company adopted the provisions
of FIN 48 effective January 1, 2007. In accordance with FIN 48, the Company
recognizes any interest and penalties related to unrecognized tax benefits in
income tax expense.
Stock-Based
Compensation
At
December 31, 2008, the Company had two stock-based employee compensation plans
which are more fully described in Note 12. Effective January 1, 2006,
the Company adopted SFAS No. 123(R),
Share-Based Payment
, which
requires companies to expense the fair value of employee stock options and other
forms of stock-based compensation. SFAS No. 123(R) requires nonpublic companies
that used the minimum value method under SFAS No. 123 for either recognition or
pro forma disclosures to apply SFAS No. 123(R) using the prospective-transition
method. As such, the Company will continue to apply APB Opinion No.
25 in future periods to equity awards outstanding at the date of adoption of
SFAS No. 123(R) that were measured using the minimum value method. In
accordance with SFAS No. 123(R), the Company recognizes the compensation cost of
employee stock-based awards in the statement of operations using the straight
line method over the vesting period of the award. Effective with the adoption of
SFAS No. 123(R), the Company has elected to use the Black-Scholes option pricing
model to determine the fair value of stock options granted.
Comprehensive
Income (Loss)
SFAS No.
130,
Reporting Comprehensive
Income
, establishes standards for reporting and displaying comprehensive
income (loss) and its components in financial statements. Comprehensive income
(loss) is defined to include all changes in equity during a period, except those
resulting from investments by stockholders and distributions to stockholders.
Other comprehensive income (loss) includes changes in the fair value of the
Company’s interest rate swap, unrealized gains (losses) on available for sale
securities and foreign currency translation adjustments.
Net
Income (Loss) Per Share
The
Company calculates net income (loss) per share in accordance with SFAS No. 128,
Earnings Per Share
(SFAS No. 128). Through May 17, 2007, the Company calculated net income per
share in accordance with SFAS No. 128, as clarified by EITF Issue No. 03-6,
Participating Securities and
the Two-Class Method Under FASB Statement No. 128, Earnings Per Share
.
EITF Issue No. 03-6 clarifies the use of the "two-class" method of calculating
earnings per share as originally prescribed in SFAS No. 128. Effective for
periods beginning after March 31, 2004, EITF Issue No. 03-6 provides guidance on
how to determine whether a security should be considered a "participating
security" for purposes of computing earnings per share and how earnings should
be allocated to a participating security when using the two-class method for
computing basic earnings per share. The Company determined that its convertible
preferred stock represented a participating security and therefore adopted the
provisions of EITF Issue No. 03-6.
Under the
two-class method, basic net income (loss) per share is computed by dividing the
net income (loss) applicable to common stockholders by the weighted-average
number of common shares outstanding for the fiscal period. Diluted net income
(loss) per share is computed using the more dilutive of (a) the two-class method
or (b) the if-converted method. The Company allocates net income first to
preferred stockholders based on dividend rights under the Company's charter and
then to preferred and common stockholders based on ownership interests. Net
losses are not allocated to preferred stockholders.
As of May
16, 2007, the effective date of the Company’s initial public offering, the
Company transitioned from having two classes of equity securities outstanding,
common and preferred stock, to a single class of equity securities outstanding,
common stock, upon automatic conversion of shares of redeemable convertible
preferred stock into shares of common stock. In calculating diluted
earnings per share for the period January 1, 2007 to May 16, 2007 and 2006
shares related to redeemable convertible preferred stock were excluded because
they were anti-dilutive.
Subsequent
to the Company's initial public offering, basic earnings per share is computed
based only on the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed using the weighted average
number of common shares outstanding during the period, plus the dilutive effect
of potential future issuances of common stock relating to stock option programs
and other potentially dilutive securities using the treasury stock method. In
calculating diluted earnings per share, the dilutive effect of stock options is
computed using the average market price for the respective period. In addition,
under SFAS No. 123(R), the assumed proceeds under the treasury stock method
include the average unrecognized compensation expense of stock options that are
in-the-money. This results in the “assumed” buyback of additional shares,
thereby reducing the dilutive impact of stock options.
A
reconciliation of the numerator and denominator used in the calculation of basic
and diluted net income (loss) per share is as follows:
|
|
For
the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,764
|
|
|
$
|
6,545
|
|
|
$
|
7,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of preferred stock dividends
|
|
|
-
|
|
|
|
3,948
|
|
|
|
10,762
|
|
Total
net income applicable to preferred stockholders
|
|
|
-
|
|
|
|
3,948
|
|
|
|
10,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
$
|
1,764
|
|
|
$
|
2,597
|
|
|
$
|
(3,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding
|
|
|
41,424,920
|
|
|
|
28,384,303
|
|
|
|
7,824,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding
|
|
|
41,424,920
|
|
|
|
28,384,303
|
|
|
|
7,824,374
|
|
Effect
of potentially dilutive shares
|
|
|
2,014,699
|
|
|
|
2,962,435
|
|
|
|
-
|
|
Total
weighted average shares of common stock outstanding
|
|
|
43,439,619
|
|
|
|
31,346,738
|
|
|
|
7,824,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation
of Net Income (Loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
$
|
1,764
|
|
|
$
|
2,597
|
|
|
$
|
(3,249
|
)
|
Weighted
average shares of stock outstanding
|
|
|
41,424,920
|
|
|
|
28,384,303
|
|
|
|
7,824,374
|
|
Net
income (loss) per common share
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
$
|
1,764
|
|
|
$
|
2,597
|
|
|
$
|
(3,249
|
)
|
Weighted
average shares of stock outstanding
|
|
|
43,439,619
|
|
|
|
31,346,738
|
|
|
|
7,824,374
|
|
Net
income (loss) per common share
(1)
|
|
$
|
0.04
|
|
|
$
|
0.08
|
|
|
$
|
(0.42
|
)
|
(1)
|
Diluted
net income (loss) per common share does not include the weighted-average
effect of anti-dilutive common equivalent shares from stock options
outstanding of 1,942,258 and 59,543 for 2008 and 2007,
respectively. Common equivalent shares have not been included in the
net loss per share calculation for the year ended December 31, 2006
because the effect of including them would be
anti-dilutive.
|
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007),
Business Combinations
(SFAS
No. 141R). This Statement retains the fundamental requirements in Statement
141 that the acquisition method of accounting (which SFAS No. 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. SFAS No. 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in SFAS
No. 141R. SFAS No. 141R replaces the cost allocation process required
by SFAS No. 141, which required the cost of an acquisition to be allocated
to the individual assets acquired and liabilities assumed based on their
estimated fair values. SFAS No. 141R retains the guidance in SFAS
No. 141 for identifying and recognizing intangible assets separately from
goodwill. SFAS No. 141R will now require acquisition costs to be expensed
as incurred, restructuring costs associated with a business combination must
generally be expensed prior to the acquisition date and changes in deferred tax
asset valuation allowances and income tax uncertainties after the acquisition
date generally will affect income tax expense. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008, which is the Company's 2009 fiscal year. Earlier
adoption is prohibited. The adoption of SFAS No. 141R may have a
significant impact on the Company's accounting for future
acquisitions.
In
December 2007, the FASB released SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51
. SFAS No.
160 was issued to improve the relevance, comparability, and transparency of
financial information provided in financial statements by establishing
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years beginning after December 15, 2008 and will be applied
prospectively, except for the presentation and disclosure requirements which
will be applied retrospectively. The adoption of SFAS No. 160 is not expected to
have a material effect on the Company's consolidated financial position or
results of operations.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157,
Fair Value Measurements
,
which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS No. 157 does not require any new fair value
measurements, but its provisions apply to all other accounting pronouncements
that require or permit fair value measurement. SFAS No. 157 was effective for
the Company’s fiscal year beginning January 1, 2008 and for interim periods
within that year. In February 2008, the FASB issued FASB Staff Position (“FSP”)
No. 157-2,
Effective Date of
FASB Statement No. 157
, which delayed for one year the effective date of
SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). In accordance with FSP No. 157-2, the
Company deferred the application of the provisions of SFAS No. 157 to certain
nonfinancial assets and liabilities including reporting units measured at fair
value in goodwill impairment tests, nonfinancial assets and liabilities measured
at fair value for impairment assessments and nonfinancial liabilities for
restructuring activities. As required, the Company adopted SFAS No. 157 for its
financial assets on January 1, 2008. Adoption did not have a material impact on
the Company’s financial position or results of operations. The adoption of SFAS
No. 157, as it pertains to non-financial assets and liabilities, is not expected
to have a material impact on the Company’s financial position or results of
operations.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133
. SFAS No. 161 requires disclosure of how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for and how derivative instruments and related hedged
items affect an entity's financial position, financial performance, and cash
flows. SFAS No. 161 is effective for fiscal years beginning after
November 15, 2008, with early adoption permitted. The adoption of SFAS
No. 161 is not expected to have a material effect on the Company's
consolidated financial position and results of operations.
In May
2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted
Accounting Principles
. SFAS No. 162 identifies the sources of
generally accepted accounting principles in the United States. SFAS No. 162
is effective sixty days following the SEC's approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. The
adoption of SFAS No. 162 is not expected to have a material effect on the
Company's consolidated financial position and results of
operations.
4.
Fair Value Measurements
On
January 1, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements
,
which, among other things, defines fair value, establishes a consistent
framework for measuring fair value and expands disclosure for each major asset
and liability category measured at fair value on either a recurring or
nonrecurring basis. SFAS No. 157 clarifies that fair value is an
exit price, representing the amount that would either be received to sell an
asset or be paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for considering such assumptions, SFAS
No. 157 establishes a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value as follows:
·
Level 1.
Quoted prices in
active markets for identical assets and liabilities;
·
Level 2
. Observable inputs
other than quoted prices in active markets; and
·
Level 3
. Unobservable
inputs.
The fair
value hierarchy of the Company’s financial assets and liabilities carried at
fair value and measured on a recurring basis is as follows:
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
December
31, 2008
|
|
|
Quoted
Prices in Active Markets for Identical Assets (Level 1)
|
|
|
Significant
Other Observable Inputs (Level 2)
|
|
|
Significant
Unobservable Inputs (Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
(1)
|
|
$
|
14,280
|
|
|
$
|
14,280
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Short-term
investments
|
|
|
42,863
|
|
|
|
-
|
|
|
|
42,863
|
|
|
|
-
|
|
Long-term
investments
|
|
|
2,575
|
|
|
|
-
|
|
|
|
2,575
|
|
|
|
-
|
|
Interest rate swap
(2)
|
|
|
77
|
|
|
|
-
|
|
|
|
77
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
59,795
|
|
|
$
|
14,280
|
|
|
$
|
45,515
|
|
|
$
|
-
|
|
(1)
Included
in cash equivalents on the accompanying consolidated balance sheet.
(2)
Included
in other liabilities on the accompanying consolidated balance
sheet.
The
Brian Madden Company
On
November 19, 2008, the Company acquired substantially all of the assets of the
The Brian Madden Company LLC (BMC), for $1,315 in cash, of which $1,184 was paid
on November 19, 2008 and the remaining balance of $131 will be paid on November
19, 2009. BMC operates a website (BrianMadden.com) and an event
addressing the topics of desktop virtualization, terminal services, and
application virtualization. The acquisition provides the Company with an
opportunity for growth within segments and in other markets in which it
currently does not have a presence, primarily desktop and application
virtualization.
The
Company applied the guidance included in EITF Issue No. 98-3 to conclude the
acquisition of BMC constituted the acquisition of a business. In connection with
this acquisition, the Company purchased $79 of property and equipment, $40 of
prepaid expenses, recorded $636 of goodwill and recorded $560 of intangible
assets related to customer relationships, a non-compete agreement and trade
names with estimated useful lives ranging from three to five years.
The
estimated fair value of $560 of acquired intangible assets is assigned as
follows:
|
Useful
Life
|
|
Estimated
Fair Value
|
|
Customer
relationship intangible asset
|
48
months
|
|
$
|
227
|
|
Non-compete
agreement intangible asset
|
36
months
|
|
|
198
|
|
Trade
name intangible asset
|
60
months
|
|
|
135
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
$
|
560
|
|
The
Company engaged a third party valuation specialist to assist management in
determining the fair value of the acquired assets of BMC. To value the customer
relationship asset, an income approach was used, specifically a variation of the
discounted cash-flow method. The projected net cash flows for BMC were tax
affected using an effective rate of 41% and then discounted using a discount
rate of 25 % to calculate the value of the customer relationship asset.
Additionally, the present value of the sum of projected tax benefits was added
to arrive at the total fair value of the customer relationship asset. To value
the non-compete agreement a comparative business valuation method was used.
Based on a non-compete term of 36 months, management projected net cash flows
for the Company with and without the non-compete agreement in place. The present
value of the sum of the difference between the net cash flows with and without
the non-compete agreement in place was calculated, based on a discount rate of
25%. To value the trade name intangible asset a relief from royalty
method was used to estimate the pre-tax royalty savings to the Company related
to the BMC trade names. The projected net cash flows from the pre-tax
royalty savings were tax affected using an effective rate of 41% and then
discounted using a discount rate of 25% to calculate the value of the trade name
intangible asset.
KnowledgeStorm,
Inc.
On
November 6, 2007 the Company acquired KnowledgeStorm, Inc. (KnowledgeStorm),
which was a privately held company based in Alpharetta, Georgia, for $51,730 in
cash and 359,820 shares of unregistered common stock of TechTarget valued at
$6,000, as well as $230 in transaction costs. KnowledgeStorm is a
leading online search resource providing vendor generated content addressing
corporate IT professionals. KnowledgeStorm offers IT marketers products with a
lead generation and branding focus to reach these corporate IT professionals
throughout the purchasing decision process. The acquisition of KnowledgeStorm
strengthens the Company’s industry leadership position and increases its scale,
customer penetration and product offerings for advertisers. Once KnowledgeStorm
has been fully integrated, the Company feels that cost savings can be achieved
as a result of sales and operating efficiencies from the combined
operations. Additionally, the Company anticipates that integration of
KnowledegeStorm employees into its workforce will increase its capabilities
against product development, product management and search engine optimization
and marketing.
The
Company applied the guidance included in EITF Issue No. 98-3 to conclude that
the acquisition of KnowledgeStorm constituted the acquisition of a
business. In connection with the acquisition, the Company recorded
$45,101 of goodwill and $11,620 of other intangible assets related to customer
relationships, technology, trade name, customer backlog and non-compete
agreements with estimated useful lives ranging from 12 to 108
months. Of the goodwill recorded in conjunction with the acquisition,
none is deductible for income tax purposes.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition.
|
|
As
of November 6, 2007
|
|
Cash
and cash equivalents
|
|
$
|
2,813
|
|
Current
assets
|
|
|
1,328
|
|
Property
and equipment, net
|
|
|
782
|
|
Other
assets
|
|
|
39
|
|
Deferred
tax assets
|
|
|
1,797
|
|
Intangible
assets
|
|
|
11,620
|
|
Goodwill
|
|
|
45,101
|
|
Total
assets acquired
|
|
|
63,480
|
|
Total
liabilities assumed
|
|
|
(5,520
|
)
|
Net
assets acquired
|
|
$
|
57,960
|
|
Within
approximately thirty days from the acquisition date, the Company’s management
completed its reorganization plan to consolidate KnowledgeStorm
operations. Liabilities assumed in the acquisition include
approximately $627 of involuntary termination benefits payable to terminated
employees through May 2008, as well as approximately $111 of costs associated
with exiting certain operating leases on office space leased by KnowledgeStorm
under noncancelable leases that expire through December 2008.
The
estimated fair value of $11,620 of acquired intangible assets is assigned as
follows:
|
Useful
Life
|
|
Estimated
Fair Value
|
|
Customer
relationship intangible asset
|
108
months
|
|
$
|
4,770
|
|
Member
database intangible asset
|
60
months
|
|
|
4,060
|
|
Trade
name intangible asset
|
84
months
|
|
|
1,100
|
|
Customer
order backlog intangible asset
|
12
months
|
|
|
940
|
|
SEO/SEM
process intangible asset
|
36
months
|
|
|
690
|
|
Non-compete
agreement intangible asset
|
12
months
|
|
|
60
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
$
|
11,620
|
|
The
Company engaged a third party valuation specialist to assist management in
determining the fair value of the acquired assets of
KnowledgeStorm. To value the customer relationship and backlog
intangible assets, an income approach was used, specifically a variation of the
discounted cash-flow method. The projected net cash flows for KnowledgeStorm
were tax affected using an effective rate of 41% and then discounted using a
discount rate of 20.6%. Additionally, the present value of the sum of
projected tax benefits was added to arrive at the total fair value of the
customer relationship and backlog intangible assets.
To value the member
database intangible asset, a replacement cost methodology approach was
used. The replacement cost of the member database was determined by
applying the actual costs incurred to register a new member to the total number
of registered members in the acquired database. Additionally,
opportunity costs and the present value of the sum of projected tax benefits
were added to arrive at the total fair value of the member database intangible
asset.
To value the
trade name intangible asset a relief from royalty method was used to estimate
the pre-tax royalty savings to the Company related to the KnowledgeStorm trade
name. The projected net cash flows from the pre-tax royalty savings
were tax affected using an effective rate of 41% and then discounted using a
discount rate of 20.6% to calculate the value of the trade name intangible
asset. To value the Search Engine Optimization (SEO)/ Search Engine
Marketing (SEM) process intangible asset, a comparative business valuation
method was used. Based on an expected life of three years, management
projected net cash flows for the Company with and without the SEO/SEM process in
place. The present value of the sum of the difference between the net
cash flows with and without the SEO/SEM process in place was calculated using a
discount rate of 20.6%. Additionally, the present value of the sum of projected
tax benefits was added to arrive at the total fair value of the SEO/SEM process
intangible asset.
The
following pro forma results of operations for the years ended December 31, 2007
and 2006 have been prepared as though the acquisition of KnowledgeStorm had
occurred on January 1, 2006. This pro forma unaudited financial
information is not indicative of the results of operations that may occur in the
future.
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of operations for KnowledgeStorm have been included in the Company’s results of
operations since the acquisition date of November 6, 2007.
TechnologyGuide,
Inc.
On April
26, 2007, the Company acquired substantially all of the assets of
TechnologyGuide, Inc. (TechGuide), which was a privately-held company based in
Cincinnati, OH, for $15,000 in cash, plus $15 in acquisition related transaction
costs. TechGuide is a network of five online websites which includes;
Notebookreview.com, Brighthand.com, TabletPCReview.com, DigitalCameraReview.com
and SpotStop.com. The websites offer independent product reviews,
price comparisons, and forum-based discussions for selected technology
products. The acquisition provides the Company with opportunities for
growth within the laptop/notebook PC and "smart phone" markets in which it
currently does not have a material presence.
The
Company applied the guidance included in EITF Issue No. 98-3 to conclude that
the acquisition of TechGuide constituted the acquisition of a
business. In connection with this acquisition, the Company recorded
$7,035 of goodwill and $7,980 of intangible assets related to developed
websites, customer relationships, and non-compete agreements with estimated
useful lives ranging from 36 to 72 months.
The
estimated fair value of $7,980 of acquired intangible assets is assigned as
follows:
|
Useful
Life
|
|
Estimated
Fair Value
|
|
Developed
websites intangible asset
|
72
months
|
|
$
|
5,400
|
|
Customer
relationship intangible asset
|
60
months
|
|
|
1,790
|
|
Non-compete
agreements intangible asset
|
36
months
|
|
|
790
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
$
|
7,980
|
|
The
Company engaged a third party valuation specialist to assist management in
determining the fair value of the acquired assets of TechGuide. To
value the websites and customer relationship intangible assets, an income
approach was used, specifically a variation of the discounted cash-flow
method. For the websites intangible asset, expenses and income taxes
were deducted from estimated revenues attributable to the existing
websites. For the customer relationship intangible asset, expenses
and income taxes were deducted from estimated revenues attributable to the
existing customers. The projected net cash flows for each were then
tax affected using an effective rate of 41% and then discounted using a discount
rate of 22.3% to determine the value of the intangible assets,
respectively. Additionally, the present value of the sum of projected
tax benefits was added to arrive at the total fair value of the intangible
assets, respectively. To value the non-compete agreements a
comparative business valuation method was used. Based on non-compete terms of 36
months, management projected net cash flows for the Company with and without the
non-compete agreements in place. The present value of the sum of the difference
between the net cash flows with and without the non-compete agreements in place
was calculated, based on a discount rate of 22.3%.
Results
of operations for TechGuide have been included in the Company’s results of
operations since the acquisition date of April 26, 2007.
Ajaxian.com
On
February 27, 2007, the Company acquired substantially all of the assets of
Ajaxian, Inc. (Ajaxian) for a purchase price of $1,013 in
cash. Ajaxian is a provider of a website and two events dedicated to
providing information and support for the community of developers for “Ajax”
(Asynchronous Javascript and XML), a web development technique for creating
interactive web applications.
The
Company applied the guidance included in EITF Issue No. 98-3 to conclude that
the acquisition of Ajaxian constituted the acquisition of assets. The
Company did not acquire any tangible assets from Ajaxian. The
following table summarizes the estimated fair value of the intangible assets
acquired by the Company at the date of acquisition:
|
Useful
Life
|
|
Estimated
Fair Value
|
|
Customer
relationship intangible asset
|
48
months
|
|
$
|
552
|
|
Non-compete
agreement intangible asset
|
36
months
|
|
|
335
|
|
Trade
name intangible asset
|
60
months
|
|
|
126
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
$
|
1,013
|
|
2020Software.com
On May 3,
2006, the Company acquired substantially all of the assets associated with
2020Software.com (2020Software) for $15,000 in cash, plus $17 in acquisition
related transaction costs. 2020Software is a website focused on providing
detailed feature-comparison information and access to trial software for
businesses seeking trial versions of customer relationship management,
accounting, and other business software. The acquisition provides the Company
with an opportunity for growth within segments and in other markets in which it
currently does not have a presence, primarily vertical software applications and
enterprise markets.
The
Company applied the guidance included in EITF Issue No. 98-3 to conclude the
acquisition of 2020Software constituted the acquisition of a business. In
connection with this acquisition, the Company purchased $397 of accounts
receivable, recorded $9,440 million of goodwill and recorded $5,180 million of
intangible assets related to customer relationships, customer order backlog and
a non-compete agreement, with estimated useful lives ranging from one to five
years.
The
estimated fair value of $5,180 million of acquired intangible assets is assigned
as follows:
|
Useful
Life
|
|
Estimated
Fair Value
|
|
Customer
relationship intangible asset
|
60
months
|
|
$
|
4,170
|
|
Non-compete
agreement intangible asset
|
36
months
|
|
|
550
|
|
Customer
order backlog intangible asset
|
12
months
|
|
|
460
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
$
|
5,180
|
|
The
Company engaged a third party valuation specialist to assist management in
determining the fair value of the acquired assets of 2020Software. To value the
customer relationship and backlog intangible assets, an income approach was
used, specifically a variation of the discounted cash-flow method. The projected
net cash flows for 2020Software were tax affected using an effective rate of 40%
and then discounted using a discount rate of 20.1% to calculate the value of the
customer relationship and backlog intangible assets. Additionally, the present
value of the sum of projected tax benefits was added to arrive at the total fair
value of the customer relationship and backlog intangible assets. To value the
non-compete agreement a comparative business valuation method was used. Based on
a non-compete term of 36 months, management projected net cash flows for the
Company with and without the non-compete agreement in place. The present value
of the sum of the difference between the net cash flows with and without the
non-compete agreement in place was calculated, based on a discount rate of
20.1%.
6.
Restructuring Charge
In
December 2008 the Company implemented an expense reduction program that included
(i) a reduction in workforce, (ii) a reduction in certain office leases, (iii)
the elimination of its two print publications, and (iv) a continuation of strict
controls on discretionary spending. The Company has implemented the
cost reductions to lower its current and future operating expenses in order to
align its costs with the current business conditions with the goal of
maintaining its profitability and investing as appropriate to gain market
share. The Company’s restructuring charge is comprised principally of
employee severance and associated termination costs, costs associated with a
reduction in certain office leases, contract termination costs in connection
with the elimination of its two print publications and write-offs of leasehold
improvements associated with the exit of facilities. The Company had no
restructuring charges or reserves in 2007 and 2006.
For the
year ended December 31, 2008, the Company’s restructuring charge was comprised
of the following (in thousands):
|
|
Year
Ended December 31, 2008
|
|
Employee
severance pay and related costs
|
|
$
|
886
|
|
Non-cancelable
lease, contract termination, and other charges
|
|
|
559
|
|
Write-off
of tenant improvements, furniture, and fixed assets
|
|
|
49
|
|
|
|
|
|
|
Restructuring
charge
|
|
$
|
1,494
|
|
As of
December 31, 2008, the remaining liability of $1.1 million was comprised of
$597,000 of employee severance pay expenses which the Company expects to
substantially pay out by the end of the second quarter of 2009, and $514,000 of
non-cancelable lease costs which the Company expects to pay over the lease term,
which extends to the end of fiscal 2009.
The
activity in the Company’s restructuring accrual for the year ended December 31,
2008 is summarized as follows (in thousands):
|
|
Restructuring
Charge
|
|
Balance
as of January 1, 2008
|
|
$
|
-
|
|
Employee
severance pay and related costs
|
|
|
886
|
|
Non-cancelable
lease, contract termination, and other charges
|
|
|
559
|
|
Write-off
of tenant improvements, furniture, and fixed assets
|
|
|
49
|
|
Restructuring
charge
|
|
|
1,494
|
|
|
|
|
(331
|
)
|
Write-off
of tenant improvements, furniture, and fixed assets
|
|
|
(49
|
)
|
Balance
as of December 31, 2008
|
|
$
|
1,114
|
|
As of
December 31, 2008 the Company’s restructuring accrual balance of $1.1 million
was included in the consolidated balance sheet in accrued expenses and other
liabilities.
7.
Cash, Cash Equivalents and Investments
Cash and
cash equivalents consist of highly liquid investments with maturities of three
months or less at date of purchase. Cash equivalents are carried at
cost, which approximates their fair market value. Cash and cash
equivalents consisted of the following:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
|
|
$
|
9,850
|
|
|
$
|
6,714
|
|
Money
market funds
|
|
|
14,280
|
|
|
|
3,979
|
|
Total
cash and cash equivalents
|
|
$
|
24,130
|
|
|
$
|
10,693
|
|
Short and
long-term investments consist of municipal bonds, auction rate securities and
variable rate demand notes. Auction rate securities are variable-rate
bonds tied to short-term interest rates with maturities in excess of 90
days. Interest rates on these securities typically reset through a
modified Dutch auction at predetermined short-term intervals, usually every 1,
7, 28 or 35 days. Variable rate demand notes are long-term, taxable,
or tax-exempt bonds issued on a variable rate basis that can be tendered by the
Company for purchase at par whenever interest rates reset, usually every 7
days. Despite the long-term nature of the stated contractual
maturities of these variable rate demand notes, the Company has the intent
and the ability to quickly liquidate these securities. Auction
rate securities and variable rate demand notes are recorded at fair market
value, which approximates cost because of their short-term interest
rates. As of December 31, 2008, the Company did not hold any auction
rate securities.
The
Company’s short and long-term investments are accounted for as available for
sale securities under SFAS No. 115,
Accounting for Certain Investments
in Debt and Equity Securities
. These investments are recorded
at fair value with the related unrealized gains and losses included in
accumulated other comprehensive income (loss), a component of stockholders’
equity, net of tax. The unrealized gain as of December 31, 2008 was
$10. There was no unrealized gain or loss as of December 31,
2007. Realized gains and losses on the sale of these investments are
determined using the specific identification method. There were no realized
gains or losses in 2008, 2007 and 2006.
Short and
long-term investments consisted of the following:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Municipal
bonds
|
|
$
|
42,863
|
|
|
$
|
19,808
|
|
Auction
rate securities
|
|
|
-
|
|
|
|
17,000
|
|
Variable
rate demand notes
|
|
|
-
|
|
|
|
14,500
|
|
Total
short-term investments
|
|
$
|
42,863
|
|
|
$
|
51,308
|
|
Municipal
bonds have contractual maturity dates within eighteen months. All income
generated from these investments is recorded as interest income.
8.
Goodwill
The
changes in the carrying amount of goodwill for the years ended December 31, 2008
and 2007 are as follows:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Balance
as of beginning of period
|
|
$
|
88,326
|
|
|
$
|
36,190
|
|
Goodwill
acquired during the period
|
|
|
636
|
|
|
|
52,136
|
|
Adjustments
|
|
|
(4
|
)
|
|
|
-
|
|
Balance
as of end of period
|
|
$
|
88,958
|
|
|
$
|
88,326
|
|
9.
Intangible Assets
The
following table summarizes the Company's intangible assets, net:
|
|
|
|
|
As
of December 31, 2008
|
|
|
|
Estimated
Useful Lives (Years)
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer,
affiliate and advertiser relationships
|
|
1 -
9
|
|
|
$
|
12,449
|
|
|
$
|
(4,641
|
)
|
|
$
|
7,808
|
|
Developed
websites, technology and patents
|
|
3 -
6
|
|
|
|
5,400
|
|
|
|
(1,500
|
)
|
|
|
3,900
|
|
Trademark,
trade name and domain name
|
|
1 -
7
|
|
|
|
2,179
|
|
|
|
(912
|
)
|
|
|
1,267
|
|
Proprietary
user information database and Internet traffic
|
|
3 -
5
|
|
|
|
4,750
|
|
|
|
(1,216
|
)
|
|
|
3,534
|
|
Non-compete
agreements
|
|
1 -
3
|
|
|
|
1,933
|
|
|
|
(1,200
|
)
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
|
|
$
|
26,711
|
|
|
$
|
(9,469
|
)
|
|
$
|
17,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2007
|
|
|
|
Estimated
Useful Lives (Years)
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer,
affiliate and advertiser relationships
|
|
1 -
9
|
|
|
$
|
19,077
|
|
|
$
|
(9,140
|
)
|
|
$
|
9,937
|
|
Developed
websites, technology and patents
|
|
3 -
6
|
|
|
|
5,976
|
|
|
|
(1,176
|
)
|
|
|
4,800
|
|
Trademark,
trade name and domain name
|
|
5 -
7
|
|
|
|
1,994
|
|
|
|
(521
|
)
|
|
|
1,473
|
|
Proprietary
user information database and Internet traffic
|
|
3 -
5
|
|
|
|
4,750
|
|
|
|
(174
|
)
|
|
|
4,576
|
|
Non-compete
agreements
|
|
1 -
3
|
|
|
|
1,735
|
|
|
|
(582
|
)
|
|
|
1,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
|
|
|
$
|
33,532
|
|
|
$
|
(11,593
|
)
|
|
$
|
21,939
|
|
Intangible
assets are amortized over their estimated useful lives, which range from one to
nine years, using methods of amortization that are expected to reflect the
estimated pattern of economic use. The remaining amortization expense will be
recognized over a weighted-average period of approximately 2.8
years.
Amortization
expense was $5,306, $4,740 and $5,029 for the years ended December 31, 2008,
2007 and 2006, respectively.
The
Company expects amortization expense of intangible assets to be as
follows:
Years
Ending December 31:
|
|
Amortization
Expense
|
|
2009
|
|
$
|
4,714
|
|
2010
|
|
|
4,202
|
|
2011
|
|
|
3,222
|
|
2012
|
|
|
2,462
|
|
2013
|
|
|
1,010
|
|
Thereafter
|
|
|
1,632
|
|
|
|
$
|
17,242
|
|
10.
Bank Term Loan Payable
In August
2006, the Company entered into a credit agreement (the "Credit Agreement") with
a commercial bank, which included a $10.0 million term loan (the "Term Loan")
and a $20.0 million revolving credit facility (the "Revolving Credit
Facility"). The Credit Agreement was amended in August 2007 and again
in December 2008.
The
Revolving Credit Facility matures on August 30, 2011. Unless earlier payment is
required by an event of default, all principal and unpaid interest will be due
and payable on August 30, 2011. At the Company's option, the Revolving Credit
Facility bears interest at either the Prime Rate less 1.00% or the LIBOR rate
plus the applicable LIBOR margin. The applicable LIBOR margin is
based on the ratio of total funded debt to EBITDA for the preceding four fiscal
quarters. As of December 31, 2008, the applicable LIBOR margin was
1.25%.
The
Company is also required to pay an unused line fee on the daily unused amount of
its Revolving Credit Facility at a per annum rate based on the ratio of total
funded debt to EBITDA for the preceding four fiscal quarters. As of December 31,
2008, unused availability under the Revolving Credit Facility totaled $20
million and the per annum unused line fee rate was 0.20%.
The Term
Loan requires 39 consecutive monthly principal payments of $250, plus interest,
beginning on September 30, 2006 through December 30, 2009. As of December 31,
2008, the outstanding balance due under the Term Loan was $3 million. There was
no accrued interest on the Term Loan at December 31, 2008.
In
September 2006, the Company entered into an interest rate swap agreement with a
commercial bank to mitigate the interest rate fluctuations on the Term Loan.
With this interest rate swap agreement in place, the Company has fixed the
annual interest rate at 6.98% for the Term Loan. The interest rate swap
agreement terminates in December 2009. Under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities,
the interest rate swap agreement is
deemed to be a cash flow hedge and qualifies for special accounting using the
shortcut method. Accordingly, changes in the fair value of the interest rate
swap agreement are recorded in "accumulated other comprehensive loss" on the
consolidated statements of redeemable convertible preferred stock and
stockholders' equity (deficit). As of December 31, 2008 and 2007, the fair value
of the cash flow hedge was $77 and $102, respectively, and is recorded in other
liabilities.
Borrowings
under the Credit Agreement are collateralized by a security interest in
substantially all assets of the Company. Covenants governing the Credit
Agreement require the maintenance of certain financial ratios. At December 31,
2008 the Company was in violation of one loan covenant under the Credit
Agreement. The Company failed to file timely audited financial statements with
the SEC. The Company received a waiver from the bank agreeing to waive
compliance with such covenant solely for the quarters ending December 31, 2008
and March 31, 2009.
11.
Commitments and Contingencies
Operating
Leases
The
Company conducts its operations in leased office facilities under various
noncancelable operating lease agreements that expire through January, 2013.
Certain of the Company's operating leases include escalating payment amounts and
are renewable for varying periods. In accordance with SFAS No. 13,
Accounting for Leases
, the
Company is recognizing the related rent expense on a straight-line basis over
the term of the lease. Total rent expense under these leases was approximately
$2,981, $1,775 and $1,447 for the years ended December 31, 2008, 2007 and 2006,
respectively.
Future
minimum lease payments under noncancelable operating leases at December 31, 2008
are as follows:
Years
Ending December 31:
|
|
Minimum
Lease Payments
|
|
2009
|
|
$
|
3,199
|
|
2010
|
|
|
1,191
|
|
2011
|
|
|
593
|
|
2012
|
|
|
611
|
|
2013
|
|
|
51
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
5,645
|
|
Litigation
From time
to time and in the ordinary course of business, the Company may be subject to
various claims, charges, and litigation. At December 31, 2008 and
2007, the Company did not have any pending claims, charges, or litigation that
it expects would have a material adverse effect on its consolidated financial
position, results of operations, or cash flows.
12. Stock-based
Compensation
Stock
Option Plans
In
September 1999, the Company approved a stock option plan (the 1999 Plan) that
provides for the issuance of up to 12,384,646 shares of common stock
incentives. The 1999 Plan provides for the granting of incentive
stock options (ISOs), nonqualified stock options (NSOs), and stock grants. These
incentives may be offered to the Company’s employees, officers, directors,
consultants, and advisors, as defined. ISOs may be granted at no less
than fair market value on the date of grant, as determined by the Company’s
Board of Directors (the Board) (no less than 110% of fair market value on the
date of grant for 10% or greater stockholders), subject to limitations, as
defined. Each option shall be exercisable at such times and subject to such
terms as determined by the Board, generally four years, and shall expire within
ten years of issuance.
In April
2007, the Board approved the 2007 Stock Option and Incentive Plan (the 2007
Plan), which was approved by the stockholders and became effective upon the
consummation of the Company’s IPO in May 2007. Effective upon the consummation
of the IPO, no further awards will be made pursuant to the 1999 Plan, but any
outstanding awards under the 1999 Plan will remain in effect and will continue
to be subject to the terms of the 1999 Plan. The 2007 Plan allows the
Company to grant ISOs, NSOs, stock appreciation rights, deferred stock awards,
restricted stock and other awards. Under the 2007 Plan, stock options
may not be granted at less than fair market value on the date of grant, and
grants generally vest over a four year period. Stock options granted
under the 2007 Plan expire no later than ten years after the grant
date. The Company has reserved for issuance an aggregate of 2,911,667
shares of common stock under the 2007 Plan plus an additional annual increase to
be added automatically on January 1 of each year, beginning on January 1, 2008,
equal to the lesser of (a) 2% of the outstanding number of shares of common
stock (on a fully-diluted basis) on the immediately preceding December 31 and
(b) such lower number of shares as may be determined by our compensation
committee. The number of shares available for issuance under the 2007
Plan is subject to adjustment in the event of a stock split, stock dividend or
other change in capitalization. Generally, shares that are forfeited
or canceled from awards under the 2007 Plan also will be available for future
awards. In addition, shares subject to stock options returned to the
1999 Plan, as a result of their expiration, cancellation or termination, are
automatically made available for issuance under the 2007 Plan. As of
December 31, 2008 a total of 1,719,503 shares were available for grant under the
2007 Plan.
Stock
Options
The
Company uses the Black-Scholes option pricing model to calculate the grant-date
fair value of an option award. The Company calculated the fair values
of the options granted using the following assumptions:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Expected
volatility
|
|
|
41%
- 71
|
%
|
|
|
47%
- 50
|
%
|
|
|
57%
- 63
|
%
|
Expected
term (in years)
|
|
6.25
years
|
|
|
6.25
years
|
|
|
6.25
years
|
|
Risk-free
interest rate
|
|
|
1.71%
- 3.15
|
%
|
|
|
3.62%
- 5.04
|
%
|
|
|
4.68%
- 5.05
|
%
|
Expected
dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average
grant date fair value per share
|
|
$
|
3.28
|
|
|
$
|
7.35
|
|
|
$
|
4.48
|
|
As there
was no public market for the Company’s common stock prior to the Company's IPO
in May 2007, and limited historical information on the volatility of its common
stock since the date of the Company’s IPO, the Company determined the volatility
for options granted in 2008, 2007 and 2006 based on an analysis of reported data
for a peer group of companies that issued options with substantially similar
terms. The expected volatility of options granted has been determined using an
average of the historical volatility measures of this peer group of companies
for a period equal to the expected life of the option. The expected
life of options has been determined utilizing the "simplified" method as
prescribed by the SEC's Staff Accounting Bulletin No. 107,
Share-Based
Payment.
The risk-free interest rate is based on a zero coupon
United States treasury instrument whose term is consistent with the expected
life of the stock options. The Company has not paid and does not anticipate
paying cash dividends on its shares of common stock; therefore, the expected
dividend yield is assumed to be zero. In addition, SFAS No. 123(R) requires
companies to utilize an estimated forfeiture rate when calculating the expense
for the period, whereas SFAS No. 123 permitted companies to record forfeitures
based on actual forfeitures, which was the Company’s historical policy under
SFAS No. 123. As a result, the Company applied an estimated annual
forfeiture rate based on its historical forfeiture experience of 2.00%, 1.00%,
and 2.10% in determining the expense recorded in 2008, 2007, and 2006,
respectively.
The
Company has historically granted stock options at exercise prices no less than
the fair market value as determined by the Board, with input from management.
The Board exercised judgment in determining the estimated fair value of the
Company's common stock on the date of grant based on a number of objective and
subjective factors, including operating and financial performance, external
market conditions affecting the Company's industry sector, an analysis of
publicly-traded peer companies, the prices at which shares of convertible
preferred stock were sold, the superior rights and preferences of securities
senior to common stock at the time of each grant and the likelihood of achieving
a liquidity event such as an initial public offering or sale of the Company. On
April 18, 2006, July 25, 2006 and September 27, 2006 the Board granted stock
options to purchase an aggregate of 167,000, 9,000 and 4,017,500 shares of
common stock, respectively, with an exercise price of $7.36 per share. On
October 30, 2006, the Board granted an additional option to purchase 50,000
shares of common stock at $7.80 per share. At the time of these grants, the
exercise price was determined by the Board with input by management based on the
various objective and subjective factors mentioned above. In addition, for
certain stock option grants in 2006, the Company engaged an unrelated third
party valuation specialist to assist management in preparing contemporaneous
valuation reports to document the fair value of its common stock for income tax
considerations.
In
connection with the preparation of its consolidated financial statements for the
year ended December 31, 2006 and in preparing for the initial public offering of
its common stock, management reexamined the valuations of its common stock
during 2006. In connection with this reexamination, the Company engaged a
valuation specialist to assist management in preparing retrospective valuation
reports of the fair value of its common stock for accounting purposes as of July
31, 2006, September 30, 2006 and October 27, 2006. Management believes that the
valuation methodologies used in the retrospective valuations are consistent with
the Practice Aid of the American Institute of Certified Public Accountants
entitled Valuation of Privately Held Company Equity Securities Issued as
Compensation. In its retrospective valuations, the Company determined that the
fair value of its common stock on July 31, 2006, September 30, 2006 and October
27, 2006 was $6.92, $7.44 and $7.80 per share, respectively. A retrospective
valuation for the April 18, 2006 grants was not prepared.
In each
retrospective valuation, a probability-weighted combination of the guideline
public company method and the discounted future cash flow method was used to
estimate the aggregate enterprise value of the Company at the applicable
valuation date. The guideline public company method estimates the fair market
value of a company by applying to that company market multiples, in this case
revenue and EBITDA multiples, of publicly traded firms in similar lines of
business. The companies used for comparison under the guideline public company
method were selected based on a number of factors, including but not limited to,
the similarity of their industry, business model, financial risk and other
factors to those of the Company's. Equal weighting has been applied to the
valuations derived from the using the revenue and EBITDA multiples in
determining the guideline public company fair market value estimate. The
discounted future cash flow method involves applying appropriate risk-adjusted
discount rates of approximately 17% to estimated debt-free cash flows, based on
forecasted revenues and costs. The projections used in connection with this
valuation were based on the Company's expected operating performance over the
forecast period. There is inherent uncertainty in these estimates; if different
discount rates or assumptions had been used, the valuation would have been
different.
In order
to allocate the enterprise value determined under the guideline public company
method and the discounted future cash flow method to its common stock, the
Company used the probability-weighted expected return method. Under the
probability-weighted expected return method, the fair market value of the common
stock is estimated based upon an analysis of future values for the Company
assuming various future outcomes, the timing of which is based on the plans of
its board and management. Share value is based on the probability-weighted
present value of expected future investment returns, considering each of the
possible outcomes available as well as the rights of each share class. The fair
market value of the Company's common stock was estimated using a
probability-weighted analysis of the present value of the returns afforded to
its shareholders under each of three possible future scenarios. Two of the
scenarios assume a shareholder exit, either through an initial public offering,
or IPO, or a sale of the Company. The third scenario assumes operations continue
as a private company and no exit transaction occurs. For the IPO scenario, the
estimated future and present values for the Company's common stock was
calculated using assumptions including; the expected pre-money valuation
(pre-IPO) based on the guideline public company method discussed above; the
expected dates of the future expected IPO; and an appropriate risk-adjusted
discount rate. For the sale scenario, the estimated future and present values
for the Company's common stock was calculated using assumptions including: an
equal weighting of the guideline public company method and the discounted cash
flow method discussed above; the expected dates of the future expected sale and
an appropriate risk-adjusted discount rate. For the private company with no exit
scenario, an equal weighting of the guideline public company method and the
discounted cash flow method based on present day assumptions was used. Finally,
the present value calculated for the Company's common stock under each scenario
was probability weighted based on management's estimate of the relative
occurrence of each scenario. The probability associated with the occurrence of
an IPO was increased from 40% in July 2006 to 45% in September 2006 to 50% in
October 2006. The probability associated with the occurrence of a sale was
decreased from 40% in July 2006 to 35% in September 2006 to 30% in October 2006.
The probability of continuing operations as a private company remained constant
at 20% in each valuation. The estimated fair market value of the Company's
common stock at each valuation date is equal to the sum of the probability
weighted present values for each scenario.
The
Company has incorporated the fair values determined in the retrospective
valuations into the Black-Scholes option pricing model when calculating the
compensation expense to be recognized for the stock options granted in July,
September and October of 2006. In determining the fair value of the April 2006
grants using the Black-Scholes option pricing model, it was assumed that the
fair market value of the common stock was equal to the exercise price of the
stock options.
A summary
of the stock option activity under the Company's stock option plan for the years
ended December 31, 2008 and 2007 is presented below:
|
|
Options
Outstanding
|
|
|
Weighted-Average
Exercise Price Per Share
|
|
|
Weighted-Average
Remaining Contractual Term in Years
|
|
|
Aggregate
Intrinsic Value
|
|
Options
outstanding at December 31, 2007
|
|
|
7,534,641
|
|
|
$
|
6.57
|
|
|
|
|
|
|
|
Options
granted
|
|
|
1,127,295
|
|
|
|
5.24
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
(463,082
|
)
|
|
|
4.76
|
|
|
|
|
|
|
|
Options
forfeited
|
|
|
(381,723
|
)
|
|
|
9.78
|
|
|
|
|
|
|
|
Options
canceled
|
|
|
(51,553
|
)
|
|
|
10.96
|
|
|
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
|
7,765,578
|
|
|
$
|
6.30
|
|
|
|
6.8
|
|
|
$
|
4,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2008
|
|
|
4,567,741
|
|
|
$
|
5.34
|
|
|
|
5.5
|
|
|
$
|
4,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested or expected to vest at December 31, 2008 (1)
|
|
|
7,594,739
|
|
|
$
|
6.27
|
|
|
|
6.9
|
|
|
$
|
4,355
|
|
(1)
|
In
addition to the vested options, the Company expects a portion of the
unvested options to vest at some point in the future. Options expected to
vest is calculated by applying an estimated forfeiture rate to the
unvested options.
|
During
the years ended December 31, 2008, 2007 and 2006, the total intrinsic value of
options exercised (i.e. the difference between the market price at exercise and
the price paid by the employee to exercise the options) was $3,677, $13,760 and
$2,196, respectively, and the total amount of cash received by the Company from
exercise of these options was $2,203, $2,472 and $554,
respectively. The total grant-date fair value of stock options
granted after the adoption of SFAS No. 123(R) on January 1, 2006 that vested
during the years ended December 31, 2008 and 2007 was $4,189 and $6,223,
respectively. None of the options granted after the adoption of SFAS
No. 123(R) on January 1, 2006 vested during the year ended December 31,
2006.
Unrecognized
stock-based compensation expense of non-vested stock options of $15.2 million is
expected to be recognized using the straight line method over a weighted-average
period of 1.4 years.
Restricted
Stock Awards
Restricted
stock awards are valued at the market price of a share of the Company’s common
stock on the date of the grant. A summary of the restricted stock
award activity under the Company's stock option plan for the year ended December
31, 2008 is presented below:
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair Value Per Share
|
|
|
Aggregate
Intrinsic Value
|
|
Nonvested
outstanding at December 31, 2007
|
|
|
614,775
|
|
|
$
|
14.52
|
|
|
|
|
|
Granted
|
|
|
55,667
|
|
|
|
7.83
|
|
|
|
|
|
Vested
|
|
|
(197,359
|
)
|
|
|
12.72
|
|
|
|
|
|
Forfeited
|
|
|
(8,607
|
)
|
|
|
14.29
|
|
|
|
|
|
Nonvested
outstanding at December 31, 2008
|
|
|
464,476
|
|
|
$
|
14.48
|
|
|
$
|
2,007
|
|
The total
grant-date fair value of restricted stock awards that vested during the year
ended December 31, 2008 was $2,510. None of the restricted stock awards
vested during the years ended December 31, 2007 and 2006.
Unrecognized
stock-based compensation expense of non-vested restricted stock awards of $6.3
million is expected to be recognized using the straight line method over a
weighted-average period of 1.6 years.
13.
Stockholders' Equity (Deficit)
Shares
Authorized
In April
2007, the Board of Directors approved an amendment and restatement of the
Company’s Certificate of Incorporation to increase the authorized number of
shares of common stock from 44,344,656 to 100,000,000, to authorize 5,000,000
shares of undesignated preferred stock, par value $0.001 per share, and to
eliminate all reference to the designated Series Preferred Stock.
Stock
Offering
In May
2007, the Company completed its initial public offering (IPO) of 8,855,000
shares of its common stock, of which 7,072,097 shares were sold by the Company
and 1,782,903 shares were sold by certain of the Company’s existing shareholders
at a price to the public of $13.00 per share. The Company raised a
total of $91,937 in gross proceeds from the offering, or $83,161 in net proceeds
after deducting underwriting discounts and commissions of $6,436 and other
offering costs of approximately $2,340. Upon the closing of the offering, all
shares of the Company’s redeemable convertible preferred stock automatically
converted into 24,372,953 shares of common stock.
Reverse
Stock Split
On April
26, 2007, the Company's board of directors approved a 1-for-4 reverse stock
split of the Company's outstanding common stock. The reverse stock split became
effective immediately and all common share and per share amounts in the
accompanying consolidated financial statements and notes to the consolidated
financial statements have been retroactively adjusted for all periods presented
to give effect to the reverse stock split.
Warrants
In
connection with the Company’s original Bank Term Loan agreement, in July 2001
the Company issued to the lender for the Bank Term Loan (the “Lender”) a fully
exercisable warrant to purchase up to 74,074 shares of series A redeemable
convertible preferred stock at $0.5411 per share. In connection with
an amendment to the Bank Term Loan agreement in April 2002 the Company issued to
the Lender an additional fully exercisable warrant to purchase 55,443 shares of
series A redeemable convertible preferred stock at a price of $0.5411 per
share. Upon the closing of the Company’s IPO in May 2007, these
warrants outstanding converted into warrants to purchase an aggregate of 32,378
shares of the Company’s common stock at an exercise price of $2.1644 per
share. In 2007, the Lender exercised their warrants to purchase
32,378 shares of common stock using the conversion rights in the
warrants. As result of the exercise using the conversion rights, the
Company issued 26,740 shares of common stock to the Lender and cancelled the
5,638 shares received in lieu of payment of the exercise price.
In
connection with an acquisition in May 2000, the Company issued to the seller a
warrant to purchase 40,625 shares of common stock at a price of $2.36 per
share. The warrant is exercisable immediately and expires on May 10,
2010. In 2007, the seller exercised warrants to purchase 30,981
shares of common stock using the conversion rights in the
warrants. As result of the exercise using the conversion rights, the
Company issued 26,024 shares of common stock to the seller and cancelled the
4,957 shares received in lieu of payment of the exercise price. In
2008, the seller exercised additional warrants to purchase 8,375 shares of
common stock using the conversion rights in the warrants. As result
of the exercise using the conversion rights, the Company issued 6,886 shares of
common stock to the seller and cancelled the 1,489 shares received in lieu of
payment of the exercise price.
At
December 31, 2008 and 2007, there were 1,269 and 9,644 shares, respectively, of
the Company’s common stock reserved for the exercise of all
warrants.
Reserved
Common Stock
As of
December 31, 2008, the Company has reserved common stock for the
following:
|
|
Number
of Shares
|
|
|
|
|
|
Options
and restricted stock awards outstanding and available for grant under
stock option plans
|
|
|
10,081,537
|
|
Warrants
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
10,082,806
|
|
14.
Income Taxes
As of
December 31, 2008, the Company had U.S. federal and state net operating loss
(NOL) carryforwards of approximately $11.1 million and $17.0 million,
respectively, which may be used to offset future taxable income. The NOL
carryforwards expire through 2027, and are subject to review and possible
adjustment by the Internal Revenue Service. The Internal Revenue Code contains
provisions that limit the NOL and tax credit carryforwards available to be used
in any given year in the event of certain changes in the ownership interests of
significant stockholders. The federal NOL carry forwards of $11.1 million
available at December 31, 2008 were acquired from KnowledgeStorm and are subject
to limitations on their use in future years.
The
income tax provision for the years ended December 31, 2008, 2007 and 2006
consisted of the following:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
88
|
|
|
$
|
5,321
|
|
|
$
|
4,321
|
|
State
|
|
|
950
|
|
|
|
1,646
|
|
|
|
1,316
|
|
Total
current
|
|
|
1,038
|
|
|
|
6,967
|
|
|
|
5,637
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,782
|
|
|
|
(1,398
|
)
|
|
|
49
|
|
State
|
|
|
(36
|
)
|
|
|
(317
|
)
|
|
|
(28
|
)
|
Total
deferred
|
|
|
1,746
|
|
|
|
(1,715
|
)
|
|
|
21
|
|
|
|
$
|
2,784
|
|
|
$
|
5,252
|
|
|
$
|
5,658
|
|
The
income tax provision for the years ended December 31, 2008, 2007 and 2006
differs from the amounts computed by applying the statutory federal income tax
rate to the consolidated income (loss) before income taxes as
follows:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
Provision
computed at statutory rate
|
|
$
|
1,592
|
|
|
$
|
4,129
|
|
|
$
|
4,610
|
|
Increase
(reduction) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
exempt interest income
|
|
|
(440
|
)
|
|
|
(712
|
)
|
|
|
-
|
|
Stock-based
compensation
|
|
|
1,012
|
|
|
|
792
|
|
|
|
260
|
|
Other
nondeductible expenses
|
|
|
137
|
|
|
|
208
|
|
|
|
88
|
|
State
income tax provision (benefit)
|
|
|
581
|
|
|
|
752
|
|
|
|
827
|
|
Other
|
|
|
(98
|
)
|
|
|
83
|
|
|
|
(127
|
)
|
Provision
for income taxes
|
|
$
|
2,784
|
|
|
$
|
5,252
|
|
|
$
|
5,658
|
|
Significant
components of the Company's net deferred tax assets and liabilities are as
follows:
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
restated
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
4,904
|
|
|
$
|
7,429
|
|
Deferred
revenue
|
|
|
239
|
|
|
|
2,303
|
|
Purchase
price adjustments
|
|
|
-
|
|
|
|
152
|
|
Accruals
and allowances
|
|
|
412
|
|
|
|
463
|
|
Depreciation
|
|
|
135
|
|
|
|
90
|
|
Stock-based
compensation
|
|
|
3,272
|
|
|
|
1,503
|
|
Deferred
rent expense
|
|
|
97
|
|
|
|
144
|
|
Gross
deferred tax assets
|
|
|
9,059
|
|
|
|
12,084
|
|
Less
valuation allowance
|
|
|
(940
|
)
|
|
|
(940
|
)
|
Total
deferred tax assets
|
|
|
8,119
|
|
|
|
11,144
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible
asset amortization
|
|
|
(1,791
|
)
|
|
|
(2,984
|
)
|
Total
deferred tax liabilities
|
|
|
(1,791
|
)
|
|
|
(2,984
|
)
|
Net
deferred tax assets
|
|
$
|
6,328
|
|
|
$
|
8,160
|
|
|
|
|
|
|
|
|
|
|
As
reported:
|
|
|
|
|
|
|
|
|
Current
deferred tax assets
|
|
$
|
2,959
|
|
|
$
|
5,250
|
|
Non-current
deferred tax assets
|
|
|
3,369
|
|
|
|
2,910
|
|
Total
deferred tax assets
|
|
$
|
6,328
|
|
|
$
|
8,160
|
|
In
evaluating the ability to realize the net deferred tax asset, the Company
considers all available evidence, both positive and negative, including past
operating results, the existence of cumulative losses in the most recent fiscal
years, tax planning strategies that are prudent, and feasible and forecasts of
future taxable income. In considering sources of future taxable income, the
Company makes certain assumptions and judgments that are based on the plans and
estimates that are used to manage the underlying business of the Company.
Changes in the Company's assumptions and estimates may materially impact income
tax expense for the period. The valuation allowance of $940 at
December 31, 2008 and 2007 relates to state deferred tax assets acquired from
KnowledgeStorm that the Company determined were not likely to be realized based
on projections of future taxable income in Georgia. To the extent
realization of the state deferred tax assets becomes probable, recognition of
these acquired tax benefits would reduce goodwill.
The
Company adopted the provisions of FIN 48, an interpretation of SFAS No.
109,
Accounting for Income
Taxes
, on January 1, 2007. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with SFAS No. 109 and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure and transition. At the adoption date and as of
December 31, 2008, the Company had no material unrecognized tax benefits and no
adjustments to liabilities or operations were required.
The
Company may from time to time be assessed interest or penalties by major tax
jurisdictions. The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense. The Company recognized interest
and penalties totaling $17 in 2008. The Company did not recognize any
interest and penalties in 2007.
Tax years
2004 through 2007 are subject to examination by the federal and state taxing
authorities. The Internal Revenue Service completed an audit of our
2006 tax return without identifying any material adjustments. There
are no other income tax examinations currently in process.
15.
Segment Information
SFAS No.
131,
Disclosures About
Segments of an Enterprise and Related Information
, establishes standards
for reporting information about operating segments in annual financial
statements and requires selected information of these segments be presented in
interim financial reports to stockholders. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker, or
decision making group, in making decisions on how to allocate resources and
assess performance. The Company's chief operating decision making group, as
defined under SFAS No. 131, consists of the Company's chief executive officer,
president and executive vice president. The Company views its operations and
manages its business as one operating segment.
Geographic
Data
Net sales
to unaffiliated customers by geographic area were as follows:
|
|
Years
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
United
States and Canada
|
|
$
|
101,401
|
|
|
$
|
90,216
|
|
|
$
|
78,287
|
|
International
|
|
|
3,143
|
|
|
|
2,034
|
|
|
|
912
|
|
Total
|
|
$
|
104,544
|
|
|
$
|
92,250
|
|
|
$
|
79,199
|
|
16.
401(k) Plan
The
Company maintains a 401(k) retirement savings plan (the Plan) whereby employees
may elect to defer a portion of their salary and contribute the deferred portion
to the Plan. The Company contributes an amount equal to 50% of the employee's
contribution to the Plan, up to an annual limit of two thousand dollars. The
Company contributed $751, $622 and $492 to the Plan for the years ended December
31, 2008, 2007 and 2006, respectively. Employee contributions and the Company's
matching contributions are invested in one or more collective investment funds
at the participant's direction. The Company's matching contributions vest 25%
annually and are 100% vested after four consecutive years of
service.
17.
Quarterly Financial Data (unaudited)
|
|
For
the Three Months Ended
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Mar.
31
|
|
|
Jun.
30
|
|
|
Sep.
30
|
|
|
Dec.
31
|
|
|
Mar.
31
|
|
|
Jun.
30
|
|
|
Sep.
30
|
|
|
Dec.
31
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
As
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
23,263
|
|
|
$
|
27,615
|
|
|
$
|
26,996
|
|
|
$
|
26,670
|
|
|
$
|
17,852
|
|
|
$
|
22,803
|
|
|
$
|
23,106
|
|
|
$
|
28,489
|
|
Total
cost of revenues
|
|
|
7,542
|
|
|
|
9,036
|
|
|
|
8,370
|
|
|
|
8,143
|
|
|
|
6,026
|
|
|
|
7,309
|
|
|
|
6,914
|
|
|
|
7,725
|
|
Total
gross profit
|
|
|
15,721
|
|
|
|
18,579
|
|
|
|
18,626
|
|
|
|
18,527
|
|
|
|
11,826
|
|
|
|
15,494
|
|
|
|
16,192
|
|
|
|
20,764
|
|
Total
operating expenses
|
|
|
17,205
|
|
|
|
17,147
|
|
|
|
16,449
|
|
|
|
17,544
|
|
|
|
11,599
|
|
|
|
12,332
|
|
|
|
13,884
|
|
|
|
16,495
|
|
Operating
income (loss)
|
|
|
(1,484
|
)
|
|
|
1,432
|
|
|
|
2,177
|
|
|
|
983
|
|
|
|
227
|
|
|
|
3,162
|
|
|
|
2,308
|
|
|
|
4,269
|
|
Net
income
|
|
$
|
(436
|
)
|
|
$
|
1,052
|
|
|
$
|
707
|
|
|
$
|
441
|
|
|
$
|
75
|
|
|
$
|
1,988
|
|
|
$
|
1,718
|
|
|
$
|
2,764
|
|
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.31
|
)
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
0.07
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.31
|
)
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
$
|
0.06
|
|
Item
9. Changes
in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item
9A(T
). Controls and Procedures
Disclosure
Controls and Procedures
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2008. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Securities Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the
Securities Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers,
as appropriate, to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of December 31, 2008,
and due to the material weaknesses in our internal control over financial
reporting described in our accompanying
Management's Report on Internal
Control over Financial Reporting
, our chief executive officer and chief
financial officer concluded that, as of such date, our disclosure controls and
procedures were not effective at the reasonable assurance level. As further
discussed below under “Remediation Plans”, management is implementing measures
that we believe will address these deficiencies in our controls and
procedures.
Management's
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for our company. Internal control over
financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under
the Securities Exchange Act, as a process designed by, or under the supervision
of, a company's principal executive and principal financial officers and
effected by the company's board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures
that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our
management, including our chief executive officer and chief financial officer,
assessed the effectiveness of our internal controls over financial reporting as
of December 31, 2008. In connection with this assessment, we identified the
following material weaknesses in internal control over financial reporting as of
December 31, 2008. A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis. In
making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control—Integrated
Framework
. Because of the material weaknesses described below, management
believes that, as of December 31, 2008, our internal control over financial
reporting was not effective based on this criteria.
Accounting for Certain Complex
Online Service Revenue Transactions
. As a result of further review of the
Company’s business processes pertaining to its online service revenue offerings
and the related application of accounting policies and procedures to these
business processes, management identified material weaknesses in internal
control over financial reporting related to the misapplication of generally
accepted accounting principles on revenue arrangements involving certain online
service offerings as well as our assessment of verifiable objective evidence of
fair value for elements included in multiple element advertising
campaigns. This misapplication of generally accepted accounting
principles led to the necessary restatement of previously issued financial
statements and other financial information.
Management
identified the following material weaknesses surrounding the Company’s internal
controls over its accounting for certain complex service revenue
transactions:
1.
|
Inadequate
and ineffective controls over the accounting for certain complex service
revenue recognition
transactions.
|
The
Company did not have effective design or operational controls over the
accounting for certain online service revenue transactions, specifically; the
Company’s ability to apply generally accepted accounting principles as they
relate to the recognition of revenue on transactions that include duration-based
services and multiple element advertising campaigns. This material weakness
resulted in the misstatement of revenue for certain service offerings and
multiple element campaigns, which required previously reported consolidated
financial statements to be restated.
2.
|
Inadequate
and ineffective controls over adequacy of staffing of accounting
group.
|
The
Company’s controls related to ensuring the adequacy of staffing of its
accounting and finance department were inadequate and
ineffective. This material weakness resulted in the misstatement of
revenue for certain service offerings and multiple element campaigns, which
required previously reported consolidated financial statements to be
restated.
3.
|
Insufficient
and ineffective review and supervision by management of the policies and
procedures underlying certain complex service revenue
transactions
.
|
Management’s
monitoring and review controls over the Company’s underlying accounting policies
and procedures as well as the business process controls surrounding certain
complex online service revenue transactions were inadequate and ineffective.
This material weakness resulted in the misstatement of revenue for certain
service offerings and multiple element campaigns, which required previously
reported consolidated financial statements to be restated.
4.
|
Inadequate
and ineffective detective controls to ensure timely and proper
identification and correction of errors
.
|
Management’s
oversight and related detective controls to ensure timely and proper
identification and correction of errors for arrangements involving certain
complex online service revenue transactions were inadequate and ineffective.
This material weakness resulted in the misstatement of revenue for certain
service offerings and multiple element campaigns, which required previously
reported consolidated financial statements to be restated.
5.
|
Inadequate
and ineffective accounting and reporting system for processing and
reporting of certain complex service revenue
transactions.
|
The
Company’s current accounting and financial reporting system and related internal
controls is inadequate to carry out the volume and level of complexities
associated with the Company’s online service revenue transactions. This material
weakness resulted in the misstatement of revenue for certain service offerings
and multiple element campaigns, which required previously reported consolidated
financial statements to be restated.
As a
result of these material weaknesses, we restated our previously issued financial
statements and other financial information for the years 2007 and 2006; and
financial information for the years 2005 and 2004, and for each of the quarterly
periods ended March 31, June 30, and September 30 in the year 2008 and for each
of the quarterly periods in the year 2007. As discussed in Note 2 of
the consolidated financial statements, the aforementioned errors resulted in
changes in revenues, deferred revenue and income taxes for the aforementioned
periods.
Changes
in Internal Control over Financial Reporting
No change
in internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act) occurred during the year ended
December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting, other than
those material weaknesses described above.
Remediation
Plans
Management
has identified the following measures to strengthen our internal control over
financial reporting and to address the material weaknesses described above. We
began implementing certain of these measures prior to the filing of this Form
10-K/A but changes made to our internal controls have not yet been in place for
a sufficient time to have had a significant effect. Management
expects to continue to develop remediation plans and implement additional
changes to our internal control over financial reporting during fiscal 2009 and
possibly into fiscal 2010, described in detail hereafter. We believe that the
actions taken to date, as well as our planned future actions, will adequately
address the material weaknesses.
In
order to improve controls over the accounting for certain complex service
revenue transactions, we have initiated and intend to continue to:
|
·
|
Assess
the expertise of our staff responsible for revenue recognition and address
any identified deficiencies in order to enhance and augment the depth of
knowledge of our staff and reduce the risk of future accounting errors and
financial statement misstatements.
|
|
·
|
Utilize
specialized third party consultants to assist us in monitoring and
ensuring the propriety of our revenue recognition policies, procedures,
and activities on a quarterly basis, beginning with the quarter ending
March 31, 2009.
|
|
·
|
Communicate
revised revenue recognition policies and procedures to appropriate
accounting staff, and train them on their usage and
application.
|
|
·
|
Ensure
that accounting group management is heavily involved in oversight and
monitoring of the recording and reporting of complex service revenue
recognition transactions during current and future reporting
periods.
|
|
·
|
Review
the controls over revenue recognition to ensure procedures exist to
properly account for any changes in
operations.
|
In
order to improve controls over ensuring the adequacy of staffing of the
accounting group, we have initiated and intend to continue to:
|
·
|
Assess
the depth and expertise of our staff responsible for revenue recognition
and address any identified
deficiencies.
|
|
·
|
Work
with our Human Resources department in aggressively identifying and
recruiting future capable technical accounting staff
candidates.
|
|
·
|
Utilize
specialized third party consultants to assist us in monitoring and
ensuring the propriety of our revenue recognition policies, procedures,
and activities on a quarterly basis, beginning with the quarter ending
March 31, 2009.
|
In
order improve controls to ensure an adequate level of review and supervision by
management exists with respect to the underlying accounting policies and
procedures underlying certain complex service revenue transactions, we have
initiated and intend to continue to:
|
·
|
Ensure
that accounting group management is routinely reviewing and monitoring the
application of and any changes to the accounting policies and procedures
underlying complex service revenue recognition transactions during future
reporting periods.
|
|
·
|
Ensure
the proper evidence of this review is consistently documented during
future reporting periods.
|
In
order to ensure the improvement of the effectiveness of detective controls in
identifying and correcting errors, we have initiated and intend to continue
to:
|
·
|
Ensure
that accounting group management is heavily involved in oversight and
monitoring of the recording and reporting of complex service revenue
recognition transactions during future reporting
periods.
|
|
·
|
Utilize
specialized third party consultants to assist us in monitoring and
ensuring the propriety of our revenue recognition policies, procedures,
and activities on a quarterly basis, beginning with the quarter ending
March 31, 2009.
|
|
·
|
Consider
implementation of additional automation, trending analyses, and management
reporting to highlight potential future revenue recognition
issues.
|
In
order to ensure the Company’s accounting and reporting systems are adequate to
carry out the level and complexities associated with our service revenue
transactions, we have initiated and intend to continue to:
|
·
|
Utilize
specialized third party consultants to assist us in assessing the
limitations of our current system
environment.
|
|
·
|
Implement
an enhanced revenue software application to improve our current financial
reporting system.
|
|
·
|
Update
internal processes and procedures to improve the controls over the start
date and end date of our service
offerings.
|
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Shareholders of
TechTarget,
Inc.
We have
audited TechTarget, Inc.’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). TechTarget, Inc.’s management is responsible for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying management’s report on internal control over
financial reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The following
five material weaknesses have been identified and included in management’s
assessment:
1.
|
Inadequate
and ineffective controls over the accounting for certain complex service
revenue recognition
transactions.
|
The
Company did not have effective design or operational controls over the
accounting for certain online service revenue transactions, specifically; the
Company’s ability to apply generally accepted accounting principles as they
relate to the recognition of revenue on transactions that include duration-based
services and multiple element advertising campaigns. This material weakness
resulted in the misstatement of revenue for certain service offerings and
multiple element campaigns, which required previously reported consolidated
financial statements to be restated.
2.
|
Inadequate
and ineffective controls over adequacy of staffing of accounting
group.
|
The
Company’s controls related to ensuring the adequacy of staffing of its
accounting and finance department were inadequate and
ineffective. This material weakness resulted in the misstatement of
revenue for certain service offerings and multiple element campaigns, which
required previously reported consolidated financial statements to be
restated.
3.
|
Insufficient
and ineffective review and supervision by management of the policies and
procedures underlying certain complex service revenue
transactions
.
|
Management’s
monitoring and review controls over the Company’s underlying accounting policies
and procedures as well as the business process controls surrounding certain
complex online service revenue transactions were inadequate and ineffective.
This material weakness resulted in the misstatement of revenue for certain
service offerings and multiple element campaigns, which required previously
reported consolidated financial statements to be restated.
4.
|
Inadequate
and ineffective detective controls to ensure timely and proper
identification and correction of errors
.
|
Management’s
oversight and related detective controls to ensure timely and proper
identification and correction of errors for arrangements involving certain
complex online service revenue transactions were inadequate and ineffective.
This material weakness resulted in the misstatement of revenue for certain
service offerings and multiple element campaigns, which required previously
reported consolidated financial statements to be restated.
5.
|
Inadequate
and ineffective accounting and reporting system for processing and
reporting of certain complex service revenue
transactions.
|
The
Company’s current accounting and financial reporting system and related internal
controls is inadequate to carry out the volume and level of complexities
associated with the Company’s online service revenue transactions. This material
weakness resulted in the misstatement of revenue for certain service offerings
and multiple element campaigns, which required previously reported consolidated
financial statements to be restated.
These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2008 financial statements, and
this report does not affect our report dated July 13, 2009 on those financial
statements.
In our
opinion, because of the effect of the material weaknesses described above on the
achievement of the objectives of the control criteria, TechTarget, Inc. has not
maintained effective internal control over financial reporting as of December
31, 2008, based on the COSO criteria.
Boston,
Massachusetts
July 13,
2009
Item
9B.
Other Information
None.
PART
III
Item
10. Directors
, Executive Officers and Corporate
Governance
Current
Directors and Executive Officers
Set forth
below are the name, age and position of each executive officer and director of
TechTarget as of June 1, 2009.
Name
|
|
Age
|
|
Principal
Occupation/
Position Held With the
Company
|
Jay
C. Hoag
(2*)(3*)
|
|
51
|
|
Director
|
Roger
M. Marino
(1)(2)(3)
|
|
70
|
|
Director
|
Leonard
P. Forman
(1*)(2)(3)
|
|
63
|
|
Director
|
Bruce
Levenson
(1)
|
|
59
|
|
Director
|
Greg
Strakosch
|
|
46
|
|
Chairman
and Chief Executive Officer; Director
|
Don
Hawk
|
|
38
|
|
President
|
Eric
Sockol
|
|
48
|
|
Chief
Financial Officer, Treasurer
|
Kevin
Beam
|
|
45
|
|
Executive
Vice President
|
Rick
Olin
|
|
52
|
|
Secretary,
Vice President and General Counsel
|
________________________________
(1)
Member of the Audit Committee.
(2)
Member of the Nominating and Governance Committee.
(3)
Member of the Compensation Committee.
(*)
Chair.
Jay C. Hoag
has served as a
director since 2004. Mr. Hoag is the co-founder of Technology Crossover
Ventures, a private equity and venture capital firm. Prior to founding
Technology Crossover Ventures in 1995, Mr. Hoag was a managing director of
Chancellor Capital Management from 1982 to 1994. Mr. Hoag also serves on the
boards of directors of Netflix, Inc. and several private companies. Mr. Hoag
holds a B.A. from Northwestern University and a M.B.A. from the University of
Michigan.
Roger M. Marino
has served as
a director since 2000. Mr. Marino is an active private investor in numerous
technology start-up companies. In 2001 Mr. Marino founded Revere Pictures, a
film production company. Prior to founding Revere Pictures, Mr. Marino
co-founded EMC Corporation and retired as its president in 1992. Mr. Marino
holds a B.S. from Northeastern University and is a member of Northeastern's
Board of Trustees.
Leonard P. Forman
has served
as a director since December of 2006. Mr. Forman served as the Chief Financial
Officer and Executive Vice President of the New York Times Company from 2001 to
2006. Mr. Forman also serves on the board of directors of Wolters Kluwer, N.V.
and the Advisory Board of Veronis Shuler and Stevenson. Mr. Forman holds a B.A.
from Queens College, City University of New York and completed
his PhD dissertation from New York University.
Bruce Levenson
has served as a
director since 1999. Mr. Levenson is the co-founder of UCG, where he has worked
since 1977. Mr. Levenson is currently a Partner at UCG, where he is involved in
company strategy and acquisition efforts. In addition. Mr. Levenson is a partner
in Atlanta Spirit, LLC, which is the majority owner of the NBA Atlanta Hawks
franchise and the NHL Atlanta Thrashers franchise. Atlanta Spirit LLC also owns
the operating rights to the Philips Arena, the major sports and entertainment
venue in Atlanta. Mr. Levenson holds a B.A. from Washington University and a
J.D. from American University.
Greg Strakosch
has served as
our chief executive officer and a director since our incorporation in September
of 1999 and our chairman since 2007. Prior to co-founding TechTarget, Mr.
Strakosch was the President of the Technology Division of United Communications
Group, or UCG, a business-to-business information provider. Mr. Strakosch joined
UCG in 1992 when the company acquired Reliability Ratings, an IT publishing
company that he founded in 1989. Before Reliability Ratings, Mr. Strakosch spent
six years at EMC Corporation, a provider of enterprise information storage
systems. Mr. Strakosch holds a B.A. from Boston College.
Don Hawk
has served as our
president since our incorporation in September of 1999. Prior to co-founding
TechTarget, Mr. Hawk was a Director of New Media Products for the Technology
Division of UCG from 1997 to 1999. Prior to joining UCG, Mr. Hawk was the
director of electronic business development for Telecommunications Reports
International, a telecommunications publishing company. Mr. Hawk holds a B.A.
and an M.A. from George Washington University.
Eric Sockol
has served as our
chief financial officer since our incorporation in September of 1999 and our
treasurer since March 2001. Before joining TechTarget, Mr. Sockol was the Chief
Financial Officer of ObTech, Inc., a system integration company, from December
1996 to August 1999. Prior to ObTech, Mr. Sockol was the Chief Financial Officer
of OneWave, Inc., a business applications software company, from October 1995 to
November 1996. Prior to joining OneWave, Mr. Sockol served as Finance Director
and Corporate Controller of Corporate Software, Inc., a global reseller of
software and support services, from June 1990 to September 1995. Mr. Sockol is a
certified public accountant and holds a B.B.A. from the University of
Massachusetts, Amherst.
Kevin Beam
has been employed
by us since 2000, serving as one of our executive vice presidents since July
2004, and as one of our vice presidents from March 2000 until July 2004. Prior
to joining TechTarget, Mr. Beam was a Vice President in the Technology Division
of UCG from 1992 to 2000. Prior to joining UCG, Mr. Beam served as Vice
President at Reliability Ratings, an IT publishing company, from 1989 to 1992.
Before Reliability Ratings, Mr. Beam spent five years in sales and sales
management positions at EMC Corporation. Mr. Beam holds a B.A. from Boston
College.
Rick Olin
has served as our
general counsel since October of 2006 and as our secretary since December 2006.
Prior to joining us, Mr. Olin was the Senior Vice President of Corporate
Development, General Counsel and Secretary of Workscape, Inc., a provider of
outsourced human resource technology solutions from March 2005 through October
2006 and its Vice President, General Counsel and Secretary from March 2002
through February 2005. Prior to joining Workscape, Mr. Olin was Vice President
and General Counsel at SpeechWorks International, Inc., a provider of speech
technology software solutions, from March 1999 through February 2002. Mr. Olin
holds a B.A. from Brandeis University, an M.Ed from Harvard University and a
J.D. from Northeastern University.
Section 16(a)
Beneficial Ownership Reporting
Compliance
Section
16(a) of the Exchange Act requires our directors and executive officers, and
persons who own more than 10% of a registered class of our equity securities, to
file with the SEC initial reports of ownership and reports in changes in
ownership of our common stock and other of our equity securities. Specific due
dates for these reports have been established, and we are required to disclose
any failure to file by these dates during 2008. Our officers, directors and
greater than 10% stockholders are required by the SEC regulations to furnish us
with copies of all Section 16(a) forms they file.
To our
knowledge, based solely on a review of the copies of such reports furnished to
us and written representations that no other reports were required, during the
year ended December 31, 2008, except for one report that was not timely filed by
Mr. Roger Marino for one transaction, all Section 16(a) filing requirements
applicable to our officers, directors and greater than 10% beneficial owners
were complied with.
Code of Business Conduct and
Ethics
We have
adopted a written code of business conduct and ethics that applies to our
directors, officers and employees, including our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We have posted the code of business
conduct and ethics on our website, which is located at
www.techtarget.com
. In
addition, we intend to disclose on our website all disclosures that are required
by law or NASDAQ Stock Market listing standards concerning any amendments to, or
waivers from, any provision of the code of business conduct and
ethics.
Audit Committee Members and Financial
Expert
Our Board
of Directors currently has an Audit Committee that oversees our corporate
accounting and financial reporting process. The Audit Committee is currently
comprised of three Board members: Messrs. Forman, Levenson and Marino. Mr.
Forman currently chairs the Audit Committee. The Board has determined that all
members of our Audit Committee are independent, as independence is currently
defined in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing standards. The
Board has also determined that Mr. Forman qualifies as an audit committee
financial expert, as defined in applicable SEC rules. The charter for the Audit
Committee can be found on our corporate website at
www.techtarget.com.
Item 11
. Executive Compensation
Compensation
Discussion and Analysis
Overview and Compensation
Philosophy.
The
primary objectives of our compensation committee and our board of directors with
respect to executive compensation are to attract, retain and motivate executives
who make important contributions to the achievement of our business goals, and
to align the incentives of our executives with the creation of long term value
for our stockholders. The compensation committee implements and maintains
compensation plans in order to enhance the likelihood that we may achieve these
objectives. Our executive compensation program is designed to attract and retain
those individuals with the skills necessary for us to achieve our long-term
business plan, to motivate and reward individuals who perform at or above the
levels that we expect and to link a portion of each executive officer's
compensation to the achievement of our business objectives. It is also designed
to reinforce a sense of ownership, urgency and overall entrepreneurial spirit.
Further, our executive compensation program is designed in a manner that we
believe aligns the interests of our executive officers with those of our
stockholders by providing a portion of our executive officers' compensation
through equity-based awards.
Compensation Committee.
Our
current executive compensation policies and objectives were developed and
implemented by our compensation committee, which consists of three independent
directors. One of the roles of the compensation committee under its charter is
to review and approve compensation decisions relating to our executive officers.
Our compensation committee reviews and approves the compensation of our chief
executive officer, Mr. Strakosch, and, with input from our chief executive
officer, the compensation for our other executive officers. Mr. Strakosch plays
no role in determining his own salary, bonus or equity
compensation.
Our
compensation committee intends to continue to perform, at least annually, a
review of our executive compensation program to assess whether such program
provides adequate incentives and motivation to our executive officers, and
whether it adequately compensates our executive officers relative to comparable
executive officers employed by other private and public companies with which we
believe we compete for executives. In addition to addressing cash compensation
matters for our executive officers, our compensation committee reviews stock
option and other equity grants to executive officers, as well as bonus plans,
stock option and other equity grants to employees who are not executive
officers.
Elements
of Executive Compensation
Executive
compensation consists of the following elements:
|
·
|
annual
performance bonus;
|
|
·
|
equity
incentive compensation; and
|
We view
these elements of compensation as related but distinct. Although our
compensation committee reviews total compensation, we generally do not believe
that significant compensation derived from one element of compensation should
necessarily negate or reduce compensation from other elements. We assess the
appropriate level for each compensation component based, in part, on competitive
benchmarking consistent with our recruiting and retention goals, our view of
internal fairness and consistency, and other considerations we deem relevant,
such as the executives’ equity ownership percentage. We believe that stock
option and other equity awards are an important motivator in attracting and
retaining employees in addition to salary and cash bonus awards. For 2008, the
overall mix of executive compensation was shifted more toward long term rewards
by implementing a program in which both base salaries and cash performance
bonuses were kept at 2007 levels, and additional equity awards were granted in
the form of restricted stock units, or “RSUs”, all as further detailed
below.
Base Salary.
Base salaries are used
to recognize the experience, skills, knowledge and responsibilities required of
all our employees, including our executives. Base salaries for our executives
typically have been set in our offer letter to the executive at the outset of
employment. None of our executives are currently party to employment agreements
that provide for automatic or scheduled increases in base salary. We determine
base salary compensation for our executive officers at a level we believe
enables us to retain and motivate and, as needed, hire individuals in a
competitive environment, so that such executive officers will contribute to our
overall business goals. We also take into account the base salary compensation
that is payable by companies that we believe to be our competitors and by other
comparable private and public companies with which we believe we generally
compete for executives. Base salaries are reviewed annually and adjusted from
time to time to realign salaries with market levels after taking into account an
individual's responsibilities, performance, skills specific to us and industry
experience. In December 2007, our compensation committee approved and
recommended for approval, and our board of directors approved, keeping the base
salaries for 2008 for our executive officers equal to their base salaries for
2007.
Annual Performance
Bonus.
We designed our executive team bonus plan in a manner
we believe will focus and motivate our management on achieving key company
financial objectives and to reward our management for achievement of these
financial objectives. In December 2007, our board of directors approved the 2008
Executive Incentive Bonus Plan, which we refer to as the 2008 Bonus Plan. The
2008 Bonus Plan provided for the payment of an annual cash bonus based on an
individual targeted bonus amount for each executive officer. The specific
targeted bonus amount for each executive officer was determined by the
compensation committee based on a recommendation by Mr. Strakosch and the
various factors noted above. Mr. Strakosch's targeted bonus amount is determined
by the compensation committee without input from Mr. Strakosch. Each of the
executive officers was eligible to earn greater than their targeted bonus amount
in the event the applicable financial objective was exceeded. Although the
amount of the relevant company financial target in the 2008 Bonus Plan was
increased from the target for 2007, the dollar amount payable to each executive
officer under the 2008 Bonus Plan was identical to the dollar amount that was in
place for each of our executives for 2007; all other terms of the Plan remained
the same, and these terms were consistent with the terms of annual performance
bonus plans that have been in place for our executive officers since
2002.
Historically,
and in connection with the 2008 Bonus Plan, our financial targets for bonuses
were established in conjunction with our annual performance and compensation
review process that is part of our annual budgeting process. Our compensation
committee chose Adjusted EBITDA, defined as earnings before net interest, income
taxes, depreciation, and amortization, as further adjusted for stock-based
compensation, as the target metric for payment under the 2008 Bonus Plan (as has
been the case for bonus payments since 2002). Adjusted EBITDA was
chosen by our compensation committee because, after considering various
financial metrics, it believed that Adjusted EBITDA is the appropriate
measurement of our performance and achievement of our strategic
objectives.
In order
for any of our executive officers to have been paid any amounts under the 2008
Bonus Plan, the minimum threshold of 90% of the Adjusted EBITDA bonus target
would have had to have been achieved. If the 90% threshold was achieved, then
each of our executive officers would have earned 50% of their targeted bonus
amount. Furthermore, each of our executive officers would have earned an
additional 5% of their targeted bonus amount for each additional 1% of the
Adjusted EBITDA bonus target achieved over 90% until 100% of the Adjusted EBITDA
bonus target was achieved. If greater than 100% of the Adjusted EBITDA bonus
target was achieved for 2008, then the executive officers would have earned an
additional cash bonus in excess of their targeted amount.
In 2008,
the Company produced below 90% of the Adjusted EBITDA bonus target, which
resulted in no payout of any 2008 Bonus Plan amounts to any executive officer.
In the five prior fiscal years we paid out to our executive officers the
following percentages of their targeted bonus amounts: 86%, 90%, 0%, 261%, and
50%, respectively. All bonus amounts earned are accounted
for in accordance with GAAP throughout the applicable fiscal year.
The table
below shows, for each named executive officer, the target annual incentive bonus
and actual bonus paid for 2008.
|
|
Bonus
|
|
|
Bonus
|
|
|
|
Target
|
|
|
Paid
|
|
Name
and Position
|
|
($)
|
|
|
($)
|
|
|
|
|
|
|
|
|
Greg
Strakosch, Chairman and Chief Executive Officer
|
|
|
270,000
|
|
|
|
-
|
|
Don
Hawk, President
|
|
|
225,000
|
|
|
|
-
|
|
Eric
Sockol, Chief Financial Officer and Treasurer
|
|
|
75,000
|
|
|
|
-
|
|
Kevin
Beam, Executive Vice President
|
|
|
175,000
|
|
|
|
-
|
|
Rick
Olin, Vice President, General Counsel and Secretary
|
|
|
50,000
|
|
|
|
-
|
|
Equity Incentive
Compensation.
We intend to continue, as we have in the past,
to utilize equity awards, in the form of stock options and, more recently, RSUs,
in each case to attract, motivate and retain employees. We believe that stock
options, RSUs and other equity awards are an important component of an
executive's overall compensation package, and that this equity element can be
effective in rewarding long-term performance of our executives. We believe that
this compensation philosophy, in turn, may contribute to long-term value for our
stockholders. All of our executive officers and a majority of our key employees
have received stock option grants and/or RSU grants under our 1999 Stock Option
Plan and/or our 2007 Stock Option Plan. We believe the vesting feature of our
equity grants increases executive retention by providing an incentive to remain
in our employ during the vesting period. In determining the grants of equity
awards, our compensation committee considers the external data described in the
“Benchmarking of Compensation and Equity” section below, as well as the
recommendations of our chief executive officer. Additionally, other factors
considered in this determination include the comparative share ownership of
executives in our compensation peer group, our company-level performance, the
applicable executive’s performance and the amount and status of equity
previously awarded to the executive.
To date,
we have typically made an initial equity award to new executives in connection
with the start of their employment; we also typically make one annual
performance grant of equity per year to certain key employees and executives.
Grants of equity awards to executives are all approved by our board of directors
or our compensation committee. Stock options are granted based on the fair
market value of our common stock on the date of grant. To date, in most cases,
the stock options we have granted to our executives have vested as to 25% of
such awards at the end of the first year following the grant and in equal
quarterly installments over the succeeding three years, while the RSUs granted
for 2008 vest in equal annual installments over four years. These executive
officer vesting schedules are generally consistent with the vesting of stock
options and RSUs granted to other employees.
Annual Equity
Grants.
During the fourth quarter of 2007, in connection with
our annual employee performance and compensation review, our board of directors,
compensation committee and executive officers held discussions, both together
and independently, regarding the importance of retaining and motivating key
employees in order to plan for our next stage of growth. Based upon those
discussions, our chief executive officer recommended that, with respect to 2008
compensation for our management team, which was comprised of approximately 35
people and included our executive officers, this group of employees would not be
given any increase in their base annual salaries and, in lieu thereof, would be
granted RSUs. The amount of RSUs granted to each such manager, including each
executive officer, was based on a formula using salary and bonus amounts,
factored by one of two weighting factors, which factors were based on potential
impact the manager’s role had on us meeting our financial goals and, in certain
other cases, a change in expectations for the role. The RSUs have four-year
annual vesting terms in each case
.
We
typically approve stock option and other equity grants at regularly scheduled
meetings of our board of directors or compensation committee, although in some
cases, business exigencies or other practical considerations require that stock
options and other equity granted be approved through a written consent of the
board of directors or compensation committee.
Summary
of 2009 Executive Compensation
Base Salary and Bonus Amounts;
Percentage Allocation.
For 2009, as was the case in 2008, the Company
kept the aggregate amount of annual base salary and target cash performance
bonus for each executive (together, the “Aggregate Annual Target Compensation”)
at 2007 levels. However, for 2009, these amounts were adjusted in order to
provide for a consistent percentage allocation among all of our executive
officers between the amount of their annual salary and the amount of their
target performance cash bonus. Specifically, in December 2008, our compensation
committee approved and recommended for approval, and our board of directors
approved, keeping the Aggregate Annual Target Compensation for each executive
the same as that which each was entitled to in 2008, while providing that
Aggregate Annual Target Compensation for each executive would be allocated such
that eighty percent (80%) would be represented by annual base salary and twenty
percent (20%) would be represented by target performance cash bonus. As a
result, certain of our executives received increases in their annual base
salaries (and corresponding reductions in their target performance cash bonuses)
in connection with such reallocation. Additionally, the Company
continued the practice that was initiated for 2008 of utilizing restricted stock
units, or “RSUs”, as long term rewards for our named executive
officers.
2009 Bonus Plan.
In December
2008, our board of directors approved the 2009 Executive Incentive Bonus Plan,
which we refer to as the “2009 Bonus Plan”. The 2009 Bonus Plan provides for the
payment of cash bonuses based on an individual targeted bonus amount for each
named executive officer. The specific targeted bonus amount for each executive
officer is determined by the compensation committee. Mr. Strakosch's targeted
bonus amount is determined by the compensation committee without input from Mr.
Strakosch. Each of the executive officers is eligible to earn greater than their
targeted bonus amount in the event the applicable financial objective is
exceeded. The amount of the relevant target in the 2009 Bonus Plan was
determined in connection with the Company’s 2009 budgeting process. In
connection with the reallocation of Aggregate Annual Target Compensation, as
described above, the dollar amounts payable to certain executive officer under
the 2009 Bonus Plan were reduced from the dollar amounts that were in place for
our executives for 2008. In order for any of our executive officers
to be paid any amounts under the 2009 Bonus Plan, we must reach or exceed a
minimum threshold of 90% of the Adjusted EBITDA bonus target. If the 90%
threshold is achieved, then each of our executive officers will earn 50% of
their targeted bonus amount. Furthermore, each of our executive officers will
earn an additional 5% of their targeted bonus amount for each additional 1% of
the Adjusted EBITDA bonus target achieved over 90% until 100% of the Adjusted
EBITDA bonus target is achieved. If greater than 100% of the Adjusted EBITDA
bonus target is achieved for fiscal year 2009, then the executive officers will
earn an additional cash bonus in excess of their targeted amount. Under the
terms of the 2009 Plan, each executive will be entitled to a quarterly cash
payout under the Plan based on the Company’s Adjusted EBITDA for the applicable
fiscal quarter and year-to-date.
2009 Equity Grant.
During the
fourth quarter of 2008, in connection with our annual employee performance and
compensation review, our board of directors, compensation committee and chief
executive officer held discussions, both together and independently, regarding
the importance of retaining and motivating key executive employees in order to
plan for our next stage of growth. Based upon those discussions, there was a
recognition that a disproportionate amount of the equity that had been granted
over the years to certain key executives was either fully-vested and, in the
case of option grants, had exercise prices below the price at which the
Company’s stock had generally been trading over recent periods. In addition,
there was a corresponding recognition that, even with the current challenges
presented by the macro-economic environment, it would be most appropriate, and
in keeping with the Company’s philosophy regarding executive compensation to
date, to have these new equity grants to the executives only begin vesting in
the event that the Company achieves a certain annual financial performance
threshold. The RSUs will vest following the first fiscal year in which the
Company achieves positive Adjusted EBITDA, provided, that in the event that the
Company does not achieve positive Adjusted EBITDA by its 2011 fiscal year, the
RSU grant shall expire and terminate. Once this corporate performance metric is
achieved, the RSUs have four-year vesting terms, in each case with the initial
25% vesting on the first anniversary of the grant date preceding the initial
vesting trigger date and, thereafter, in installments of 6.25% of the total
grant following the expiration of each 91-day period thereafter until
fully-vested. Based on the foregoing, the Compensation Committee approved and
recommended for approval, and the Board approved, a grant to our five named
executive officers of an aggregate of 1.8 million performance-based RSUs, which
grant, in the case of certain key named executive officers, was in recognition
of the potential retention risk posed by their respective equity positions in
the Company.
Employee Benefit Plans.
Our
employees, including our executive officers, are entitled to various employee
benefits. These benefits include: medical and dental care plans; flexible
spending accounts for healthcare; life, accidental death and dismemberment and
disability insurance; and a 401(k) plan. We offer a 401(k) plan to eligible
employees. Under our 401(k) plan, we may provide a discretionary matching
contribution to all employees after they meet all eligibility requirements.
Currently, we match fifty cents of each dollar of compensation contributed by
the participant up to a maximum of $2,000 per year. The employer contributions
vest over a four-year period commencing on the employee's hire
date.
Tax
Considerations
Section
162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a
tax deduction for compensation in excess of $1.0 million paid to our chief
executive officer and our four other most highly paid executive officers.
Qualifying performance-based compensation is not subject to the deduction
limitation if specified requirements are met. We generally intend to structure
the performance-based portion of our executive compensation, when feasible, to
comply with exemptions in Section 162(m) so that the compensation remains tax
deductible to us. However, our compensation committee or board of directors may,
in its judgment, authorize compensation payments that do not comply with the
exemptions in Section 162(m) when it believes that such payments are appropriate
to attract and retain executive talent.
Benchmarking
of Compensation and Equity
Our
compensation committee believes that using a benchmark to measure the
performance of our executive officers may not always be appropriate, but also
believes that it can be a meaningful factor in determining cash and equity
compensation. Determining the appropriate compensation for each of our executive
officers involves various objective and subjective compensation principles.
Therefore, our compensation committee, when assessing our compensation plans,
both by component and in the aggregate, reviews the following information and
data. With regard to our chief executive officer, chief financial officer and
general counsel, given that we believe the role and responsibilities for those
positions are generally consistent from company to company, we review the
compensation of those titled positions as detailed in public company filings and
certain private company data for companies with similar financial and
operational characteristics. Those characteristics include market capitalization
(where applicable), revenue, profitability, headcount, industry and geography.
Additionally, for the other two members of our executive management team whose
positions are more distinct and may not be as readily benchmarked by title, we
attempt to find analogous positions in other public and private companies in our
industry with similar financial and operational characteristics by function and
responsibilities. Following this review, our compensation committee considers
additional individual factors that contribute to the executive's value to our
company, such as length of service and specific skills that make an executive
officer uniquely key to our success. For 2008, the compensation committee
considered the compensation of the executives of a set of peer companies; the
group of peer companies was determined to have been appropriate by the
compensation committee members. Based on the committee’s review of the
compensation data available on the executives in this peer group, the
compensation committee determined that keeping the aggregate annual salary and
target cash performance bonus amounts for our executives the same as 2007, while
providing the equity grant in the form of Restricted Stock Units, was
appropriate.
We have
not retained a compensation consultant to develop or review our policies and
procedures with respect to executive compensation. Our compensation committee,
comprised of Leonard Forman, Jay C. Hoag, and Bruce Levenson, the latter two of
whom, either personally or on behalf of their respective funds, represent
substantial stockholders in our company. These compensation committee members
reviewed and approved the compensation of our executive officers, relying in
part on their substantial business experience.
Compensation
Committee Report
The
compensation committee has reviewed and discussed the section of this Annual
Report entitled “Compensation Discussion and Analysis” with management. Based on
this review and discussion, the compensation committee has recommended to the
board of directors that such section be included in this annual report on Form
10-K/A for the fiscal year ended December 31, 2008.
Executive
Officer Compensation
Summary
Compensation Table
The
following table sets forth the compensation earned for 2008 and 2007 for the
following persons, whom we refer to as our named executive
officers.
Name
and Principal Position
|
Year
|
Salary
($)
|
Stock
Awards ($) (1)
|
Option
Awards ($) (2)
|
Non-Equity
Incentive Plan Compensation ($)
|
All
Other Compensation ($) (3)
|
Total
($)
|
|
|
|
|
|
|
|
|
Greg
Strakosch, Chairman and Chief Executive Officer
|
2008
|
440,000
|
126,495
|
559,155
|
-
|
2,000
|
1,127,650
|
|
2007
|
440,000
|
4,844
|
558,358
|
232,983
|
1,500
|
1,237,685
|
Don
Hawk, President
|
2008
|
350,000
|
98,001
|
559,155
|
-
|
2,000
|
1,009,156
|
|
2007
|
350,000
|
3,744
|
558,358
|
194,153
|
1,500
|
1,107,755
|
Eric
Sockol, Chief Financial Officer and Treasurer
|
2008
|
275,000
|
124,723
|
279,584
|
-
|
2,000
|
681,307
|
|
2007
|
275,000
|
4,773
|
279,177
|
64,718
|
1,500
|
625,168
|
Kevin
Beam, Executive Vice President
|
2008
|
350,000
|
187,070
|
419,369
|
-
|
2,000
|
958,439
|
|
2007
|
350,000
|
7,159
|
418,765
|
151,008
|
1,500
|
928,432
|
Rick
Olin, Vice President, General Counsel and Secretary
|
2008
|
200,000
|
44,542
|
55,909
|
-
|
2,000
|
302,451
|
|
2007
|
200,000
|
1,701
|
55,703
|
43,145
|
1,500
|
302,049
|
(1)
|
The
amounts in the “Stock Awards” column reflect the dollar amounts recognized
as compensation expense for financial statement reporting purposes for
each officer during 2008 and 2007, as required by SFAS No.
123(R).
|
(2)
|
The
amounts in the “Options Awards” column reflect the dollar amounts
recognized as compensation expense for financial statement reporting
purposes for each officer during 2008 and 2007, as required by SFAS No.
123(R), disregarding any estimates of forfeitures relating to
service-based vesting conditions. Amounts do not include awards granted
prior to 2006. For the assumptions relating to these
valuations, see Note 12 to our 2008 audited financial
statements.
|
(3)
|
These
amounts represent matching 401(k)
contributions.
|
Grants
of Plan-Based Awards
There
were no plan-based awards granted during 2008 to our named executive
officers.
Restricted
stock unit awards entitle the recipient to receive shares of common stock to be
delivered at the time the restricted stock units vest subject to any deferral
plan that a named executive officer may elect to put in place. Restricted stock
unit awards to our named executive officers generally vest in annual
installments over four years. Upon termination of employment, unvested
restricted stock units automatically terminate and will be forfeited. Until
shares of common stock are delivered at the time the restricted stock units
vest, the holder has no rights as a stockholder with respect to the shares
subject to such restricted stock unit, including voting rights and the right to
receive dividends or dividend equivalents. The rights and interests in the
restricted stock units may not be sold, assigned, encumbered or otherwise
transferred except, in the event of death, by will or by the laws of descent and
distribution. In the event the executive’s employment with us is terminated by
reason of death or disability or by us for a reason other than cause (as defined
in the applicable named executive officer’s employment agreement), then the
number of restricted stock units which will be vested will be determined in
accordance with the applicable executive’s employment agreement (as summarized
below).
Stock
options granted to our executives typically vest as follows: 25% of the number
of shares covered by the option on the first anniversary of the date of grant
and 6.25% of the number of shares covered by the option for the twelve quarters
thereafter. The term of the options is between six and ten years. Prior to the
exercise of an option, the holder has no rights as a stockholder with respect to
the shares subject to such option, including voting rights and the right to
receive dividends or dividend equivalents.
See the
section of this annual report statement entitled, “Potential Payments
Upon Termination or Change in Control” for a description of the effect of a
termination of employment and/or change in control on the vesting schedules of
stock options and RSUs granted to our executive officers.
Outstanding Equity Awards at
2008 Year-End
The following table summarizes the
outstanding equity award holdings held by our named executive officers as of
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
Number
of
|
Number
of
|
|
|
|
|
Number
of
|
|
Market
Value
|
|
Securities
|
Securities
|
|
|
|
|
Shares
or
|
|
of
Shares or
|
|
Underlying
|
Underlying
|
|
|
|
|
Units
of
|
|
Units
of
|
|
Unexercised
|
Unexercised
|
|
Option
|
|
|
Stock
That
|
|
Stock
That
|
|
Options
|
Options
|
|
Exercise
|
Option
|
|
Have
Not
|
|
Have
Not
|
|
Exercisable
|
Unexercisable
|
|
Price
|
Expiration
|
|
Vested
|
|
Vested
|
Name
|
(#)
|
(#)
|
|
($)
|
Date
|
|
(#)
|
|
($)
(1)
|
|
|
|
|
|
|
|
|
|
|
Greg
Strakosch
|
268,750
|
-
|
|
0.20
|
9/17/2009
|
|
26,625
|
(4)
|
115,020
|
|
687,500
|
-
|
|
2.16
|
11/1/2011
|
|
|
|
|
|
375,000
|
-
|
|
2.16
|
8/4/2013
|
|
|
|
|
|
250,000
|
-
|
|
5.04
|
12/17/2014
|
|
|
|
|
|
281,250
|
218,750
|
(2)
|
7.36
|
9/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don
Hawk
|
15,438
|
-
|
|
2.72
|
1/9/2014
|
|
20,625
|
(4)
|
89,100
|
|
125,000
|
-
|
|
5.04
|
12/17/2014
|
|
|
|
|
|
281,250
|
218,750
|
(2)
|
7.36
|
9/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric
Sockol
|
20,000
|
-
|
|
1.80
|
12/12/2010
|
|
26,250
|
(4)
|
113,400
|
|
20,000
|
-
|
|
2.16
|
1/18/2012
|
|
|
|
|
|
12,500
|
-
|
|
2.72
|
1/9/2014
|
|
|
|
|
|
25,000
|
-
|
|
5.04
|
12/17/2014
|
|
|
|
|
|
140,625
|
109,375
|
(2)
|
7.36
|
9/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin
Beam
|
101,058
|
-
|
|
2.36
|
3/15/2010
|
|
39,375
|
(4)
|
170,100
|
|
25,000
|
-
|
|
2.16
|
1/18/2012
|
|
|
|
|
|
50,000
|
-
|
|
2.16
|
7/30/2013
|
|
|
|
|
|
12,500
|
-
|
|
2.72
|
1/9/2014
|
|
|
|
|
|
62,500
|
-
|
|
5.04
|
12/17/2014
|
|
|
|
|
|
210,937
|
164,063
|
(2)
|
7.36
|
9/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick
Olin
|
25,000
|
25,000
|
(3)
|
7.80
|
10/30/2016
|
|
9,375
|
(4)
|
40,500
|
(1)
|
The
value of the restricted stock units is based on $4.32, which was the
closing price of the Company’s stock on December 31,
2008.
|
(2)
|
25%
of the shares in this grant vested on September 27, 2007 and the remaining
shares vest 6.25% every ninety-one days thereafter over the following
three years.
|
(3)
|
25%
of the shares in this grant vested on October 30, 2007 and the remaining
shares vest 6.25% every ninety-one days thereafter over the following
three years.
|
(4)
|
25%
of the shares in this grant vested on December 18, 2008 and the
remaining shares vest 25% each of the following three years on December 18
of 2009, 2010 and 2011,
respectively.
|
Option Exercises and Stock Vested
During 2008
The following table sets forth the
aggregate number of shares for which options were exercised, and the aggregate
number of shares that vested, during 2008 by our named executive
officers.
|
Option
Awards
|
Stock
Awards
|
|
Number
of
|
|
|
Number
of
|
|
|
Shares
|
Value
|
|
Shares
|
Value
|
|
Acquired
on
|
Realized
on
|
|
Acquired
on
|
Realized
on
|
|
Exercise
|
Exercise
|
|
Vesting
|
Vesting
|
Name
|
(#)
|
($)
|
|
(#)
|
($)
|
|
|
|
|
|
|
Greg
Strakosch
|
-
|
-
|
|
-
|
-
|
Don
Hawk
|
-
|
-
|
|
-
|
-
|
Eric
Sockol
|
48,720
|
585,706
|
|
-
|
-
|
Kevin
Beam
|
58,505
|
697,266
|
|
-
|
-
|
Rick
Olin
|
-
|
-
|
|
-
|
-
|
Messrs.
Strakosch, Hawk, Sockol, Beam and Olin deferred receipt of RSU’s vesting on
December 18, 2008 of 8,875, 6,875, 8,750, 13,125 and 3,125 shares,
respectively.
Employment
Agreements and Potential Payments Upon Termination or
Change-in-Control
We have
entered into employment agreements that may require us to make certain payments
and/or provide certain benefits to our named executive officers in the event of
a termination of employment or change in control. The following narrative and
tabular disclosure summarizes the potential payments to each named executive
officer assuming that one of the events described below occurs. The table
assumes that the event occurred on December 31, 2008, the last day of the fiscal
year.
The
employment agreement of each named executive officer entitles him to severance
benefits if we terminate his employment without "cause", if the executive
officer terminates his employment for "good reason" or if his termination occurs
due to his death or disability. For purposes of the employment agreements,
"cause" means: (i) any act of fraud or gross misconduct; (ii) commission of a
(x) felony or (y) misdemeanor involving moral turpitude, deceit, dishonesty or
fraud; (iii) gross negligence or willful misconduct; and "good reason" means:
(i) a material reduction of the executive's salary and/or target bonus other
than a reduction that is similar to the reduction made to the salary and/or
target bonus of all other senior executives; (ii) a change in the executive's
responsibilities and/or duties which constitutes a demotion; (iii) relocation of
the offices at which the executive is principally employed to a location more
than 50 miles from such offices, (iv) our failure to pay amounts due under the
employment agreement; or (v) failure of any successor in interest to the
business to assume our obligations under the employment agreement. In addition,
Mr. Sockol's employment agreement includes in the definition of "good reason," a
change of our chief executive officer.
In the
event of a termination by us without cause, by the executive officer for good
reason or as a result of the executive officer’s death or disability, the
executive is entitled to a payment, in the case of Mr. Strakosch, equal to his
annual salary, in the case of Messrs. Hawk, Beam and Sockol, equal to nine
months of their respective annual salary, and, in the case of Mr. Olin, six
months of his annual salary. Additionally, in such event, each executive is
entitled to (a) a payment of a portion of their annual targeted bonus equal to
the greater of (i) 50% of such targeted amount and (ii) a pro rated portion
thereof based on the applicable period in the then-current fiscal year that has
passed; (b) payment by us of all health and welfare benefits pursuant to the
same financial arrangement as was in place prior to the termination for a period
equal to, in the case of Mr. Strakosch, one year, in the case of Messrs. Hawk,
Beam and Sockol, nine months, and, in the case of Mr. Olin, six months; and (c)
acceleration of unvested option shares and RSU grants in an amount equal to an
additional ten percent for each year of service with us (except, in the case of
Mr. Olin, equal to the greater of (1) 50% of the then-unvested number of his
option shares and RSU grants and (2) an additional ten percent for each year of
his service to TechTarget). Additionally, a failure of TechTarget to renew the
employment agreement (unless as a result of "cause") is deemed to be a
termination without cause, entitling the executive to his severance
benefits.
In the
event that the executive is terminated for cause or terminates his employment
other than for good reason, the executive is not entitled to any of the
foregoing severance benefits.
In the
event of a change in control of us, all unvested options to purchase shares of
our common stock and all unvested RSU grants become fully-exercisable by each
named executive officer. Under the terms of the amended and restated employment
agreements "change in control" is defined as: (i) a merger or consolidation of
us with or into any other corporation or other business entity (except one in
which the holders of our capital stock immediately prior to such merger or
consolidation continue to hold at least a majority of the outstanding securities
having the right to vote in an election of our board of directors, which we
refer to as voting stock, of the surviving corporation); (ii) a sale, lease,
exchange or other transfer (in one transaction or a related series of
transactions) of all or substantially all of our assets; (iii) the acquisition
by any person or any group of persons (other than us, any of our direct or
indirect subsidiaries, or any trustee, fiduciary or other person or entity
holding securities under any employee benefit plan or trust of us or any of our
direct or indirect subsidiaries) acting together in any transaction or related
series of transactions, of such number of shares of the voting stock as causes
such person, or group of persons, to own beneficially, directly or indirectly,
as of the time immediately after such transaction or series of transactions,
more than 50% of the combined voting power of the voting stock other than as a
result of an acquisition of securities directly from us, or solely as a result
of an acquisition of securities by us, which by reducing the number of shares of
the voting stock outstanding increases the proportionate voting power
represented by the voting stock owned by any such person to more than 50% of the
combined voting power of such voting stock; (iv) a change in the composition of
our board of directors following a tender offer or proxy contest, as a result of
which persons who, immediately prior to such tender offer or proxy contest,
constituted our board of directors shall cease to constitute at least a majority
of the members of our board of directors; and (v) any liquidation,
reorganization in bankruptcy, dissolution or winding up of us (whether voluntary
or involuntary).
Payments
upon a Triggering Event
The
following table sets forth information regarding the amounts payable by us under
employment agreements to the named executive officers in the event that the
named executive officer is terminated by us without cause, the named executive
officer terminates his employment for good reason, or as a result of the
executive officer’s death or disability; and in any such event, assuming such
termination occurred on December 31, 2008.
|
|
|
Equity
|
Healthcare
|
|
|
Salary
|
Bonus
|
Payments
|
Benefits
|
Total
|
Name
|
($)
(1)
|
($)
|
($)
(2)
|
($)
|
($)
|
|
|
|
|
|
|
Greg
Strakosch
|
440,000
|
270,000
|
103,518
|
14,916
|
828,434
|
Don
Hawk
|
262,500
|
225,000
|
80,190
|
11,187
|
578,877
|
Eric
Sockol
|
206,250
|
75,000
|
102,060
|
11,187
|
394,497
|
Kevin
Beam
|
262,500
|
175,000
|
136,080
|
11,187
|
584,767
|
Rick
Olin
|
100,000
|
50,000
|
20,250
|
7,458
|
177,708
|
_________________________________
(1)
|
In
the case of Mr. Strakosch, the amount is equal to his annual
salary. In the case of Messrs. Hawk, Sockol and Beam, the amount is
equal to nine months of their respective annual salary, and, in the case
of Mr. Olin, the amount is equal to six months of his annual
salary.
|
(2)
|
Represents
the number of shares of our common stock under option and RSU grants that
would vest multiplied by the fair market value of common stock as of
December 31, 2008 and, in the case of options, minus the related exercise
price.
|
Upon a
change in control only, Messrs. Strakosch, Hawk, Sockol, Beam and Olin would be
entitled to the acceleration of all unvested stock options and all unvested RSU
grants with aggregate estimated values equal to $115,020, $89,100, $113,400,
$170,100 and $40,500 respectively.
Equity
Compensation Plans
1999 Stock Option
Plan.
Our 1999 Stock Option Plan, as amended, was adopted by
our board of directors and approved by our stockholders in September of 1999 and
most recently amended on September 27, 2006. Our 1999 Stock Option Plan is
administered by our compensation committee, which has full authority and
discretion to interpret and apply the provisions of the 1999 Stock Option Plan.
The 1999 Stock Option Plan provides for the grant of incentive stock options,
non-qualified stock options, restricted stock and other stock based awards. Our
employees, officers, directors, consultants and advisors are eligible to receive
awards under the 1999 Stock Option Plan.
As of
December 31, 2008, there were outstanding options under our 1999 Stock Option
Plan to purchase a total of 5,942,977 shares of our common stock. In connection
with the adoption of our 2007 Stock Option Plan, our board of directors
determined not to make any further grants under the 1999 Stock Option
Plan.
2007 Stock Option and Incentive
Plan.
Our 2007 Stock Option Plan, upon
recommendation by our compensation committee, was adopted by our board of
directors and approved by our stockholders in April 2007 and became effective on
May 15, 2007. Our 2007 Stock Option Plan permits us to make grants of incentive
stock options, non-qualified stock options, stock appreciation rights, deferred
stock awards, restricted stock awards and other awards. We initially reserved
2,911,667 shares of our common stock plus any shares of our common stock that
are represented by awards granted under our 1999 Stock Option Plan that expire,
are cancelled or are terminated for issuance of awards under our 2007 Stock
Option Plan. Our 2007 Stock Option Plan provides that the number of shares
reserved and available for issuance under the plan will automatically increase
each year, beginning on January 1, 2008, by the lesser of (a) 2% of the
outstanding number of shares of common stock on the immediately preceding
December 31 and (b) such lower number of shares as may be determined by our
compensation committee. Generally, shares that are forfeited or canceled from
awards under our 2007 Stock Option Plan also will be available for future
awards. In addition, stock options returned to our 1999 Stock Option Plan, as of
result of their expiration, cancellation or termination, are automatically made
available for issuance under our 2007 Stock Option Plan. In December 2008, the
compensation committee allowed for the automatic two percent increase of the
number of shares reserved and available for issuance under our 2007 Stock Option
Plan. As a result of this allowance and the forfeiture and termination of awards
under our 1999 Stock Option Plan and our 2007 Stock Option Plan, as of June 30,
2009, there were 917,726 shares reserved and available for issuance under our
2007 Stock Option Plan.
Our 2007
Stock Option Plan is administered by our compensation committee. Our
compensation committee has full power and authority to select the participants
to whom awards will be granted, to make any combination of awards to
participants, to accelerate the exercisability or vesting of any award and to
determine the specific terms and conditions of each award, subject to the
provisions of the 2007 Stock Option Plan. All full-time and part-time officers,
employees, directors and other key persons (including consultants and
prospective employees) are eligible to participate in our 2007 Stock Option
Plan.
The
exercise price of stock options awarded under our 2007 Stock Option Plan may not
be less than the fair market value of the common stock on the date of the option
grant. Our compensation committee will determine at what time or times each
option may be exercised (provided that in no event may it exceed ten years from
the date of grant) and, subject to the provisions of our 2007 Stock Option Plan,
the period of time, if any, after retirement, death, disability or other
termination of employment during which options may be exercised.
Stock
appreciation rights may be granted under our 2007 Stock Option Plan. Stock
appreciation rights allow the recipient to receive the appreciation in the fair
market value of our common stock between the exercise date and the date of
grant. The compensation committee determines the terms of stock appreciation
rights, including when such rights become exercisable and whether to pay the
increased appreciation in cash or with shares of our common stock, or a
combination thereof.
Restricted
stock and deferred stock awards may also be granted under our 2007 Stock Option
Plan. Restricted stock awards are shares of our common stock that vest in
accordance with terms and conditions established by our compensation committee.
The compensation committee may impose whatever conditions to vesting it
determines to be appropriate. Shares of restricted stock that do not vest are
subject to our right of repurchase or forfeiture. Deferred stock awards are
units entitling the recipient to receive shares of stock paid out on a deferred
basis, and subject to such restrictions and conditions, as the compensation
committee shall determine. Our compensation committee will determine the number
of shares of restricted stock or deferred stock awards granted to any employee.
Our 2007 Stock Option Plan also gives the compensation committee discretion to
grant stock awards free of any restrictions.
Our
compensation committee also may grant awards under our 2007 Stock Option Plan
that are intended to be "qualified performance-based" compensation under Section
162(m) of the Internal Revenue Code. Dividend equivalent rights may also be
granted under our 2007 Stock Option Plan. Dividend equivalent rights are awards
entitling the grantee to current or deferred payments equal to dividends on a
specified number of shares of stock. Dividend equivalent rights may be settled
in cash or shares and are subject to other conditions as the committee shall
determine. Unless our compensation committee provides otherwise, our
2007 Stock Option Plan does not generally allow for the transfer of awards and
only the recipient of an award may exercise an award during his or her
lifetime.
No awards
may be granted under the 2007 Stock Option Plan after the tenth anniversary of
the effective date of the 2007 Stock Option Plan and, in the case of incentive
stock options, after April 20, 2017. In addition, our board of directors may
amend or discontinue the 2007 Stock Option Plan at any time and our compensation
committee may amend or cancel any outstanding award for the purpose of
satisfying changes in law or for any other lawful purpose. No such amendment may
adversely affect the rights under any outstanding award without the holder's
consent. Other than in the event of a necessary adjustment in connection with a
change in our stock or a merger or similar transaction, our compensation
committee may not "reprice" or otherwise reduce the exercise price of
outstanding stock options.
As of
December 31, 2008, under our 2007 Stock Option Plan, there were 7,765,578
outstanding options to purchase shares of our common stock and 596,456
outstanding restricted stock unit grants. Additionally, in lieu of the cash
board of directors’ fees that were due and owing to our non-employee directors
for 2008 under our board compensation program, we issued a total of 38,668
shares of our common stock under our 2007 Stock Option Plan.
Compensation
of Directors
Directors
who are also employees will continue to receive no compensation for their
service as a director. However, since January 1, 2007, all non-employee
directors:
|
·
|
have
been paid a base annual retainer of
$20,000;
|
|
·
|
have
been paid a fee of $1,500 for attendance at each board meeting and were
reimbursed for any actual out-of-pocket expenses incurred in attending any
such meeting;
|
|
·
|
have
been paid a fee of $1,000 for attendance at each committee meeting and
were reimbursed for actual out-of-pocket expenses incurred in attending
any such meeting; and
|
|
·
|
received
an annual grant of options to purchase, at the fair market value at the
time of issuance, 2500 shares of our common stock, which options will be
immediately exercisable.
|
In
addition, each non-employee director is paid, on an annual basis, the following
amounts for service as follows: each member of the audit committee: $5,000; each
member of the compensation committee: $2,500; and each member of the nominating
and corporate governance committee: $2,500. In addition, each committee
chairperson will receive the following additional annual cash payments:
chairperson of the audit committee: $10,000; chairperson of the compensation
committee: $5,000; and chairperson of the nominating and corporate governance
committee: $5,000.
In lieu
of receiving cash payments for their service on our board of directors or our
board committees, in 2008 all cash fees were paid in equity under our 2007 Stock
Option and Incentive Plan.
In the
event that we add additional non-employee directors to our board, we will
determine the amount of equity compensation, if any, based on the available
benchmarking data for directors of comparable companies as well as other
relevant factors, such as that person's experience in our industry, unique
skills and knowledge, and the extent to which we expect that person will serve
on and/or chair any committees. In consideration of Mr. Forman's agreement to
join our board in late 2006, and to serve as chairman of our audit committee, we
agreed to grant to Mr. Forman an option to purchase 75,000 shares of our common
stock. The option vested and became exercisable over a two-year period. The
exercise price for the shares underlying Mr. Forman's stock is equal to $13.00
per share. Any future grants to Mr. Forman will be provided in accordance with
our then applicable director compensation guidelines. In determining the amount
of Mr. Forman's initial grant, our board reviewed the individual factors
detailed above and, in this case, Mr. Forman's business and financial experience
in highly-relevant industry sectors, and the fact that he will be serving as
chairman of our audit committee.
2008
Director Compensation
The
following table details the compensation earned during 2008 by our non-employee
directors.
|
Stock
|
Option
|
|
|
Awards
|
Awards
|
Total
|
Name
|
($)
(1)
|
($)
(2)
|
($)
|
|
|
|
|
Leonard
P. Foreman
|
62,503
|
7,998
|
70,501
|
Jay
C. Hoag
|
41,005
|
7,998
|
49,003
|
Bruce
Levenson
|
36,998
|
7,998
|
44,997
|
Roger
M. Marino
|
43,498
|
7,998
|
51,496
|
Alan
G. Spoon
|
11,995
|
-
|
11,995
|
(1)
|
The
amounts in the “Stock Awards” column reflect the dollar amounts recognized
as compensation expense for financial statement reporting purposes for
each director during 2008, as required by SFAS No.
123(R).
|
(2)
|
The
amounts in the “Options Awards” column reflect the dollar amounts
recognized as compensation expense for financial statement reporting
purposes for each director during 2008, as required by SFAS No. 123(R),
disregarding any estimates of forfeitures relating to service-based
vesting conditions. For the assumptions relating to these valuations, see
Note 12 to our 2008 audited financial
statements.
|
Compensation
Committee Report
The
compensation committee has reviewed and discussed the section of Annual Report
entitled “Compensation Discussion and Analysis” with management. Based on this
review and discussion, the compensation committee has recommended to the board
of directors that such section be included in this annual report on Form 10-K/A
for the fiscal year ended December 31, 2008.
Compensation
Committee Interlocks and Insider Participation
As
indicated above, the Compensation Committee consists of Messrs. Hoag,
Forman and Marino. None of our executive officers serves as a member of the
board of directors or compensation committee, or other committee serving an
equivalent function, of any other entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee. None of the current members of our compensation committee has ever
been one of our employees.
Item
12.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
Securities Authorized for Issuance
Under Equity Compensation Plans
The
following table provides information about the securities authorized for
issuance under our equity compensation plans as of June 30, 2009.
|
|
|
(c)
|
|
|
|
|
Number
of Securities
|
|
|
(a)
|
|
Remaining
Available
|
|
|
Number
of Securities
|
(b)
|
for
Future Issuance
|
|
|
to
be Issued
|
Weighted-Average
|
Under
Equity
|
|
|
Upon
Exercise of
|
Exercise
Price of
|
Compensation
Plans
|
|
|
Outstanding
|
Outstanding
|
(Excluding
|
|
|
Options,
Warrants
|
Options,
Warrants
|
Securities
Reflected
|
|
Plan
Category
|
and
Rights
|
and
Rights
|
in
Column (a))
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
(1)
|
8,363,303
|
5.85
|
1,719,503
|
(2)
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
|
|
|
|
|
Total
|
8,363,303
|
5.85
|
1,719,503
|
|
(1)
|
Our
2007 Stock Option and Incentive Plan provides that the number of shares
reserved and available for issuance under the plan will automatically
increase each year, beginning on January 1, 2008, by the lesser of (a) 2%
of the outstanding number of shares of our common stock on the immediately
preceding December 31 and (b) such lower number of shares as may be
determined by our compensation
committee.
|
(2)
|
The
number of securities remaining for future issuance consists of 1,719,503
shares issuable under our 2007 Stock Option and Incentive Plan, which was
approved by our shareholders.
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of March 31, 2009 (or such other date as indicated)
for:
|
·
|
each
person, entity or group whom we know to beneficially own more than 5% of
our outstanding common stock;
|
|
·
|
each
of our named executive officers, directors and our director-nominees;
and
|
|
·
|
all
of our executive officers, directors and our director-nominees as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Except as indicated by footnote, to our knowledge, the persons and
entities named in the table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them, subject to
applicable community property laws. Securities that may be beneficially acquired
within 60 days of June 30, 2009, including shares subject to options exercisable
within 60 days of June 30, 2009, and shares subject to restricted stock units
scheduled to be delivered within 60 days of June 30, 2009, are deemed to be
beneficially owned by the person or entity holding such securities for the
purpose of computing ownership of such person or entity, but are not treated as
outstanding for the purpose of computing the ownership of any other person or
entity. Applicable percentage of beneficial ownership is based on 41,745,193
shares of common stock outstanding as of June 30, 2009.
|
|
Right
to
|
Total
Number
|
%
of
|
|
Outstanding
|
Acquire
|
Beneficially
|
Common
Stock
|
Name
and Address of Beneficial Owner (1)
|
Shares
|
Within
60 Days
|
Owned
|
Outstanding
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
TCV
V, L.P. and its related entities (2)
|
12,381,914
|
-
|
12,381,914
|
29.66%
|
Polaris
Venture Partners (3)
|
9,153,335
|
-
|
9,153,335
|
21.93%
|
Non-Employee
Directors
|
|
|
|
|
Leonard
P. Foreman
|
18,863
|
80,000
|
98,863
|
0.24%
|
Jay
C. Hoag (4)
|
12,394,788
|
5,000
|
12,399,788
|
29.70%
|
Bruce
Levenson (5)
|
1,241,170
|
5,000
|
1,246,170
|
2.98%
|
Roger
M. Marino (6)
|
4,049,584
|
5,000
|
4,054,584
|
9.71%
|
Named
Executive Officers
|
|
|
|
|
Greg
Strakosch
|
-
|
1,933,875
|
1,933,875
|
4.43%
|
Don
Hawk
|
207,264
|
484,188
|
691,452
|
1.64%
|
Eric
Sockol
|
58,343
|
258,125
|
316,468
|
0.75%
|
Kevin
Beam
|
-
|
508,870
|
508,870
|
1.20%
|
Rick
Olin
|
-
|
34,375
|
34,375
|
0.08%
|
All
directors and officers as a group
|
27,123,347
|
3,314,433
|
30,437,780
|
67.55%
|
(1)
|
Except
as otherwise indicated, addresses are c/o TechTarget, Inc., 117 Kendrick
Street, Suite 800, Needham,
Massachusetts 02494.
|
(2)
|
Consists
of 12,150,808 shares held by TCV V, L.P. and 231,106 shares held by
TCV Member Fund L.P. (collectively, the "TCV Funds"). The sole general
partner of TCV V, L.P. and a general partner of TCV Member Fund, L.P. is
Technology Crossover Management V, L.L.C. ("TCM V"). The investment
activities of TCM V are managed by Jay C. Hoag, a director of the company,
Richard H. Kimball, John L. Drew, Jon Q. Reynolds, Jr., and William J.G.
Griffith IV (collectively, the "TCM Members") who share voting and
dispositive power with respect to the shares beneficially owned by the TCV
Funds. TCM V and the TCM Members disclaim beneficial ownership of such
shares except to the extent of their individual pecuniary interest
therein. The address of TCM V, the TCV Funds and the TCM Members is 528
Ramona Street, Palo Alto,
California 94301.
|
(3)
|
Consists
of 5,840,039 shares held by Polaris Venture Partners III, L.P., 151,636
shares held by Polaris Venture Partners Entrepreneurs' Fund III, L.P.,
92,335 shares held by Polaris Venture Partners Founders' Fund III, L.P.,
3,014,764 shares held by Polaris Venture Partners IV, L.P. and 54,561
shares held by Polaris Venture Partners Entrepreneurs' Fund IV, L.P. The
general partner for each of Polaris Venture Partners III, L.P., a Delaware
limited partnership ("PVP III"), Polaris Venture Partners Entrepreneurs'
Fund III, L.P., a Delaware limited partnership ("Entrepreneurs' III"), and
Polaris Venture Partners Founders' Fund III, L.P., a Delaware limited
partnership ("Founders' III"), is Polaris Venture Management Co. III,
L.L.C., a Delaware limited liability company ("Polaris III"). Jonathan A.
Flint ("Flint"), Terrance G. McGuire ("McGuire") and Alan G. Spoon
("Spoon") are the managing members of Polaris III. Polaris III, the
general partner of each of PVP III, Entrepreneurs' III and Founders' III,
may be deemed to have sole power to vote and sole power to dispose of
shares of the issuer directly owned by PVP III, Entrepreneurs' III and
Founders' III. Flint, McGuire and Spoon are the managing members of
Polaris III and may be deemed to have shared power to vote and shared
power to dispose of shares of the issuer directly owned by PVP III,
Entrepreneurs' III and Founders' III. The general partner for
each of Polaris Venture Partners IV, L.P., a Delaware limited partnership
("PVP IV"), and Polaris Venture Partners Entrepreneurs' Fund IV, L.P., a
Delaware limited partnership ("Entrepreneurs' III"), is Polaris Venture
Management Co. IV, L.L.C., a Delaware limited liability company ("Polaris
IV"). Flint, McGuire and Spoon are the managing members of Polaris IV.
Polaris IV, the general partner of each of PVP IV and Entrepreneurs' IV,
may be deemed to have sole power to vote and sole power to dispose of
shares of the issuer directly owned by PVP IV and Entrepreneurs' IV.
Flint, McGuire and Spoon are the managing members of Polaris IV and may be
deemed to have shared power to vote and shared power to dispose of shares
of the issuer directly owned by PVP IV and Entrepreneurs' IV. The address
of PV III Funds, PV III, PV IV Funds and PVM IV is 1000 Winter Street,
Waltham, Massachusetts 02451.
|
(4)
|
Consists
of 1,500 shares of Common Stock and options to purchase 5,000 shares of
Common Stock held directly by Mr. Hoag. Mr. Hoag has the sole power to
dispose and direct the disposition of such shares and options and any
shares issuable upon the exercise of the options, and the sole power to
direct the vote of the shares currently held and of any shares to be
received upon exercise of the options. However, Mr. Hoag has
transferred to TCV Management 2004, L.L.C. (“TCM 2004”) 100% of the
pecuniary interest in such shares and options and any shares to be issued
upon exercise of such options. Also includes 11,374 shares of
Common Stock held by TCM 2004. Mr. Hoag is a member of TCM
2004, but disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein. Also includes shares
of Common Stock owned by TCV V, L.P. and TCV Member Fund,
L.P. (collectively the “TCV Funds”). Please see note (2) above
for a discussion of the ownership of the TCV Funds. Mr. Hoag
disclaims beneficial ownership of the shares held by the TCV Funds except
to the extent of his pecuniary interest
therein
.
|
(5)
|
Consists
of 11,700 shares held by Mr. Levenson individually and 1,229,470 shares
held by the Bruce Levenson 2008 Grantor Retained Annuity Trust (“Levenson
Trust”). Mr. Levenson retains sole voting and dispositive power
over the shares beneficially owned by the Levenson
Trust.
|
(6)
|
Consists
of 3,112,620 shares held by Mr. Marino individually, 462,021 shares held
by GRAM Limited Partnership and 474,943 shares held by ROGRAM,
L.L.C..
|
Item
13.
Certain Relationships and Related Transactions,
and Director Independence
Director
Compensation
Please
see “Director Compensation” for a discussion of options granted and other
compensation to our non-employee directors.
Executive
Compensation
Please
see “Executive Compensation” for additional information on compensation of our
executive officers. Information regarding (1) employment agreements with our
five (5) executive officers, each of which contain severance and change of
control provisions, is set forth under “Executive Compensation —Potential
Payments Upon Termination or Change-in-Control.”
Policies
and Procedures for Related Person Transactions
Our board
of directors has adopted written policies and procedures for the review of any
transaction, arrangement or relationship in which we are a participant, the
amount involved exceeds $120,000, and one of our executive officers, directors,
director nominees or 5% stockholders (or their immediate family members), each
of whom we refer to as a “related person,” has a direct or indirect material
interest.
If a
related person proposes to enter into such a transaction, arrangement or
relationship, which we refer to as a “related person transaction,” the related
person must report the proposed related person transaction to our general
counsel. The policy calls for the proposed related person transaction to be
reviewed and, if deemed appropriate, approved by our audit committee. Whenever
practicable, the reporting, review and approval will occur prior to entry into
the transaction. If advance review and approval is not practicable, the audit
committee will review, and, in its discretion, may ratify the related person
transaction. The policy also permits the chairman of the audit committee to
review and, if deemed appropriate, approve proposed related person transactions
that arise between audit committee meetings, subject to ratification by the
audit committee at its next meeting. Any related person transactions that are
ongoing in nature will be reviewed annually.
A related
person transaction reviewed under the policy will be considered approved or
ratified if it is authorized by the audit committee after full disclosure of the
related person’s interest in the transaction. As appropriate for the
circumstances, the audit committee will review and consider:
|
·
|
the
related person’s interest in the related person
transaction;
|
|
·
|
the
approximate dollar value of the amount involved in the related person
transaction;
|
|
·
|
the
approximate dollar value of the amount of the related person’s interest in
the transaction without regard to the amount of any profit or
loss;
|
|
·
|
whether
the transaction was undertaken in the ordinary course of our
business;
|
|
·
|
whether
the terms of the transaction are no less favorable to us than terms that
could have been reached with an unrelated third
party;
|
|
·
|
the
purpose of, and the potential benefits to us of, the transaction;
and
|
|
·
|
any
other information regarding the related person transaction or the related
person in the context of the proposed transaction that would be material
to investors in light of the circumstances of the particular
transaction.
|
The audit
committee may approve or ratify the transaction only if the audit committee
determines that, under all of the circumstances, the transaction is in, or not
inconsistent with, our best interests. The audit committee may impose any
conditions on the related person transaction that it deems
appropriate.
In
addition to the transactions that are excluded by the instructions to the SEC’s
related person transaction disclosure rule, our board of directors has
determined that the following transactions do not create a material direct or
indirect interest on behalf of related persons and, therefore, are not related
person transactions for purposes of this policy:
|
·
|
interests
arising solely from the related person’s position as an executive officer
of another entity (whether or not the person is also a director of that
entity), that is a participant in the transaction, where (a) the related
person and all other related persons own in the aggregate less than a 10%
equity interest in the entity, (b) the related person and his or her
immediate family members are not involved in the negotiation of the terms
of the transaction and do not receive any special benefits as a result of
the transaction and (c) the amount involved in the transaction equals less
than the greater of $200,000 or 5% of the annual gross revenues of the
company receiving payment under the transaction,
and
|
|
·
|
a
transaction that is specifically contemplated by provisions of our charter
or bylaws.
|
The
policy provides that transactions involving compensation of executive officers
shall be reviewed and approved by the compensation committee in the manner
specified in its charter.
CORPORATE
GOVERNANCE
Our board
of directors believes that good corporate governance is important to ensure that
we are managed for the long-term benefit of our stockholders. This
section describes the key corporate governance guidelines and practices that we
have adopted. The charters governing the audit committee, the
compensation committee, and the nominating and corporate governance committee,
the code of business conduct and ethics, as well as our corporate governance
guidelines, are posted on the corporate governance page of our website at
www.techtarget.com
. You may
also obtain a copy of any of these documents without charge by writing to
TechTarget, Inc., 117 Kendrick Street, Suite 800, Needham, MA 02494, attention:
corporate secretary.
Corporate
Governance Guidelines
Our board
of directors has adopted corporate governance guidelines to assist in the
exercise of its duties and responsibilities and to serve our best interests and
those of our stockholders. These guidelines, which provide a
framework for the conduct of our board of directors’ business, provide
that:
|
·
|
Our
business and affairs are managed by or under the direction of our board of
directors, acting on behalf of the stockholders. Our board of directors
has delegated to our officers the authority and responsibility for
managing the Company’s everyday affairs. Our board of directors has an
oversight role and is not expected to perform or duplicate the tasks of
our chief executive officer or senior
management;
|
|
·
|
a
majority of the members of our board of directors shall meet the
independence standards of the Marketplace Rules of the National
Association of Securities Dealers, Inc. (“NASD”);
and
|
|
·
|
the
independent members of our board of directors regularly meet in executive
session.
|
Board
Meetings and Attendance
Our board
of directors held 5 meetings in 2008. During 2008, each director
attended at least 75% of the aggregate of the total number of meetings of our
board of directors and the total number of meetings held by each committee of
our board of directors on which such director served during the period for which
such director served
except
for Mr. Levenson, who attended an aggregate of 71% of our Board and Committee
meetings
.
Board Determination of
Independence
.
Under
applicable NASDAQ rules, a director will only qualify as an “independent
director” if, in the opinion of our board of directors, that person does not
have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. Our board of
directors has determined that none of Messrs. Forman, Hoag, Levenson, or Marino,
who comprise our audit, compensation and nominating and corporate governance
committees, has a relationship that would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director and that
each of these directors is “independent” as that term is defined under Rule
4200(a)(15) of the NASDAQ Marketplace Rules.
Director
Attendance at Annual Meeting of Stockholders
Our
corporate governance guidelines provide that directors are encouraged to attend
the Annual Meeting. Due to the fact that we became a public company
in May of 2007, we did not hold an annual meeting of stockholders in 2007. In
2009, in light of the delay caused by the Company’s review of its business
processes pertaining to its online service revenue offerings and the related
application of accounting policies and procedures to these business processes,
we did not schedule an annual meeting of stockholders. Beginning in
2010, the Company’s policy is to schedule a regular meeting of the Board on the
same date as the Company’s annual meeting of stockholders and, accordingly,
directors are encouraged to be present at such stockholder
meetings.
Item
14.
Principal Accounting Fees and
Services
The
following table sets forth the aggregate fees for services billed to us by Ernst
& Young LLP, our registered public accounting firm, for each of the last two
fiscal years.
Fee
Category
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Audit
fees
(1)
|
|
$
|
1,261,600
|
|
|
$
|
480,000
|
|
Audit-related
fees
|
|
|
-
|
|
|
|
-
|
|
Tax
fees
(2)
|
|
|
90,000
|
|
|
|
28,100
|
|
All
other fees
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
fees
|
|
$
|
1,351,600
|
|
|
$
|
508,100
|
|
(1)
|
Audit
fees consist of fees for the audit of our financial statements, the review
of the interim financial statements included in our quarterly reports on
Form 10-Q, and other professional services provided in connection with
statutory and regulatory filings or
engagements.
|
(2)
|
Tax
fees consist of fees for tax compliance and tax planning
services.
|
Pre-Approval
Policies and Procedures
Our audit
committee has adopted policies and procedures relating to the approval of all
audit and non-audit services that are to be performed by our independent
registered public accounting firm. This policy generally provides that we will
not engage our independent registered public accounting firm to render audit or
non-audit services unless the service is specifically approved in advance by the
audit committee or the engagement is entered into pursuant to one of the
pre-approval procedures described below.
From time
to time, our audit committee may pre-approve specified types of services that
are expected to be provided to us by our registered public accounting firm
during the next 12 months. Any such pre-approval is detailed as to the
particular service or type of services to be provided and is also generally
subject to a maximum dollar amount.
Our audit
committee has also delegated to the chairman of the audit committee the
authority to approve any audit or non-audit services (other than internal
control-related services, which must be pre-approved by the full Committee) to
be provided to us by our independent registered public accounting firm, as well
as to discuss with the independent auditor the matters required to be discussed
by SAS 100. Any approval of services by the chairman of the audit committee
pursuant to this delegated authority must be reported on at the next scheduled
meeting of the audit committee.
PART
IV
Item
15. Exhibits
, Financial Statement Schedules
|
(a)
|
Financial
Statements are filed as part of this Annual Report on Form
10-K/A.
|
|
(b)
|
The
following consolidated financial statements are included in Item
8:
|
|
·
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
(restated)
|
|
·
|
Consolidated
Statements of Operations for the Years Ended December 31, 2008, 2007
(rested) and 2006 (restated)
|
|
·
|
Consolidated
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit) for the Years Ended December 31, 2008, 2007 (restated)
and 2006 (restated)
|
|
·
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007
(restated) and 2006 (restated)
|
|
·
|
Notes
to Consolidated Financial
Statements
|
|
(d)
|
The
exhibits listed in the Exhibit Index immediately preceding the exhibits
are filed as part of this Annual Report on Form
10-K/A.
|
SIGN
ATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
TECHTARGET,
INC.
|
|
Date:
July 20, 2009
|
|
|
|
|
By:
|
/s/ Greg Strakosch
|
|
|
Greg
Strakosch
|
|
|
Chief
Executive Officer and Director
|
EXHIBIT
INDEX
|
|
|
|
|
|
Incorporated
by Reference to
|
Exhibit
Number
|
|
Description
|
|
Form or
Schedule
|
|
Exhibit
No.
|
|
Filing
Date
with
SEC
|
|
SEC
File
Number
|
|
|
Articles
of Incorporation and By-Laws
|
|
|
|
|
|
|
|
|
3.1
|
|
Fourth
Amended and Restated Certificate of Incorporation of the
Registrant
|
|
10-Q
|
|
3.1
|
|
11/13/2007
|
|
001-33472
|
3.2
|
|
Amended
and Restated Bylaws of the Registrant
|
|
S-1/A
|
|
3.3
|
|
03/20/2007
|
|
333-140503
|
|
|
Instruments
Defining the Rights of Security Holders
|
|
|
|
|
|
|
|
|
4.1
|
|
Specimen
Stock Certificate for shares of the Registrant's Common
Stock
|
|
S-1/A
|
|
4.1
|
|
04/10/2007
|
|
333-140503
|
|
|
Material
Contracts
|
|
|
|
|
|
|
|
|
10.1
|
|
Second
Amended and Restated Investors' Rights Agreement by and among the
Registrant, the Investors named therein and SG Cowen Securities
Corporation, dated as of December 17, 2004
|
|
S-1
|
|
10.1
|
|
02/07/2007
|
|
333-140503
|
10.2
|
|
Form
of Indemnification Agreement between the Registrant and its Directors and
Officers
|
|
S-1/A
|
|
10.2
|
|
05/15/2007
|
|
333-140503
|
10.3#
|
|
2007
Stock Option and Incentive Plan
|
|
S-1/A
|
|
10.3
|
|
04/20/2007
|
|
333-140503
|
10.4#
|
|
Form
of Incentive Stock Option Agreement under the 2007 Stock Option and
Incentive Plan
|
|
S-1/A
|
|
10.4
|
|
04/20/2007
|
|
333-140503
|
10.5#
|
|
Form
of Non-Qualified Stock Option Agreement under the 2007 Stock Option and
Incentive Plan
|
|
S-1/A
|
|
10.5
|
|
04/20/2007
|
|
333-140503
|
10.6#
|
|
Form
of Non-Qualified Stock Option Agreement for Non-Employee
Directors
|
|
S-1/A
|
|
10.5.1
|
|
04/27/2007
|
|
333-140503
|
10.7#
|
|
Form
of Restricted Stock Agreement under the 2007 Stock Option and Incentive
Plan
|
|
S-1/A
|
|
10.6
|
|
04/20/2007
|
|
333-140503
|
10.8#
|
|
Form
of Restricted Stock Unit Agreement under the 2007 Stock Option and
Incentive Plan
|
|
10-K
|
|
10.8
|
|
3/31/2008
|
|
001-33472
|
10.9#
|
|
Restricted
Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Kevin Beam
|
|
10-K
|
|
10.9
|
|
3/31/2008
|
|
001-33472
|
10.10#
|
|
Restricted
Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Don Hawk
|
|
10-K
|
|
10.10
|
|
3/31/2008
|
|
001-33472
|
10.11#
|
|
Restricted
Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Rick Olin
|
|
10-K
|
|
10.11
|
|
3/31/2008
|
|
001-33472
|
10.12#
|
|
Restricted
Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Eric Sockol
|
|
10-K
|
|
10.12
|
|
3/31/2008
|
|
001-33472
|
10.13#
|
|
Restricted
Stock Unit Agreement, dated December 18, 2007, by and between the
Registrant and Greg Strakosch
|
|
10-K
|
|
10.13
|
|
3/31/2008
|
|
001-33472
|
10.14#
|
|
Executive
Incentive Bonus Plan
|
|
S-1/A
|
|
10.7
|
|
04/20/2007
|
|
333-140503
|
10.15#
|
|
1999
Stock Option Plan
|
|
S-1
|
|
10.8
|
|
02/07/2007
|
|
333-140503
|
10.16#
|
|
Form
of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan
(for grants prior to September 27, 2006)
|
|
S-1
|
|
10.9
|
|
02/07/2007
|
|
333-140503
|
10.17#
|
|
Form
of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan
(for grants on or after September 27, 2006)
|
|
S-1
|
|
10.10
|
|
02/07/2007
|
|
333-140503
|
10.18#
|
|
Form
of Incentive Stock Option Grant Agreement under the 1999 Stock Option Plan
(for grants to executives)
|
|
S-1/A
|
|
10.10.1
|
|
05/01/2007
|
|
333-140503
|
10.19#
|
|
Form
of Nonqualified Stock Option Grant Agreement under the 1999 Stock Option
Plan
|
|
S-1
|
|
10.11
|
|
02/07/2007
|
|
333-140503
|
10.20#
|
|
Lease
Agreement between the Registrant and Wellsford/Whitehall Holdings, L.L.C.
for the premises located at 117 Kendrick Street, Needham, MA, dated as of
November 25, 2003
|
|
S-1
|
|
10.12
|
|
02/07/2007
|
|
333-140503
|
10.21#
|
|
First
Amendment to Lease Agreement between the Registrant and
Wellsford/Whitehall Holdings, L.L.C. for the premises located at 117
Kendrick Street, Needham, MA, dated July 27, 2004
|
|
S-1
|
|
10.13
|
|
02/07/2007
|
|
333-140503
|
10.22#
|
|
Second
Amendment to Lease Agreement between the Registrant and
Wellsford/Whitehall Holdings, L.L.C. for the premises located at 117
Kendrick Street, Needham, MA, dated December, 2004
|
|
S-1
|
|
10.14
|
|
02/07/2007
|
|
333-140503
|
10.23#
|
|
Third
Amendment to Lease Agreement between the Registrant and Intercontinental
Fund III for the premises located at 117 Kendrick Street, Needham,
MA, dated September 21, 2006
|
|
S-1
|
|
10.15
|
|
02/07/2007
|
|
333-140503
|
10.24#
|
|
Credit
Facility Agreement between the Registrant and Citizens Bank of
Massachusetts, dated August 30, 2006
|
|
S-1
|
|
10.16
|
|
02/07/2007
|
|
333-140503
|
10.25#
|
|
Amended
and Restated Employment Agreement, dated January 17, 2008, by and between
the Registrant and Greg Strakosch
|
|
10-K
|
|
10.25
|
|
3/31/2008
|
|
001-33472
|
10.26#
|
|
Amended
and Restated Employment Agreement, dated January 17, 2008, by and between
the Registrant and Don Hawk
|
|
10-K
|
|
10.26
|
|
3/31/2008
|
|
001-33472
|
10.27#
|
|
Amended
and Restated Employment Agreement, dated January 17, 2008, by and between
the Registrant and Eric Sockol
|
|
10-K
|
|
10.27
|
|
3/31/2008
|
|
001-33472
|
10.28#
|
|
Amended
and Restated Employment Agreement, dated January 17, 2008, by and between
the Registrant and Kevin Beam
|
|
10-K
|
|
10.28
|
|
3/31/2008
|
|
001-33472
|
10.29#
|
|
Amended
and Restated Employment Agreement, dated January 17, 2008, by and between
the Registrant and Rick Olin
|
|
10-K
|
|
10.29
|
|
3/31/2008
|
|
001-33472
|
|
|
Additional
Exhibits
|
|
|
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries
|
|
10-K
|
|
21.1
|
|
3/31/2008
|
|
001-33472
|
*23.1
|
|
Consent
of Ernst & Young LLP
|
|
|
|
|
|
|
|
|
*31.1
|
|
Certification
by Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
|
|
|
*31.2
|
|
Certification
by Chief Financial Officer Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
|
|
|
*32.1
|
|
Certification
by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
*32.2
|
|
Certification
by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
99.1
|
|
Agreement
and Plan of Merger by and among the Registrant, Catapult Acquisition Corp.
and KnowledgeStorm, Inc. dated November 1, 2007
|
|
8-K
|
|
99.1
|
|
11/07/2007
|
|
001-33472
|
|
# Management
contract or compensatory plan or arrangement filed as an Exhibit to
this report pursuant to 15(a) and 15(c) of
Form 10-K.
|
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